JALUIDANGA PASCHIM NASARATPUR SAMABAY KRISHI UNNAYAN SAMITY LIMITED,BURDHAMAN vs. ITO, WARD-1(1), BURDWAN

IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCH “C(SMC)”, KOLKATA BEFORE SHRI MANISH BORAD, ACCOUNTANT MEMBER AND SHRI SONJOY SARMA, JUDICIAL MEMBER ITA No.506/Kol/2021 Assessment Year: 2014-15 Jaluidanga Paschim ITO, Ward-1(1), Burdwan Nasaratpur Samabay Krishi Unnayan Samity Ltd. Block: Purbasthali 1, Vs. Village: Jaluidanga, Post: Samudragarh, Dist: Purba Bardhaman, 713519. PAN: AABAJ6381R (Appellant) (Respondent) Present for: Appellant by : Shri S.D. Bandyopadhyay & Shri A.N. Chatterjee, FCA Respondent by : Shri Nicholas Murmu, Addl. CIT Date of Hearing : 03.03.2022 Date of Pronouncement : 27.04.2022 O R D E R PER SONJOY SARMA, JUDICIAL MEMBER: This is appeal filed by the assessee against the order of Ld. CIT(A), National Faceless Appeal Centre dated 21.09.2021 for A.Y. 2014-15.

i. For that in the facts and in the circumstances of the case the consideration of interest income received from Axis Bank as income from other sources instead of income from business or profession by learned Income Tax Officer Ward-1(1), Burdwan (The Then Ward-2(3), Burdwan) as well as CIT(A), National Faceless Appeal Centre is wrong, erroneous, misconceived, arbitrary and completely bad in law as your appellant is doing banking activities and interest received from deposits pertaining to banking activities is profits and gains of business or profession.

2 ITA No.506/KOL/2021 Jaluidanga Paschim Nasaratpur Samabay Krishi Unnayan Samity Ltd. A.Y. 2014-15 ii. For that in the facts and in the circumstances of the case the denial of interest income received from Axis Bank by learned Income Tax Officer, Ward-1(1), Burdwan (The Then Ward-2(3), Burdwan) and learned CIT(A), National Faceless Appeal Centre as the interest income is not “attributable to one of the activities” as specified in section 80P of the Income Tax Act 1961 is not lawful consideration and their decisions completely bad in law. iii. For that in the facts and in the circumstances of the case the learned Income Tax Officer, Ward-1(1), Burdwan (The Then Ward-2(3), Burdwan) and learned CIT(A), National Faceless Appeal Centre have admitted the fact of engagement of your appellant in banking activities in spite of the banking activities consideration of interest income as income from other sources is completely bad in law and deserves to be set aside/cancelled/quashed. iv. For that in the facts and in the circumstances of the case the learned CIT(A), National Faceless Appeal Centre is erred in law in dismissing the appeal based on the decision of the Hon’ble Jurisdictional Calcutta High court in the case of South Eastern Railway Employees Co- operative Credit Society Ltd. (2016) 73 Taxmann.com 123 (Calcutta) which was followed by the Hon’ble Calcutta High Court in a recent case of Electro Urban Cooperative Society Ltd. (2020) 118 Taxmann.com 310 (Cal) considering as the above case laws are squarely applicable to your appellant which is completely bad in law because your appellant is doing banking activities and it is a primary agricultural credit society (PACS). The above case laws are not applicable to your appellant. v. For that the assessee craves leave to alter, add, amend, moderate, substitute or delete any one or more of the ground or grounds of appeal at any time before or in course of hearing.” 3. The assessee also raised the following additional grounds of appeal Which are clubbed together and the Ld. DR has not raised any objection and accordingly admitted the same as under:

i. For that in the facts and in the circumstances of the case the consideration of interest income of Rs 1 16 615 00 received from Axis Bank Kalna Branch, Kalna, Purba Bardhaman as income from other sources instead of income from business or profession by learned Assessing Officer (income Tax Officer ward-1 (3) Burdwan) is wrong, erroneous misconceived arbitrary and completely bad in Law as your appellant is doing banking activities and interest received from

