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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals) – Salem, in dated 28.03.2019 for the assessment year 2015-16.
M/s. Subramania Siva Co-op Sugar Mills Ltd., the assessee, a co- operative society manufacturing sugar claimed deduction u/s. 80(P) from the interest earned from its investments with the Dharmapuri district central co-op bank Ltd. While making the assessment for the assessment year 2015-16, the AO held that the interest earned from investments made in any bank, not being a co-op society, is not eligible for deduction u/s. 80P(2)(d) and rejected the assessee’s claim.
Aggrieved, the assessee filed an appeal before the CIT(A). The Ld. CIT(A) dismissed the appeal. Aggrieved against the order of the Ld. CIT(A), the assessee filed this appeal.
The Ld. AR submitted that the assessee received an amount of Rs. 10.93 crores as interest from the investment with Dharmapuri District Co-operative Bank Ltd., (DDCCB). Out of it, the deduction of Rs. 2,64,04,180/- was claimed to the extent of gross total income u/s. 80P. The assessee pleaded that as per Co-operative Societies Act, the co-operative societies expected to have their financial transactions with co-operative bank only and hence, the funds were deposited with DDCCB. However, the AO considered that the Co-operative Bank even though registered as co-operative society, is not a co-operative society as its banking business was stated to be governed by provisions of a special law like Banking Regulation Act, 1949 etc. Therefore, he denied the deduction claimed by the assessee u/s. 80P(2)(d). The Ld. AR submitted that though the assessee has canvassed that the co-operative society is genus term and the co-operative bank is also a specie of co- operative society, the lower authorities have not appreciated the fact and law and denied the deduction claimed by the assessee.
The Ld. AR submitted that the Jurisdictional High Court in the case of CIT vs Salem Agricultural Producers’ Cooperative Marketing Society in TCA No. 5/2015 dated 10.08.2016 and in a host of cases held that the interest received by a co-operative society from investing its surplus in any district co-operative bank is eligible for deduction u/s. 80P(2). Therefore, relying on this decision and the host of other decisions, the Ld. AR pleaded to allow the assessee’s appeal. Per contra, the Ld. DR supported the orders of the lower authorities.
We heard the rival submissions, gone through the relevant material and find merit in the submission of the Ld. AR. The fact remains that the assessee is a co-operative society. It has earned the impugned interest from Dharmapuri District Co-operative Bank Ltd., which is also a co-operative society engaged in banking business. The relevant portion of the order of the Jurisdictional High Court in the case of CIT vs Salem Agricultural Producers’ Cooperative Marketing Society in TCA No. 5/2015 dated 10.08.2016 is extracted as under:
6. Addressing the said issue, at paragraph No.8, in I.T.A.No.732/MDS/2014 dated 30/6/2014, the Tribunal has ordered as hereunder:- “The case of the assessee is that the income by way of interest and dividend earned by the assessee Society are from investments made in Salem District Central Co-operative Bank, which is also admittedly, a co- operative society and are allowable deduction. The Assessing Officer has held that the assessee has made only with Salem District Central Co- operative Bank and therefore, the income from investment with the Bank is not entitled for deduction under Section 80 P (2) (d) of the Act. On appeal, the Id.CIT (Appeals confirmed the order passed by the Id.CIT (Appeals). We find that in the case of CIT Vs. Kangra Co-operative Bank Ltd. [2009] 309 ITR 106 (HP), the Hon'ble Himachal Pradesh High Court has considered Section 80 P (2) (d) of the Act. The interest earned by the assessee co-operative bank on fixed deposits with Himachal Pradesh State Co-operative Bank in compliance with the provisions of Section 57 of the Himachal Pradesh Co-operative Societies Act, 1968, the income derived from banking business is eligible for deduction under Section 80 P (2) (a) (i) of the Act. Exemption is also available under Section 80 P (2) (d) of the Act. In the present case, the assessee is an Agricultural Producers Co-operative Marketing Society Ltd., registered under Tamil Nadu Co-operative Societies Act and established for the benefit of the Agricultural producers and the interest or dividend earned by the assessee will be beneficial to the members alone. Therefore, keeping in view of the decision, in the case of CIT Vs. Kangra Co-operative Bank Ltd., (supra), we hold that the assessee is eligible for benefit under Section 80 P (2) (d) of the Act and also this being a beneficial section to the co-operative Societies.
Let us consider the decision in KANGRA CO-OPERATIVE BANK LTD'S case referred to by the tribunal. The question of law framed therein is as follows:-
Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the interest income earned by the assessee on deposits made with H.P.State Co-operative Bank in the shape of F.D.Rs. is income derived from banking business and therefore, eligible for deduction under Section 80 P (2) (a) (i) of the Income Tax Act?
After considering the decisions in CIT Vs. Karnataka State Co-operative Apex Bank reported in [2001] 251 ITR 194, CIT Vs. Ramanathapuram District Co-operative Central Bank Ltd reported in [2002] 255 ITR 423 (SC), a Division Bench of the Himachal Pradesh High Court, at paragraph Nos.10 and 11 held thus:- “The Karnataka High Court in CIT Vs. Sri Ram Sahakari Bank Ltd., [2004] 266 ITR 632, held that the interest on investments and short-term fixed deposits in banks was entitled to be deducted under Section 80 P (2) (a) (i) of the Act. In fact, in CIT Vs. Nawanshahar Central Co-operative Bank Ltd., [2007] 289 ITR 6, the Apex Court has held that where under the provisions of the Co-operative Societies Act, the co-operative bank is statutorily required to place part of its funds in approved securities, the income attributable thereto is not taxable under Section 80 P (2) (a) (i) of the Income-tax Act, 1961. In the present case, we have noted above that under Section 57, every co-operative Society including the assessee is required by law to keep a percentage of its profits in reserve funds. These reserve funds can only be invested or deposited in a certain manner. Applying the ration of the judgment in Nawanshahar Central Co-operative Bank Ltd's case [2007] 289 ITR 6, it is apparent that any interest on such investments is required to be deducted under Section 80 P (2) (a) (i) of the Act. At para 12 of the judgment, further reiterated that .... Furthermore, the investments have been made in the H.P.State Co-operative Bank which is also a co- operative Society and, therefore, even under Section 80 P (2) (d) of the Act, interest income from investments made in any co-operative Society would also be entitled for deduction.”
Though Mr.J.Narayanasamy, learned Senior Standing Counsel for Income Tax Department submitted that the Tribunal was not right in holding that the interest earned from the Salem Agricultural Producers
Co-operative Marketing Society Ltd., for reduction under Section 80 P (2(a) (i) of the Income Tax Act, we are not inclined to accept the said contentions. For the reason that a District Central Co-operative Bank, is also a Society, in which event, the income by way of interest and dividend earned by the assessee/respondent Society from the investments made in Salem District Central Co-operative Bank, which is also a Co-operative Society is entitled for deduction under Section 80 P (2) (a) (i) of the Income Tax Act. Decision relied on by the assessee and considered by the Tribunal squarely applies to the facts on hand. Question of law, figuring as 4, is negatived as against the appellant.”
From the above it is clear that the facts of this assessee is clearly falling within the four corners of the case decided by the Jurisdictional High Court, supra, and hence we allow the assessee’s appeal. The AO is directed to grant the deduction claimed by the assessee u/s. 80P(2), accordingly.
In the result, the assessee’s appeal is allowed.
Order pronounced on Thursday, 20th February, 2020 at Chennai.