MAWANA SUGARS LTD.,,NEW DELHI vs. DCIT (LTU), NEW DELHI

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ITA 5830/DEL/2016Status: DisposedITAT Delhi26 March 2025AY 2012-13Bench: SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER and SHRIS.RIFAUR RAHMAN (Accountant Member)4 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal allowed the assessee's appeal. It adopted the reasoning from its coordinate bench's decision in ITO Vs. Shri Bhairavnath Multistate Cooperative Credit Society Ltd. (Pune Trib.) (2024) 164 taxmann.com 382. This decision, following the Pune Tribunal's ruling in Nashik Road Nagari Sahkari Patsanstha Limited Vs. ITO, held that interest income earned by a cooperative society from investments of surplus funds made with cooperative banks qualifies for deduction under section 80P(2)(d) of the Act. Furthermore, it was held that such interest also qualifies for exemption under section 80P(2)(a)(i) as it is attributable to the activities of the society. The Tribunal noted that while there was a cleavage of judicial opinion among High Courts, the coordinate bench had followed the view favorable to the assessee, citing the Karnataka High Court's decision in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO. The Tribunal found the CIT(A)'s order to be in conformity with this settled position of law and therefore affirmed the order, directing the Assessing Officer to allow the claim of exemption under section 80P(2)(a)(i)/80P(2)(d) on the interest income earned on investments made out of surplus funds.

What were the facts?

The assessee, M/s. Co-operative Cane Development Union Pvt. Ltd., filed an appeal for Assessment Year 2017-18 against an order passed by the CIT(A)/NFAC, Delhi, dated 18.10.2024. This order arose from proceedings under section 144 of the Income-tax Act, 1961. The lower authorities had denied the assessee a deduction under section 80P(2) of the Act. The denial was based on the reasoning that the interest income, derived from loans to members and from savings banks and FDRs in commercial banks, was not generated from the assessee's primary business activity. The amount in dispute is Rs. 57,13,882/-.

What were the issues?

1. Whether the interest income earned by the assessee from investments made out of surplus funds with cooperative banks, cooperative societies, and nationalized banks is eligible for deduction under section 80P(2)(a)(i) and/or 80P(2)(d) of the Income-tax Act, 1961, as a question of law? Assessee's contentions: The assessee relied on the decision of the Tribunal in ITO Vs. Shri Bhairavnath Multistate Cooperative Credit Society Ltd. (Pune Trib.) (2024) 164 taxmann.com 382. This decision, in turn, followed the Pune Tribunal's ruling in Nashik Road Nagari Sahkari Patsanstha Limited Vs. ITO, which held that interest income earned from investments of surplus funds with cooperative banks qualifies for deduction under section 80P(2)(d) and also under section 80P(2)(a)(i) as it is attributable to the activities of the society. The assessee argued that the CIT(A)'s order was in conformity with this settled position of law. Revenue's contentions: The Revenue cited the Supreme Court case of Totgars Co-operative Sale Society Ltd. Vs. ITO, Karnataka [2010] 188 Taxman 282. The Revenue argued that such interest incomes could not be considered as derived from the regular business activity carried out by the assessee-society, and therefore, the disallowance deserved to be upheld.

Which sections of the Income-tax Act were involved?

Section 80P(2),Section 80P(2)(a)(i),Section 80P(2)(d),Section 144

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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI

Before: SHRI SATBEER SINGH GODARA & SHRI S. RIFAUR RAHMAN

Hearing: 01.07.2025Pronounced: 18.07.2025

Date of hearing 01.07.2025 Date of pronouncement 18.07.2025 ORDER

PER SATBEER SINGH GODARA, JM

1.

This assessee’s appeal for assessment year 2017-18, arises against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s DIN and order no. ITBA/NFAC/S/250/2024-25/1069776441(1), dated 18.10.2024 involving proceedings under section 144 of the Income- tax Act, 1961 (hereinafter referred to as ‘the Act’). Heard both the parties. Case file perused.

Heard both the parties at length. Case file perused.

2.

It emerges during the course of hearing that the learned lower authorities have refused section 80P(2) deduction to the assessee on the ground that the corresponding interest income in fact had been derived from loan to members and from saving banks and FDRs in commercial banks involving varying sums.

3.