3 ITA No.506/KOL/2021 Jaluidanga Paschim Nasaratpur Samabay Krishi Unnayan Samity Ltd. A.Y. 2014-15 deposits pertaining to banking activities is profits and gains of business or profession. ii. For that in the facts and in the circumstances of the case the Learned Assessing Officer (Income Tax Officer, ward-1 (3) Burdwan) considered the Interest Income of Rs 1,16.615 00 received from Axis Bank Kalna Branch Kalna. Purba Bardhaman as Income from the fund regularly deposited not immediately required for business purposes which is in the form of investment of surplus fund The contention of Learned Assessing, Officer (income Tax Officer, ward-1 (3) Burdwan) completely bad in Law. iii. For that in the facts and in the circumstances of the case the Learned Assessing Officer (Income Tax Officer ward-1 (3) Burdwan) considered the Interest income of Rs 1,16,615.00 received from Axis Bank Kalna Branch, Kalna. Purba Bardhaman as not a operational income, which is completely bad in Law. iv. For that in the facts and in the circumstances of the case the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre is erred in law in dismissing the appeal based on the decision of the Honorable Jurisdictional Calcutta High Court in the case of South Eastern Railway Employees Co-operative Credit Society Limited (2016) 73 Taxmann.com 123 (Calcutta) /which was followed by the Honorable Calcutta High Court in a recent case of Electro Urban Cooperative Society Limited (2020) 118 Taxmann.com 310(Cal), considering as the above case laws are squarely applicable to your appellant which is completely bad in law because your appellant is dong banking activities and it is a primary agricultural credit society (PACS). The above case laws are not applicable to your appellant. v. For that in the facts and in the circumstances of the case the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre is erred in Law for not considering the special provisions applicable to the Cooperative credit structure entities as provided in chapter XIIIA particularly section 134B(6) where in it is stated that a cooperative society covered under this section may invest or deposits its fund in any financial institutions regulated by the Reserve Bank of India of its choice with a minimum net worth and on any other criteria as may be prescribed by the National Bank and not necessarily. In the federal cooperative society to which it is affiliated. vi. For that in the facts and in the circumstances of the case the Learned Assessing Officer (income Tax Officer, ward 1(3} Burdwan) erred in Law by ignoring the provision of section 8QP(4) of the Income Tax Act 1961 which is in the nature of a proviso to section 80P by which your appellant remains to avail the deduction under section 80P(2)(a)(i) of the whole of its profits and gains.

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vii. For that in the facts and in the circumstances of the case the Learned Assessing Officer (income Tax Officer ward-1(3) Burdwan) while considering the Interest Income as Income from other sources he ignored to allow Rs 50.000.G0/- for engagement in other activities from the Interest amount under section 80P(2)(c) of the Income Tax Act 1961. viii. For that the assessee craves leave to alter, add, amend moderate, substitute or delete any one or more of the ground or grounds of appeal at any time before or in course of hearing

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“In the case of Mavilayi Service Co-operative Bank Ltd. & Ors. Vs. Commissioner of Income Tax, Calicut & Anr. Civil Appeal No. 8315 of 2019 and Diary No. 31268 of 2019, date of judgement 12.01.2021. In which para 45 of that order it is stated that section 80P of the I.T. Act being a benevolent provision enacted by Parliament to encourage and promote the credit of co-operative sector in general must be read liberally and reasonably and if there is ambiguity in favour of assessee.” 8. Further, the Ld. AR relied on the following decisions:

i. The Jawala Co-operative Urban Thrift and Credit Society Limited Vs. The A.C.I.T/Circle-62(1) New Delhi ITA No. 2900 & 2901/Del/2015 ITAT Delhi Date of Pronouncement 26/04/2018.

In which Savings Bank account Interest considered as Income from Business or Profession and are eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act 1961.

ii. In the case of Punjab State Cooperative Federation of House Building Society limited Vs. ACIT in ITA No. 966/Chd/2009 dated 29/01/2010.

The issue in favor of the assessee by holding that funds kept in bank can be said to be ready for utilization by the Co-operative society in its business of providing credit facilities to its members. The income from such money kept in bank said to be attributable to the business of

6 ITA No.506/KOL/2021 Jaluidanga Paschim Nasaratpur Samabay Krishi Unnayan Samity Ltd. A.Y. 2014-15 providing credit facilities so as to fall within the ambit of section 80P(2)(a)(i) of the Income Tax Act 1961.

