ITO, WARD - 35(3), KOLKATA , KOLKATA vs. M/S. KOLKATA RESERVE BANK EMPLOYEES CO-OPERATIVE CREDIT SOCIETY LTD., , KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A”, BENCH KOLKATA

BEFORE SHRI J. SUDHAKAR REDDY, AM & SHRI S. S. GODARA, JM आयकर अपीलसं./I.T.A No.240/Kol/2018 (�नधा�रण वष� / Assessment Year: 2014-15) ITO, Ward-35(3), Kolkata. Vs. M/s. Kolkata Reserve Bank Employees Co-operative Credit Society Ltd. 13, N.S. Road, RBI Building (Annexe), Kol- 1. �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AABAK6244L (Appellant) .. (Respondent) Appellant by : Dr. A. K. Nayak, CIT-DR Respondent by : Shri Anil Kochar, Advocate सुनवाईक�तार�ख/ Date of Hearing : 11/09/2019 घोषणाक�तार�ख/Date of Pronouncement : 18/10/2019 आदेश / O R D E R Per Shri S. S. Godara: This Revenue’s appeal for assessment year 2014-15 arises against the Commissioner of Income Tax (A) - 10, Kolkata dated 30.11.2017 passed in Case No.227/CIT(A)-10/Wd.-35(3)/14-15/16-17/Kol involving proceedings u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’). Heard both the parties. Case file perused. 2. The Revenue’s sole substantive grounds raised in the instant appeal seeks to reverse the CIT(A) action holding the assessee eligible for section 80P(2)(d) deduction of Rs.6,97,20,658/- disallowed in the assessment framed on 08.12.2016. Case file suggests that the assessee had derived the impugned interest income from parking of its surplus funds in fixed deposits with the Union Bank of India and Central Bank of India fetching interest of Rs.6,48,17,859/- and 49,02,799/-; respectively. The Assessing Officer quoted hon’ble apex court’s decision in Totgars Co-operative Sale Society Ltd. vs. ITO (2010) in 188 Taxman 282 (SC)

I.T.A No.240/Kol/2018 M/s. Kolkata Reserve Bank Employees Co-operative Credit Society Ltd.

that such an interest income deposits in non-cooperative bank is aimed to earn interest income only than that of carrying out the regular business activity. He therefore disallowed the impugned deduction claimed.

I.T.A No.240/Kol/2018 M/s. Kolkata Reserve Bank Employees Co-operative Credit Society Ltd.

