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Income Tax Appellate Tribunal, ‘’ SMC” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) Delhi, dated 21/03/2022 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2017-18.
The assessee has raised the following grounds of appeal:
The Learned Assessing Officer has erred in law as well as on facts of the case of the Appellant by disallowing claim for deduction u/s.80P (2)(a)(i) in respect of interest income of Rs.9,24,018/- from activities of providing credit facilities only to its farmer (agriculturist) members.
2. The Learned Assessing Officer has erred in law as well as on facts of the case of Appellant by disallowing claim for deduction u/s.80P (2) (a)(iv) in respect of income from dealing in agricultural inputs like seeds, fertilizers etc. to its farmer (agriculturist) members. 3. The Learned Assessing Officer has erred in law as well as on facts of the case of the Appellant by disallowing claim for deduction u/s.80P(2)(d) in respect of income by way of interest and dividends from other co-operative society. 4. Your appellant therefore, prays that the Appellant be held validity and rightly eligible for deductions claimed u/s.80P (2)(a)(i) and u/s.80P(2) (a) (iv) and also u/s.80P (2) (d) of the I.T. Act, 1901. 5. Your appellant prays to reserve the right to add, alter, amend or withdraw any of the above grounds of appeal.
3. The interconnected issue raised by the assessee is that the learned CIT-A erred in confirming the order of the AO by sustaining the addition of ₹ 9,24,018/- by disallowing the deduction claimed under section 80P(2)(a)(i)/80P(2)(d) of the Act.
The facts in brief are that the assessee in the present case is a co-operative society and engaged in the activity of providing credit facilities to the farmer members. In the year under consideration, the assessee earned interest and dividend income of ₹ 9,39,608/- from investment in nationalized/co-operative banks detailed as under: S. No. Bank Nature Amt. (Rs.) 1. Banaskantha Dist. Central Co-Op Bank Ltd. Dividend 15,600/- 2. Banaskantha Dist. Central Co-Op Bank Ltd. PD Interest 7,36,044/- 3. Banaskantha Dist. Central Co-Op Bank Ltd. SB No Interest 24,117/- 4. Banaskantha Dist.Co-Op Purchase & Sale Sangh Interest 64,156/- 5. Union Bank of India FD & SB A/c Interest 99,701/- Total 9,39,608/- As per the AO, the impugned amount of interest income was not arising to the assessee from the activities of providing credit facility to the members. Thus, the AO held that the interest and dividend income of ₹ 9,39,608/- earned on the investment in nationalized/co-operative bank is not eligible for deduction under section 80P(2)(a)(i) of the Act. The AO also held that the impugned income was also not deductible under section 80P(2)(d) of the Act as the provision of section 80P(2)(d) state that the income derived by a cooperative society from investment in other cooperative society whereas cooperative bank is not a cooperative society. Thus the AO in view of the above treated impugned income as taxable income from other source under section 56 of the Act.
Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO in part by observing as under:
In view of the aforesaid discussion, analysis of the issue involved and respectfully following the decisions/judgment of the Hon’ble Jurisdictional ITAT, Ahmedabad Benches as well as the Hon’ble jurisdictional High Court of Gujarat, it is held that the contentions raised by the appellant through Ground Nos. 1, 2, 3 and are unmeritorious and unsustainable in respect of receipt of interest of Rs.7,36,0447-from Banaskantha Dist. Central Co-operative Bank Ltd., interest of Rs.24,117/- from Banaskantha Dist. Central Co-operative Bank Ltd., interest of Rs.99,701/- from Union Bank of India and receipt of dividend of Rs.15,6007- from Banaskantha Dist. Central Co-operative Bank Ltd. Consequently, to this extent, all contentions raised through Ground Nos. 1, 2, 3 and 4 are rejected. However, the claim for deduction of interest amounting to Rs.64,1567- received from Banaskantha Dist. Co-op Purchase & Sale Sangh Ltd., which is a Co-operative Society and not a Co-operative bank, is allowed u/s 80P(2)(d) of the Act
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 45 and submitted that the interest income on by the assessee on the deposits made with the co-operative bank is eligible for deduction under section 80P(2)(d) of the Act.
On the other hand the learned DR vehemently supported the order of the authorities below.
I have heard the rival contentions of both the parties and perused the materials available on record including the case law cited by the learned AR for the assessee. The provisions of section 80P(2)(a)(i) of the Act provides the deduction to a co-operative society engaged in the business of banking or providing credit facilities to its members. The provisions of the section are without any ambiguity. In other words, the income from the activity of financing from the members is only eligible for deduction under section 80P(2)(a)(i) of the Act. If there is any income arising to the co-operative society from the non-members that will not be subject to deduction under section 80P(2)(a)(i) of the Act. In holding so we draw support and guidance from the judgment of the Hon’ble Gujarat High Court in the case of State Bank of India versus CIT reported in 72 Taxmann.com 64 wherein it was held as under:
The Income Tax Appellate Tribunal was also justified in holding that interest income of Rs.16,14,579/- and Rs.32,83,410/-respectively on deposits placed with State Bank of India was not exempt under section 80P(2)(a)(i) of the Income Tax Act, 1961.
9.1 In view of the above, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the Banks other than cooperative bank is not being attributable to the business as envisaged under the provisions of the Act. Thus the same cannot be deducted under section 80P(2)(a)(i) of the Act.
9.2 Now coming to the fact of the case on hand where interest & dividend income derived by the assessee form investment made with cooperative bank and commercial bank. As far as question of allowability interest income of Rs. 99,709/- earned from Union Bank of India is concern, I hold that same is not eligible for deduction under section 80P(2)(a)(i) of the Act.
9.3 Coming to income derived by the assessee from co-operative bank, the question before me arise whether such income is eligible for deduction under section 80P(2)(d) of the Act. In this regard I note that the Hon’ble Gujarat High Court in case Surat Vankar Sahakari Sangh Ltd. v Assistant Commissioner of Income- tax[2016] 72 taxmann.com 169 (Gujarat), the Gujarat High Court held that assessee-co-operative society was eligible for deduction under section 80P(2)(d) of the Act in respect of gross interest received from co-operative bank without adjusting interest paid to said bank.
9.4 I also find that in case of Surendranagar District Co-op. Milk Producers Union Ltd. v Deputy Ld. CIT(A) 111 taxmann.com 69 (Rajkot Bench) the ITAT held that assessee-co-operative society could not claim benefit of section 80P(2)(d) of the Act in respect of interest earned by it from deposits made with nationalized/private banks, however, said benefit was available in respect of interest earned on deposits made with co-operative bank. Likewise in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn), the Hon’ble Karnataka High Court has held that the interest income earned by a cooperative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.
9.5 In view of the above and respectfully, following the decision of Hon’ble High Court of Gujarat and other cases cited above, interest and dividend income earned by the assessee on investment held with cooperative bank would be eligible for deduction under Sec.80P(2)(d) of the Act. Hence the grounds of appeal of the assessee is hereby partly allowed.
In the result appeal of the assessee is hereby partly allowed.
Order pronounced in the Court on 31/10/2022 at Ahmedabad.