We have given our thoughtful consideration to the assessee’s and Revenue’s vehement contentions against and in support of the impugned section 80P disallowance/addition. The Revenue quotes case law Totgars Co-operative Sale Society Ltd. Vs. ITO, Karnataka [2010] 188 Taxman 282 (SC) that such interest incomes could not be held to have been derived from the regular business activity carried out by the assessee-society, and, therefore, the impugned disallowance deserves to be upheld.

4.

The assessee, on the other hand, quotes this tribunal’s decision (2024) 164 taxmann.com 382, ITO Vs. Shri Bhairavnath Multistate Cooperative Credit Society Ltd. (Pune Trib.); distinguishing the above case law, as follows: “5. We heard the rival submissions and perused the material on record. We find this issue is no more res integra by virtue of catena of decisions passed by the Coordinate Benches of this Tribunal. In the present case, we find that admittedly the interest income was earned from the investments out of surplus funds made with cooperative 2 | P a g e banks/societies, the cooperative bank is also a specie of cooperative society, therefore, the interest income earned by the cooperative society from the cooperative banks qualifies for deduction u/s.80(P)(2)(d) of the Act. Such interest also qualifies for exemption u/s.80P(2)(a)(i) as held by the Co-ordinate Bench of Pune Tribunal in the case of Nashik Road Nagari Sahkari Patsanstha Limited Vs. ITO in wherein the Tribunal held as under :- "9. We heard the rival submissions and perused the material on record. Admittedly, the appellant is a Cooperative society formed under the provisions of Maharashtra Cooperative Societies Act,1960 with the objective of accepting deposits and lending money to its members. The money which is not immediately required for the purpose of lending to the members is deposited with Bank of Baroda in the form of Fixed Deposit. The question is whether the interest so earned qualifies for exemption u/s. 80P(2)(a)(i) of the Act. The AO as well as the CIT(A) were of the opinion that the interest earned from third parties or non- members does not quality for exemption u/s.80P. It is an admitted position that the interest so earned should be taxed as 'income from other sources' There is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption u/s. 80P(2)(a)(i) of the Act. The Hon'ble Punjab & Haryana High Court in the case of CIT vs. Punjab State Cooperative Federation of Housing Building Societies Ltd. 11 taxmann.com 448, the Hon'ble Gujarat High Court in the case of State Bank of India Vs. CIT 389 ITR 578 (Guj.), the Hon'ble Delhi High Court in the case of Mantola Co- operative Thrift & Credit Society Ltd. Vs. CIT 50 taxmann.com 278, the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Punjab State Cooperative Agricultural Development Bank Ltd. 389 ITR 68 and the Hon'ble Kolkata High Court in the case of CIT Vs. Southern Eastern Employees Cooperative Credit Society Ltd. 390 ITR 524 took a view that the income arising on the surplus invested in short term deposits and securities cannot be attributed to the activities of the society and, therefore, not eligible for exemption u/s.80P(2)(a)(i) of the Act. However, the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 taxmann 309 (Kar.) and the Hon'ble Telangana and Hon'ble Andhra Pradesh High Court in the case of Vaveru Co- operative Rural Bank Ltd. v CIT [(2017) 396 ITR took a view that such interest income is attributable to the activities of the society and, therefore, eligible for exemption u/s.80P(2)(a)(i) of the Act. The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha 3 | P a g e Maryadit Vs. ITO (ITA Nos.559/560/PUN/2018, dated 11-12- 2018) has taken view in favour of the assessee following the judgment of Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Respectfully following the decision of the Coordinate Bench, we hold that the interest income earned on the investment of surplus money with banks is also eligible for exemption u/s.80P(2)(a)(i) of the Act. Thus, the grounds of appeal

No. 1 & 2 stands allowed."

6. Thus, the order passed by the ld. CIT(A) is in conformity with the settled position of law by virtue of the above discussion. Therefore, we affirm the impugned order directing the Assessing Officer to allow the claim of exemption u/s.80P(2)(a)(i)/80P(2)(d) on the interest income earned on investments made out of surplus funds made with Cooperative banks, Cooperative Societies and Nationalised banks.”

5. We adopt the foregoing detailed discussion mutatis mutandis to accept the assessee’s impugned identical section 80P deduction claim of Rs.57,13,882/- forming subject matter of adjudication herein in very terms. Ordered accordingly.

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