providing loan and credit facilities to its members as the society is not engaged in the business of banking and is therefore not qualifying for deduction u/s.80P(2a)(a)(i) of the Act, the learned Tribunal is correct in law in holding that interest earned on such investment is within the purview of section 80P of the Act 7" The Hon'ble Court held as follows:- "It was found by the Tribunal while affirming the order of the Commissioner of Income Tax (Appeal) that there is no change in the facts and circumstances of this case and it was held that the assessee was eligible for deduction under Section 80P(2 )(a )(i) on interest on investment amounting to Rs. 1;18,07,645/- in this assessment 'year also. Since the Tribunal found that this decision of the Tribunal was followed by CIT (A) there is no reason to take a different view. Under these circumstances, we feel that when the Commissioner of Income Tax (A) as well as the Tribunal has followed the earlier unchallenged decision no question of law is involved in this matter. Nothing has been produced before us to show subsequent decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and 2003-04 have been challenged by any of the parties before this Court. " Following this the appeal of the Revenue had been dismissed. 3.1. The ITAT 'C' Bench, Kolkata, in the case of S.E.,S.E.C & E.Co.Railways Employees' Co- operative Credit Society Ltd., Kolkata vs. A.C.I.T., Circle-28, Kolkata in ITA No. 1693/Ko1/2012 for Assessment Year 2008-09, order dt. 30/10/2014 at para 7.2 to 7.5 held as follows: "7.2. Considering the above we find that this issue is squarely covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in assessee's own case. In this regard we would like to place reliance upon the. decision of the Hon'ble Apex Court in the case of CIT vs Excel Industries 358 ITR 295 wherein the principle of consistency has been reiterated. Hence when the issue has been decided by the Jurisdictional High Court no convincing reason has been pointed to take a different view, any deviation is not permitted. 7.3. Now we come to the case laws relied upon by the Id. CIT(A). As regards the decision of the Hon 'ble Apex Court in the case of Totgars Co-operative Sale Society Ltd. (supra) we find that the said decision is not applicable in the facts of the case. We find that the Hon'ble Apex Court in the said decision in para 11 has itself mentioned that "We are confining the judgment to the facts of the present case." The facts of the case were that assessee's business was to provide credit facilities to its members and to market their agricultural produce. In many cases assessee retained sale proceeds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purposes, it invested same In specified securities and earned interest income. In these circumstances the Hon’ble Apex Court had held that interest earned would come in category of 'Income from other sources' taxable u/s 56 of the Act and would not qualify for deduction as business income u/s BOP(2)(a)(i). From the above it is amply evident in the present case the assessee has not retained any amount due to its members and instead of paying the same had invested the same and earned interest. Thus this case law is not applicable on the facts of the present case. 7.4. As regards the decision of Hon'ble Patna High Court in the case of Bihar Rajya Sahkari Bhoomi Bikash Co-op. Bank Ltd. (supra) the same is also not applicable to the facts of the present case. In that case the question was the treatment of interest earned on provident fund and rental income as attributable to banking business 'and this qualifying for deduction u/s BOP(2)(a)(i) of the Act. 7.5. In the background of the aforesaid discussion and precedent we hold that the issue is squarely covered in favour of the assessee by the decision of the Tribunal and the Jurisdictional High Court in assessee's own case. The decision relied upon by the Id. CIT(A) are not applicable in the facts of the case. The principle of consistency as conveyed by the Hon'ble Apex Court mandates that the Revenue does not take a different stand. Accordingly we set aside the orders of the authorities below and decide the issue in favour of the assessee. 4. In view of the above discussion, respectfully following the binding judgment of the jurisdictional High Court, we direct the Ld. AO to allow deduction u/s 80N the Act, to the assessee on the interest income of Rs.17,85,173/-.” Respectfully following the same we direct the AO to allow the deduction as claimed by the assessee u/s 80P(2)(a)(i) of the Act.”

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“6. We have given our thoughtful consideration to rival contentions. The sole dispute between the parties is about the correctness of assessee’s sec. 80P(2)(a)(i) deduction claim of ₹2,20,70,040/- pertaining to interest income from fixed deposits and other investments made in Central Bank of India as well as West Bengal State Cooperative. It appears at the time instance that this taxpayer’s case is squarely covered by this tribunal’s earlier year in its favour (supra). Relevant factual backdrop however speaks otherwise. It is sufficiently clear by now that the above co-ordinate bench followed yet another tribunal’s order declining Revenue’s stand on sec. 80P(2)(a)(i) issue as per hon'ble jurisdictional high court’s decision in CIT vs. South Eastern Railway Employees Co-operative Credit Society in ITAT No.135 of 2010 GA No.1838 of 2010 dated 22.07.2010. The Revenue had filed said appeal against the tribunal’s order holding the concerned assessee’s interest income arising from investments in banks to be eligible for sec. 80P(2)(a)(i) deduction. Their lordships’ detailed discussion in the said case qua in the instant issue as follows:- “It appears in this matter the Revenue wants us to admit the appeal on the points as formulated hereinbelow; - i) Whether on the facts and circumstances of the case, the interest earned by the assessee to the tune of Rs.l,18,07,64S/- out of its investment in banks is not the activity that arose from the activity of providing loan and credit facilities to its members as the society is not engaged in the business of banking and is therefore not qualifying for deduction u/S.80P(2a)(a)(i) of the Act, the learned Tribunal is correct in law in holding that interest earned on such investment is within the purview of section 80P of the Act? We have gone through the impugned judgment and order of the Learned Tribunal. It appears that the point involved is whether interest earned out of the investment earned by the assessee cooperative can be treated to be the income arising out of business activity or from other sources in order to apply the provision of Section 80P(2)(a)(i) of the LT. Act. It is an undisputed factual position that similar issue arose before the Commissioner of Income Tax (Appeal) in relation to the assessment year 1998-99 to 2002-2003 as also for the assessment year 1995-96 and 1996-97- Then again in relation to the assessment years 2003-04 and 2004-05 a similar point arose. The Learned Tribunal in relation to the assessment years 1998-99 to 2002-03 by order dated 10.11.2006 in ITA Nos.840 to 844/Kol/2006 and again by order dated 29.12.2006 in relation to assessment years 2003-04 and 2004-05 has deleted the Page | 4

