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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
Date of hearing : 11-04-2022 Date of pronouncement : 06-05-2022 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This is an appeal filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi in DIN & Order No. ITBA/NFAC/S/250/2021-22/1034775464(1) vide order dated 11/08/2021 passed for the assessment year 2017-18.
2. The assessee has taken the following grounds of appeal:
Page No. 2 The Brahmarshi Co-Op Credit Society Ltd. vs. ITO “1. The learned AO has erred in disallowing the interest of Rs. 24,81,224.00 on FD with The SK Dist Co. Op Bank and other nationalized Banks under Section SOP (2)(a)(i) and under section 80P (2)(d) in as much as the assessee is a Co-Operative Society and has received the interest from the SK Dist. Co. Op. Bank and other Nationalised Banks carrying on business in banking and therefore the interest is deductible under Section 80P (2)(a)(i) as per following cases: i. Pr. CIT Vs Ekta Co-operative Credit Society Ltd. 91 taxmann.com 42-402 ITR 85 (Guj.) ii. CIT Vs Jafari Momin Vikas Co-operative Credit Society Ltd 2014, 49 taxmann.com 571 362 ITR 331 [Guj.) iii. ACIT Vs. Peoples Co.op. Credit Society Ltd. 2019 107 taxmann.com 53 (Ahmedabad-Trib.) (SB) 2019 177 ITD 25 (Ahmedabad - Trib.) (SB) and further investment made it out of operational funds and not out of surplus funds and therefore the SC decision in case of Totgars Co.op. Sale Society Ltd Vs. ITO 322 ITR 283 is not applicable on the facts of the case.
The Appellant says and submits that the jurisdictional high court decision is binding and that the other high court decisions is not binding - CIT Vs. Thana Electricity Supply Ltd. 206 ITR 727 Bom.”
The brief facts on the case are that the assessee is a cooperative society engaged in the business of providing credit facilities to its members. During the course of assessment proceedings, it was noticed by Ld. Assessing Officer that the assessee had made investments with cooperative Page No. 3 The Brahmarshi Co-Op Credit Society Ltd. vs. ITO banks and other nationalised banks and had earned interest income of � 24, 81, 224/-from such investments. The AO was of the opinion that such interest income is not allowable as deduction under section 80P of the Act as the interest was not earned from a cooperative society. During the course of assessment proceedings, no written submission was made by the assessee despite sufficient opportunities. Accordingly, the AO disallowed some of � 24, 81, 224/- and added the same to the total income of the assessee.
The assessee filed appeal before Ld. CIT(A) who dismissed the assessee’s appeal. While passing the order, Ld. CIT(A) made the following observations: “4.3 I have carefully gone through the assessment order as well as material on record. The provisions of section 80P(2)(d) regarding deduction in respect to interest earned by co-operative society reads as underpin respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income". From a plain reading of the above section, it is clear that the section refers to interest and dividends from its investments in another co-operative society only. Thus, this deduction cannot be extended to the interest income earned from the investment in any bank whether it is co-operative or scheduled bank.
4.4 The Hon'ble Supreme Court in the case of Totgars Co-op Sale Society Ltd. V/s ITO [322 ITR 283 (2010)] has held that the assessee being a cooperative society engaged in providing credit facilities to its Page No. 4 The Brahmarshi Co-Op Credit Society Ltd. vs. ITO members or marketing agricultural product of its members, interest earned by it by investing surplus funds in short term deposits would fall under the head Income from other sources and taxable u/s.56 of the Income Tax act,1961 as it cannot be said to be attributable to the activities of the society. It is also pertinent to discuss here the judgment of Hon'ble High Court of Gujarat in the case of SBI Employees Co-op Credit & Supply Society Ltd V/s. CIT [ 389 ITR 578 (2016) ] wherein it was held that in the case of society engaged in providing credit facilities to its members, it is only the interest which is derived from credit provided to its members which is deductible u/s.80P(2)(a)(i) and interest derived by deposits of surplus funds with bank not being attributable to business carried on by society cannot be eligible for deduction u/s.80P(2)(a)(i) of the Act.
4.5 The appellant has mentioned in his grounds of appeal that the judgement of the Hon'ble SC in the case of Totgars Co-op sale Society Ltd. (quoted supra) is not applicable to the appellant's case because it has made investments out of its operational fund and not out of surplus funds. However, it has not been established either before the AO or during the appeal proceedings that the investments made by the appellant is out of its operational funds and not out of surplus funds. Secondly , in the case of Totgars Co-op sale Society Ltd., in appeal for subsequent Assessment years the Honb'le Karnataka High court in its judgement given in 2017 [83 taxmann.com 140] has stated Page No. 5 The Brahmarshi Co-Op Credit Society Ltd. vs. ITO
"The sheet anchor of the contention of the learned counsel for the assessee misses two essential points required for claiming the exemption or 100% deduction from gross total income for a co- operative society: (i) that the character or nature of income, namely interest on investments or deposits, does not change irrespective of the fact whether it is earned or received from a Schedule Bank or Co- operative Bank, (ii) that What the Hon'ble Supreme Court held in the case of the respondent assessee itself, against the assessee, was that such interest income on its surplus and idle funds not immediately required for its business, is not income from business taxable under Section 28 of the Act, but was taxable as "income from other sources" under Section 56 of the Act, whereas for availing the exemption or 100% deduction under Section SOP of the Act the income is specified in clauses (a) to (f) of Subsection (2) of Section SOP of the Act should be its business or operational income." ………. 4.7 Furthermore, in the absence of any details submitted by the appellant, it is held that the ratio of judgments given by the Hon'ble SC in the Totgars Co-op sale Society Ltd. case (cited Supra) will be applicable to the appellant's case and since the decision of SC is against the appellant, the decision of Honourable Courts and Tribunals cited by the appellant in its favour does not help its case. After considering the facts of the case and the position of law I have come to a conclusion that the AO has rightly made this addition. The grounds of appeal nos. 1 and 1.1 are accordingly dismissed.