(iii) Shri Basavaraj CEO Primary Agricultural Credit Cooperative Society Limited Vs. Commissioner of Income Tax (Appeals) ITA No. 867/Bang/2017 date of Pronouncement 31.05.2017.

iv. The Chitradurga City Multipurpose Cooperative Society vs. Income Tax Officer ITA No. 302/Bang/2014 date of order 04/09/2015.

v. ITO ward- 56(4) Kolkata Vs. SBI Staff Association Cooperative Society Limited. ITA No. 1164-1165/ Kol /2012 date of pronouncement 18/03/2016.

vi. ITO ward-35(3) Kolkata Vs. Kolkata Reserve Bank Employees Cooperative Credit Society Limited ITA No. 1340/Kol/2015 Date of Pronouncement 18/10/2017.

vii. Income Tax Officer Ward-46(4) Kolkata Vs. The Baksara Cooperative Credit Society Limited ITA No 7890'Kol/2012 date of pronouncement 18/11/2015.

viii. Commissioner of Income Tax Vs. Veerakeralam Primary Agricultural Cooperative Credit Society Tax Case Appeal No. 735,755 of 2014 and 460 of 2015. Date of Judgment 05/07/2016 High Court of Madras.

7 ITA No.506/KOL/2021 Jaluidanga Paschim Nasaratpur Samabay Krishi Unnayan Samity Ltd. A.Y. 2014-15 recent case of Electro Urban Cooperative Society Ltd. (2020) 118 Taxmann.com 310 (Cal) considering as case laws are squarely applicable to the appellant which is completely bad in law because the appellant is doing banking activities and it is a primary agricultural credit society (PACS) as such case laws are not applicable to the appellant.

“7. We have heard rival contentions and perused the records placed before us. The assessee has raised three grounds alleging that the ld. CIT(A) erred in not providing the benefit of deduction u/s 80P(2)(a)(i) of the Act of Rs.6,46,233/-, Rs.29,053/- & Rs.8,760/-. The assessee has also placed reliance on the judgment of the Hon’ble jurisdictional High Court in the case of South Eastern Railway Employees’ Cooperative Credit Society Ltd. (supra). The following question of law was formulated by the Hon’ble Court: “Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal by allowing deduction on income earned by the assessee from investment in banks and other financial institutions has rendered the provisions of Section 80P(2)(a)(i) nugatory as the said section of the Act allows deduction to a cooperative Society engaged in carrying on business of banking or providing credit facilities to its members?” 8. We, further, find that the Hon’ble Court decided the issue observing as follows: “7. We have not been impressed by the first submission advanced by Mr. Saraf. If the Multi State Cooperative Societies Act, 2002 does not provide for the consequences of an omission to act in accordance with Section 63 thereof, that is no valid reason why the mandate of law should not be followed. When law requires a business to be done in a particular manner, the business can be done only in that manner or not at all. 8. We are also not impressed by the submission advanced by Mr. Khaitan that the interest earned by the assessee from the investments made, to the extent of a sum of Rs. 99 lakhs during the assessment year 2003-04 and a sum of Rs. 1.12 crores during the assessment year 2004- 05, should be attributable to the business of providing credit facilities to its members. Section 80P, it is true provides that, "in the case of a co- operative society engaged in carrying on the business ……………………. providing credit facilities to its members ……………………. the whole of the amount of the profits and gains of business "attributable" to any such

8 ITA No.506/KOL/2021 Jaluidanga Paschim Nasaratpur Samabay Krishi Unnayan Samity Ltd. A.Y. 2014-15 activity "shall be deducted". But there is a caution appearing in sub- section (1) which provides that the gross total income of a co-operative society may include income from various activities. It is only an income falling under sub-section (2), which is deductible. The Supreme Court in the case of Totgars Co-operative Sale Society Limited v. ITO (2010) 322 ITR 283 took the following view in para 10 of the report. '10. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under s. 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under s. 56 of the Act is the interest income arising on the surplus invested in short- term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under s. 28 of the Act? In our view, such interest income would come in the category of "income from other sources", hence, such interest income would be taxable under s. 56 of the Act, as rightly held by the AO. In this connection, we may analyze s.80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions in respect of certain income". The headnote to s. 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Sec. 80P(1), inter alia, states that where the gross total income of a cooperative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-society. An income, which is attributable to any of the specified activities in s. 80P(2) of the Act, would be eligible for deduction. The word "income" has been defined under s.2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The Parliament has included specifically "business profits" into the definition of the word "income". Therefore, we are required to give a precise meaning to the words "profits and gains of business" mentioned in s.80P(2) of the Act. In the present case, as stated above, assessee-society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under s. 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this "retained amount" which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was

9 ITA No.506/KOL/2021 Jaluidanga Paschim Nasaratpur Samabay Krishi Unnayan Samity Ltd. A.Y. 2014-15 retained by the assessee-society, was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in s. 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the AO was right in taxing the interest income, indicated above, under s. 56 of the Act.' 9. We are prepared to agree with Mr. Khaitan to the extent that the interest earned from out of the investments made under Section 64 read with Section 63 of the Multi-State Co-operative Societies Act, 2002 is attributable to the business of providing credit facilities to its members. But we are not able to agree with Mr. Khaitan that the rest of the interest earned by the assessee from the investments is also attributable to the business of providing credit facilities to its members. We have not been impressed by the judgments cited by Mr. Khaitan. 10. We are unable to agree with the views of Patna High Court in the case of Bihar State Housing Co-operative Federation Ltd. (supra). The Division Bench in that case relied on the judgment of the Apex Court in the case of CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194/118 Taxman 321. That was a case of a co-operative bank. A co- operative bank and a co-operative society do not stand on the same footing. The whole of the income of co-operative bank is deductible whereas in the case of a society the income attributable to any one or more of the activities laid down in Subsection (2) is deductible. The Division Bench did not give any independent reasoning. The Division Bench proceeded on the basis that the view taken by them was supported by the Judgment in the case of Karnataka State Co-operative Apex Bank (supra) which, with respect, was not a correct impression. The other judgement cited by Mr. Khaitan in the case of Guttigedarara Credit Co-operative Society Ltd. (supra) is not applicable because the caution appearing in sub-section (1) of Section 80P, that only an income referred to in sub-section (2) was deductible, was not taken into account. The sub- section (2) provides for only the income attributable to the business of advancing credit facilities to its members. Income arising from any other source including investment of capital "if not immediately required to be lent to the members" was not contemplated. The assessee cannot claim any deduction which is not provided for by the section. Moreover the judgment in the case of Totgars Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC) is a binding authority for the preposition that "interest income arising on the surplus invested in short- term deposits and securities ……………………. would come in the category of income from other sources." 11. Realising his difficulty, Mr. Khaitan submitted that the assessee was under the impression that the income arising out of investments is also attributable to the business of providing credit facilities to its members and on that basis, the assessee did not separately provide for the expenditure incurred for the purpose of earning Rs. 99 lakhs during the assessment year 2003-04 and Rs. 1.12 crores during the assessment year 2004-05, from investments. Those investments were obviously made from out of the funds deposited by the members and for such deposits, interest has been paid to those members by the assessee. The interest paid to those members on account of such deposits should, therefore, have been separately accounted for, which exercise was not undertaken. The result thereof was that the expenditure was artificially enhanced and the income arising out of the business of providing credit facilities to its