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disallowance made in those assessment years and it was held that the interest earned by the assessee cooperative society from its short term and fixed deposits with the banks and other institutions were disallowed on the ground that this income was not business profit of the assessee society but was income from other sources. The Ld. tribunal has also has held that income from investment in banks and other financial institutions is the business income of the assessee society and it is eligible to get deduction under Section 80P(2)(a)(i). The Tribunal has overruled the decisions rendered against the assessee in relation to assessment years 1995-96 and 1996-97 on the same issue in relation to subsequent years. It was found by the Tribunal while affirming the order of the Commissioner of Income Tax (Appeal) that there is no change in the facts and circumstances of this case and it was held that the assessee was eligible for deduction under Section 80P(2)(a)(i) on interest on investment amounting to RS.1,18,07,645/- in this assessment year also. Since the Tribunal found that this decision of the Tribunal was followed by CIT (A) there is no reason to take a different view. Under these circumstances, we feel that when the Commissioner of Income Tax (A) as well as the Tribunal has followed the earlier unchallenged decision no question of law is involved in this matter. Nothing has been produced before us to show subsequent decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and 2003-04 have been challenged by any of the parties before this Court. It is submitted by Mr. Bhowmick that there has been challenge of the decision in relation to assessment years 1995-96, 1996-97 and the same is pending before this Court we think that challenge of the assessee has now become redundant as the earlier view taken in both the assessment years have been reversed by the Tribunal by its subsequent decision. Hence, the pendency of that earlier matter is of no consequence in this matter. Had there been a challenge of the decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and also 2003-04 to 2004-05 the matter would have been different. The revenue did not take any step whatsoever. Therefore, we presume the revenue has accepted the subsequent view of the Tribunal and the same now hold the field right now. The appeal is dismissed accordingly.” 7. We find that this issue does not set at rest as per the above extracted judgment. Their lordship’s subsequent decision in the very assessee’s case for assessment years 2003-04 and 2004-05 came to be decided on 15.07.2016 reported as (2017) 390 ITR 524 (Cal). The Revenue’s substantial question of law admitted therein was as to whether the said assessee’s interest income arising from investment in banks and other financial institutions quantify for sec. 80P(2)(a)(i) deduction or not. The tribunal had admittedly held the same to be eligible for deduction. Hon'ble jurisdictional high court’s answers Revenue’s substantial question of law as follows:- “7. We have not been impressed by the first submission advanced by Mr.Saraf. If the Multi-State Co- operative Societies At, 2002 does not provide for the consequences of an omission to act in accordance with section 63 thereof, that is no valid reason why the mandate of law should not be followed. When law requires a business to be done in a particular manner the business can be done only in that manner or not at all. 8. We are also not impressed by the submission advanced by Mr. Khaitan that the interest earned by the assessee from the investments made, to the extent of a sum of Rs.99 lakhs during the assessment year 2003-004 and a sum of Rs.1.12 crores during the assessment year 2004-05, should be attributable to the business of providing credit facilities to it members Section 80P, it is true provides that “in the case of a cooperative society engaged n carrying on the business... providing credit facilities to its members .... the whole of the amount of the profits and gain of business ‘attributable’ to any such activity ‘shall be deducted’. But there is a caution appearing in sub-section (1) which provides that the gross total income of a cooperative society may include income from various activities. It is only an income falling under sub-section (2), which is deductible. The Supreme Court in the case of Totgar’s Co-operative Sale Society Ltd. v. ITO reported in [2012] 322 ITR 283 (SC) took the following view in para. 10 of the report (page 289): ‘At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes The assessee(s) markets the produce of its members whose sale proceed at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is-whether interest on such deposits/securities, which strictly speaking accrues to the member’ account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the Page | 5