5. In the result, the appeal is dismissed.”
Page No. 6 The Brahmarshi Co-Op Credit Society Ltd. vs. ITO
Before us, none appeared on behalf of the assessee. The Ld. Departmental Representative submitted that the issue is covered in favour of the revenue by the Gujarat High Court decision in the case of SBI Employees Cooperative Credit and Supply Society v CIT 389 ITR 578 (Gujarat). He relied upon the observations made by Ld. CIT(A) in the order.
We have heard the Ld. Departmental Representative and perused the material on record. We note that the issue on allowability of deduction u/s 80P of the Act on interest from nationalised banks is directly covered in favour of the Revenue by the jurisdictional Gujarat High Court in the case of SBI Employees Cooperative Credit and Supply Society v CIT 389 ITR 578 (Gujarat), where the Gujarat High Court held that in case of a society engaged in providing credit facilities to its members, income from investments made in banks is not eligible for deduction under section 80P of the Act. Therefore, so far as the interest earned from nationalised banks is concerned, respectfully following the decision of Gujarat High Court in SBI Employees supra, in respect of interest earned on deposits made with nationalised bank, the assessee is not eligible for deduction u/s 80P of the Act. However, as held in the case of Krishnarajapet Taluk Agri Pro Co- op Marketing Society Ltd. v Pr. CIT [2022] 137 taxmann.com 121 (Bangalore - Trib.) in such case only net interest income, i.e., interest income reduced by administrative expenses and other proportionate expenses to earn said income had to be brought to tax under section 56 of the Act. Also, the Karnataka High Court in the case of Totgars Co-Operative Page No. 7 The Brahmarshi Co-Op Credit Society Ltd. vs. ITO Sale Society Ltd. v ITO [2015] 58 taxmann.com 35 (Karnataka)has held that where assessee a co-operative society, earned interests on deposits kept with scheduled banks only net interest income, i.e., interest income reduced by administrative expenses and other proportionate expenses to earn said income had to be brought to tax under section 56 of the Act. The ITAT Ahmedabad in the case of Vadodara Mahanagar Seva Sadan Employees Co. Operative Credit Society Ltd. v ITO [2018] 93 taxmann.com 287 (Ahmedabad - Trib.)has alsoheld that though assessee was not eligible for deduction under section 80P(2)(a)(i) of the Act, but assessee was entitled to claim pro rata expenses for earning said interest income. In view of the above decisions, interest earned by assessee on deposits kept with nationalised banks are not eligible for deduction under section 80P of the Act. However, such interest would be chargeable to tax after deducting therefrom administrative and other expenses incurred for earning the same that is only the net interest would be chargeable to tax in the hands of the assessee.
6.1 Now, so far as the interest earned by the assessee on deposits kept with Co-Operative bank is concerned, the Hon’ble High Court in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), have held that the interest income earned by a co-operative 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. Respectfully, following the decision of Honourable High Court of Gujarat in the case of State Bank of Page No. 8 The Brahmarshi Co-Op Credit Society Ltd. vs. ITO India versus CIT supra, interest earned by the assessee on surplus held with cooperative bank would be eligible for deduction under Sec.80P(2)(d) of the Act.
6.2 We would also like to briefly touch upon the cases cited by the assessee in the grounds of appeal. In the case of Ekta Co-op Credit Society Ltdsupra cited by the assessee in the grounds of appeal, the issue for consideration was whether since assessee was not a bank, whether it would be entitled to deduction under section 80P(2)(a)(i) on its income from providing credit facilities to its members. The High Court held that section 80P(4) would not be applicable to cooperative credit society and assessee would be entitled to deduction under section 80P(2)(a)(i) on its income from providing credit facilities to its members. Therefore, it is seen that this case- law cited by the assessee is not relevant to the facts and issues before us. In the case of Jafari Momin Vikas Co-op. Credit Society Ltd supra the Gujarat High Court held that where assessee was not a credit co-operative bank but a credit co-operative society, its claim for deduction under section 80P(2)(a)(i) could not be rejected by invoking exclusion clause of sub- section (4) of section 80P of the Act. Therefore, it is evident that the judicial precedent cited by the assessee in his grounds of appeal are not relevant to the facts of the case.
6.3 In the instant facts, however, we note that there is no clarity as to how much interest has been earned by the assessee from deposits made in nationalised bank and how much interest has been earned from deposits made in cooperative bank. Having held that interest earned by the assessee Page No. 9 The Brahmarshi Co-Op Credit Society Ltd. vs. ITO on deposits held with nationalised banks are not eligible for deduction under section 80P of the Act, though only the net income would be taxable after allowing for administrative and other expenses incurred for earning such interest income and also that interest earned by the assessee on deposits made with cooperative banks are eligible for deduction under section 80 P(2)(d) of the Act, we are restoring the file to Learned Assessing Officer to ascertain how much interest pertains to interest earned from nationalised bank and the portion of interest relatable to cooperative bank, and then tax the same in accordance with decision above.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 06-05-2022 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 06/05/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद