MAHATOUR EMPLOYEES CO.OP.CREDIT SOCIETY,MUMBAI vs. ITO WD 17(2)(3), MUMBAI

The only issue in dispute in the present appeal is with regard to the assessee’s claim of deduction under section 80P of the Income Tax

Brief facts are, the assessee is a Co–operative Society. For the assessment year under dispute, the assessee filed its return of income on 11th November 2014,declaring total income of ` 10,300 after claiming deduction under section 80P(2) of the Act. In the course of assessment proceedings, the Assessing Officer while verifying assessee’s claim of deduction under section 80P(2) of the Act noticed that in the relevant previous year, the assessee had received interest income of ` 3,26,135, from the reserve fund deposits and ` 9,557, from the fixed deposit. Further, the assessee had earned dividend income of ` 4,680. He noticed that in the computation of total income, the assessee had claimed deduction of the aforesaid amounts aggregating to ` 3,47,372 under section 80P(2) of the Act. He, therefore, called upon the assessee to justify its claim. In response, it was submitted by the assessee that such deduction is allowable under section 80P(2)(a)(i) of the Act. The Assessing Officer, however, did not find merit in the submissions of the assessee. Referring to the provisions of section 80P(2)(a)(i) of the Act, the Assessing Officer observed that only interest derived from credit provided to the members of the Co–operative Society is allowable as deduction under 3 Mahatour Employees Co–operative Society the aforesaid provisions. He observed that interest derived by depositing surplus fund with bank and dividend earned on investment not being attributable to the business of the assessee are not allowable as deduction under section 80P(2)(a)(i) of the Act. Proceeding further, the Assessing Officer observed that the amount in question cannot also be allowed as deduction under section 80P(2)(d) of the Act since such interest and dividend were not earned from investments made in another Co–operative Society. Accordingly, he disallowed assessee’s claim of deduction under section 80P(2) of the Act in respect of ` 3,42,372. Though, the assessee challenged the aforesaid disallowance in appeal, however, learned Commissioner (Appeals) also sustained the disallowance made by the Assessing Officer.

The learned Authorised Representative submitted, the conclusion of the Assessing Officer that the investment in fixed deposit is not for the purpose of business is incorrect since as per the provisions of Maharashtra Co–operative Societies Act, 1960, and rules made there under, the assessee is required to invest 25% of the surplus fund in a reserve fund. In this context, he drew our attention to the relevant provisions of Maharashtra Co–operative Societies Act, 1960. The learned Authorised Representative submitted, as per section 4 Mahatour Employees Co–operative Society 80P(2)(a)(i) of the Act, any income attributable to the business of the assessee is allowable as deduction. He submitted, investment of 25% of the surplus fund is a requirement for carrying on business of banking or providing credit facilities to its members as per the Maharashtra Co–operative Societies Act. Therefore, it cannot be said that the investments in reserve fund and fixed deposit is not in connection with the business. Without prejudice to the aforesaid submissions, the learned Authorised Representative submitted, assessee’s claim of deduction is alternatively allowable under section 80P(2)(d) of the Act since the assessee has made investment in other Co–operative Banks which are nothing but primarily and fundamentally Co–operative Societies. In support of such contention, he relied upon the decision of the Tribunal in Kalindas Udoyg Bhawan Premises Co– operative Society Ltd. v/s ITO, ITA no.6547/Mum./2017, dated 25th April 2018.

The learned Departmental Representative relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) submitted, section 80P(2) of the Act, being a deduction provision has to be interpreted strictly in accordance with the language used there under. He submitted, since the investment in reserve fund and fixed deposit from which the assessee had earned the interest and 5 Mahatour Employees Co–operative Society dividend income are not in connection with its business activity, no deduction under section 80P(2)(a)(i) of the Act is allowable. Further, he submitted that since the assessee has invested in Co–operative Banks, the restrictions imposed under section 80P(2)(d) of the Act would apply. Thus, he submitted, assessee’s claim of deduction under section 80P(2) of the Act was rightly rejected.

I have considered rival submissions and perused the material on record. I have also applied my mind to the decisions relied upon. As regards assessee’s claim of deduction under section 80P(2)(a)(i) of the Act is concerned, on reading of the said provision it appears that any income attributable to the business carried on in banking or providing credit facilities to the members would qualify for deduction. Now, the issue before me is, whether investment in fixed deposit and reserve fund can be considered to be an activity connected to the business of the assessee. As per section 66 of the Maharashtra Co–operative Societies Act, 1960, the Co–operative Society is required to maintain a reserve fund wherein 25% of its net profit should be kept as deposit. As per section 70 of the said Act, a Co–operative Society is required to deposit its fund in various modes, including, by way of deposit in a central and State Co–operative Banks or in shares, bonds and debentures, etc. Thus, from the reading of the aforesaid provisions, it

In view of my aforesaid decision, assessee’s alternative claim of deduction under section 80P(2)(d) of the Act having become academic is not required to be adjudicated upon. However, the issue is kept open for adjudication if it arises in future. Grounds are allowed.

In the result, appeal is allowed. Order pronounced in the open Court on 22.05.2019