10 ITA No.506/KOL/2021 Jaluidanga Paschim Nasaratpur Samabay Krishi Unnayan Samity Ltd. A.Y. 2014-15 members got reduced. When the income got reduced, the amount of deduction also got reduced. He, therefore, submitted that the matter should be remanded to the Assessing Officer for the purpose of working out the amount of expenditure incurred in earning the approximate sums of Rs. 99 lakhs and Rs. 1.12 crores respectively. The expenditure incurred for earning those two amounts of income is the amount of interest paid for that money to the members which has to be ascertained and that has to be deducted from the expenditure of the eligible business so that the eligible amount of deduction can be worked out. At the same time, the Assessing Officer has to be directed, according to him, to treat the amount of interest arising out of investments of the funds created under Section 63 as an income attributable to the business. 12. Mr. Saraf submitted that this is a new case made out by the assessee before the High Court. This was never the plea before any of the authorities. He is no doubt correct in his submission. But Court cannot refuse to give a person what is due to him. As a matter of fact, only that is a good judgment which renders every person his due. Whether the assessee claimed the amount or did not claim the amount, is not of much importance. What is of importance is whether the benefit is allowable in law? If an answer to that question is in the affirmative, then that benefit has be allowed. 13. In that view of the matter, the question raised for decision is answered in the affirmative and in favour of the revenue to the extent as indicated above. The appeal is allowed. The matter is, however, remanded to the Assessing Officer (a) to work out the interest earned under Sections 63 and 64 of the Multi-State Co-operative Societies Act, 2002 and to allow benefit under Section 80P and (b) to ascertain the interest paid to the members for the purpose of earning the sums of Rs. 99 lakhs and 1.2 crores on account of interest from investments. Such interest shall be deducted from the expenses of eligible business. Consequent increased amount of profits of eligible business as discussed above shall be the amount of deduction available to the assessee under Section 80P. 14. The appeal is thus disposed of.” 9. On examining the facts of the case in light of the above judgment, we find that as regards the disallowance of deduction u/s 80P(2)(d) of the Act of Rs.6,46,233/- we do not find any merit in the contentions of the ld. Counsel for the assessee for the very reason that there is no dispute at the end of the assessee that interest income of Rs.23,00,239/- has been earned from term deposit/other deposits with scheduled banks or other banks other than cooperative banks. There is no iota of evidence which could show that the interest income of Rs.23,00,239/- has any connection with the income from its members. The judgment of the Hon’ble jurisdictional High Court referred above clearly states that such interest income which is earned from other banks and not earned from members of the Society or from deposits with any other cooperative Society no deduction is allowable u/s 80P(2) of the Act. Only any expenditure incurred to earn such income not eligible for deduction u/s 80P(2) of the Act can be claimed. In the instant case, the

11 ITA No.506/KOL/2021 Jaluidanga Paschim Nasaratpur Samabay Krishi Unnayan Samity Ltd. A.Y. 2014-15 interest income from banks other than cooperative banks/cooperative Societies/members is Rs.23,00,239/-. The net profit shown in the profit & loss account is only Rs.6,96,233/-. Though details of profit & loss account have not been placed on record but even otherwise against the interest income from banks, deduction of Rs.16,04,006/- has already been claimed by the assessee, there hardly remains any case for the assessee to claim any other benefit. The ld. AO has already allowed deduction of Rs. 50,000/- against the net profit of Rs.6,96,233/-. The alternative submission of the assessee is that the disallowance should be restricted only to 3.12% being the net profit rate to be applied on the interest income of Rs.23,00,239/- cannot stand for as the assessee has already claimed an expenditure of Rs.16,04,006/- against the interest income of Rs.23,00,239/-. We, therefore, confirm the finding of the ld. CIT(A) sustaining the addition of Rs.6,46,233/- made by the AO and dismiss the ground nos. 2 & 3 raised by the assessee. 12. Keeping in view of the facts and circumstances of the case and relying on the decision of Co-ordinate Bench in the case of Panditpur Samabay Krishi Unnayan Samity Ltd. (supra), we are of the view that the CIT(A) rightly dismissed the claim of deduction u/s 80P interest income received from Axis Bank, Kalna Branch by the appellant. We, therefore, confirmed the finding of the ld. CIT(A) sustaining the addition of Rs. 1,16,615/- made by the AO and dismiss the ground 1, 2 & 3 of appeal raised by the assessee and the remaining grounds are general and consequential in nature which needs no adjudication.

Order pronounced in the open court on 27.04.2022.

Sd/- Sd/- (MANISH BORAD) (SONJOY SARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Kolkata, Dated: 27.04.2022. Biswajit, Sr. P.S.

12 ITA No.506/KOL/2021 Jaluidanga Paschim Nasaratpur Samabay Krishi Unnayan Samity Ltd. A.Y. 2014-15

Copy to: 1. The Appellant: Jaluidanga Paschim Nasaratpur Samabay Krishi Unnayan Samity Ltd. 2. The Respondent: ITO, Ward-1(1), Burdwan 3. The CIT, Concerned, Kolkata 4. The CIT (A) Concerned, Kolkata 5. The DR Concerned Bench

//True Copy// [ By Order

Assistant Registrar ITAT, Kolkata Benches, Kolkata