FOOD CORPORATION OF INDIA EMPLOYEES CO OP CREDIT SOC LTD.,MUMBAI vs. ITO WARD 32 (1)(5), MUMBAI

For the sake of convenience, facts are extracted from the appeal of assessee in ITA 4622/Mum/19 for assessment year 2014-15. The short issue for adjudication in the appeal is assessee’s eligibility to claim deduction under section 80P(2)(a)(i)/80P(2)(d) of the Income Tax Act, 1961 ( in short ‘the Act’).

The assessee is a Co-operative Credit Society engaged in providing financial support to its members. The society/appellant accept deposits from its members i.e. employees of Food Corporation of India Ltd. and grant loan at reasonable rate as and when required by its members. During the period relevant to assessment year under appeal, the assessee has earned interest income of Rs.11,45,183/- on investments made in fixed deposits with Saraswat Co-operative Bank Ltd. and Apna Sahkari Bank Ltd. Apart from interest income from Co-operatives Banks, the assessee has earned interest income of Rs.2,01,382/- on saving bank account with State Bank of India. The assessee claimed deduction under section 80P(2)(a)(i) in respect of above interest income. In assessment proceedings, the assessee’s claim of deduction under section 80P(2)(a)(i) of the Act was rejected by the Assessing Officer by holding interest income as, “Income from other sources”.

Shri Sanjay J. Sethi representing the Department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. The ld. Departmental Representative submitted that after insertion of sub-section (4) to section 80P by the Finance Act 2006 w.e.f. 01/04/2007, the benefit of section 80P is not available to Co-operative Banks. Therefore, the assessee neither qualifies for claim of deduction under section 80P(2)(a)(i) nor 80P(2)(d) of the Act.

We have heard the submissions made by ld. Departmental Representative and have examined the orders of authorities below. The assessee in appeal has assailed the findings of CIT(A) in not allowing deduction of Rs.13,46,565/- under section 80P(2)(a)(i) of the Act. Without prejudice to primary contention, the assessee has raised alternate plea for allowing deduction of Rs.11,45,183/- under section 80P (2)(d) of the Act in respect of interest income on fixed deposits with Co-operative Banks.

The assessee during Financial Year 2013-14 has earned interest income as under:- Name of Bank Nature of Investment Interest Earned. (Rs.) Saraswat Co-operative Bank Ltd. Fix Deposits 4,50,000/- Apna Sahakari Bank Ltd. Fix Deposits 6,95,183/- State Bank of India Saving Bank A/c. 2,01,382/- Total 13,46,565/-

The primary contention of the assessee is that interest income from fixed deposits and saving bank account is eligible for deduction under section 80P(2)(a)(i) of the Act. The Hon’ble Supreme Court of India in the case of Totgars, Co-operative Sale Society Ltd. vs. ITO, 322 ITR 283(SC) has held that interest earned by assessee would come in category of 'Income from other sources' taxable under section 56 and would not qualify for deduction as business income under section 80P(2)(a)(i) of the Act. Similar view has been expressed by the Hon’ble Gujarat High Court in the case of State Bank of India vs. CIT, 389 ITR 578. In the light of aforesaid decisions, primary contention of the assesse is liable to be rejected. Therefore, ground No.1 of the appeal is dismissed.

The alternate contention of the assessee is with regard to deduction of interest income Rs.11,45,183/- on investment with Co-operative Banks under section 80P (2)(d) of the Act. The issue whether interest income derived from deposits with cooperative banks is eligible for deduction under section 80P(2)(d) of the Act or not has not crystallised so far. The coordinate Bench of the Tribunal in the case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd. Vs. ITO, 94 taxmann.com 15 (Mumbai) after considering various decisions by Hon’ble High Courts and the Tribunal and the provisions of the Act, has held that interest income derived by a co-operative society from investments with a co-operative bank, would be entitled for deduction under section 80P(2)(d) of the Act. The relevant extract of the order reads as under: - “7. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to be in agreement with the view taken by the lower authorities. Before proceeding further, we may herein reproduce the relevant extract of the said statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us:

The Pune Bench of Tribunal in the case of Majalgaon Sahakari Sakhar Karkhana Ltd. vs. ACIT [2019] 105 taxmann.com 100 (Pune - Trib.) has taken a similar view in respect of interest and dividend income derived from investment with cooperative bank. The relevant extract of the findings of the Tribunal are as under: - “24. In some of the appeals the issue of deduction under section 80P of the Act on interest and dividend income is also involved. The assessee claimed deduction u/s.80P(2)(d) of the Act on interest and dividend received from Co-operative Society on Savings Bank accounts. The AO did not allow such deduction. The ld. CIT(A) overturned the assessment order on this point and granted deduction. The Revenue is aggrieved by such allowing of deduction.

The Hon'ble Karnataka High court in the case of PCIT vs. Totagars, Co- operative Sale Society 392 ITR 74 has held that for the purpose of section 80P(2)(d) of the Act, co-operative bank should be considered as cooperative society. Similar view has been taken by the Hon'ble Gujarat High court in the case of Surat Vankar Sahakari Sangh Ltd. vs. ACIT, 421 ITR 134.

However, on the same issue Hon'ble Karnataka High court in the case of PCIT vs. Totagars, Co-operative Sale Society 395 ITR 611 (Karnataka) has taken a contrary view holding that interest income earned from deposit with the cooperative bank does not qualify for deduction under section 80P(2)(d) of the Act. It would be relevant to mention here that the Hon'ble High Court while rendering the later judgement has not considered the earlier decision rendered in the case of Totagars, Co-operative Sale Society (supra).

No judgement by the Hon’ble Jurisdictional High Court on this issue was brought to our notice. The Hon'ble Bombay High Court in the case of K. Subramanian vs. Siemens India Ltd. 156 ITR 11 has held that when two conflicting decisions of non-jurisdictional High Courts are available, the view that favours the assessee is to be preferred. Accordingly, following the decision of Hon'ble Karnataka High Court in the case of Totagars Co-operative Sale Society (supra) and the decision in the case of Hon'ble Gujarat High Court in the case of Vankar Sahakari Sangh (supra), the deduction claimed by the assessee under section 80P(2)(d) of the Act in respect interest derived from investments with the cooperative banks is allowed. We find merit in alternate contention raised by the assessee. Ergo, the assessee succeeds on ground No.2 of the appeal.

In the result, appeal of the assessee is partly allowed.

The ld. Departmental Representative admitted that the facts in the assessment year 2015-16 are identical to 2014-15, except for the amount of interest earned.

We find that in assessment year 2015-16 the relief claimed by the assessee is identical to the one as in assessment year 2014-15. During the period relevant to assessment year 2015-16, the assessee has earned interest income as under:

In the result, appeal of the assessee is partly allowed.

To sum up, both appeals by the assessee are partly allowed.