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category of ‘income from other sources’, hence such interest income would be taxable under section 56 of the Act, as rightly held by the Assessing Officer. In this connection, we may analyze section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with ‘Deductions in respect of certain income’. The headnote to section 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Section 80P(1), inter alia, states that where the gross total income of a cooperative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-society. An income, which is attributable to any of the specified activities in section 80P(2) of the Act, would be eligible for deduction. The word ‘income’ has been defined under section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. Parliament has included specifically ‘business profits’ into the definition of the words ‘income’. Therefore, we are required to give a precise meaning to the words ‘profits and gains of business’ mentioned in section 80P(2) of the Act. In the present case, as stated above, the assesseesociety regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression ‘profits and gains of business’. Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its embers or marketing of the agricultural produce of its member. When the assesseesociety provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under section 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as ‘investment’. Further, as stated above, the assessee(s) markets the agricultural produce of its member. It retains the sale proceeds in many cases. It is this ‘retained amount’ which was payable to its members, from whom produce was brought, which was retained by the assessee-society, was a liability and it was shown in the balance-sheet on the liability side. Therefore, to that extent such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or in section 80P(2)(a)(iii). Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under section 56 of the Act. 9. We are prepared to agree with Mr. Khaitan to the extent that the interest earned from out of the investments made under section 64 read with section 63 of the Multi-State Co-operative Societies Act, 2002 is attributable to the business of providing credit facilities to its members. But we are not able to agree with Mr. Khaitan that the rest of the interest earned by the assessee from the investments is also attributable to the business of providing credit facilities to its members. We have not been impressed by the judgment cited by Mr. Khaitan. 10. We are unable to agree with the views of the Patna High Court in the case of Bihar State Housing Co-op Federation Ltd. (supra). The Division Bench in that case relied upon the judgment of the apex court in the case of CIT v. Karnataka State Co-operative Apex Bank reported in [2001] 251 ITR 194 (SC). That was a case of a co-operative bank. A co-operative bank and a cooperative society do not stand on the same footing. The whole of the income of co-operative bank is deductible whereas in the case of society the income attributable to any one or more of the activities laid down in sub-section (2) is deductible. The Division Bench did not give any independent reasoning. The Division Bench proceeded on the basis that the view taken by them was supported by the judgment in the case of Karnataka State Co-operative Apex Bank (supra) which, with respect, was not a correct impression. The other judgment cited by Mr. Khaitan in the case of Guttigedarara Credit Cooperative Society Ltd. (supra) is not applicable because the caution appearing in sub-section (1) of section 80P, that only an income referred to in subsection (2) was deductible, was not taken into account. The sub- section (2) provides for only the income attributable to the business of advancing credit facilities to its members. Income arising from any other source including investment of capital “if not immediately required to be lent to the member” was not contemplated. The assessee cannot claim any deduction which is not provided for by the section. Moreover the judgment in the case of Totgar’s Cooperative Sale Society Ltd. (supra is a binding authority for the preposition that “interest income arising on the surplus invested in short-term deposits and securities... would come in the category of income from other sources.” Realising his difficulty, MR. Khaitan submitted that the assessee was under the impressions that the income arising out of investments is also attributable to the business of providing credit facilities to its members and on that basis, the assessee did not separately provide for the expenditure incurred for the purpose of earning Rs.99 lakhs during the assessment year 2003-04 and Rs.1.12 crores during the assessment year 2004-05, form investments. Those investments were obviously made from out of the funds deposited by the members and for such deposits, interest has been paid to those members by the assessee. The interest paid to those members on account of such deposits should, therefore, have been separately accounted for, which exercise was not undertaken. The result thereof was that the expenditure was artifically enhanced and the income arising out of the business of providing credit facilities to its members got reduced. When the income got reduced, the amount of deduction also got reduced. He, therefore, submitted that the matter should be remanded to the Assessing Officer for the purpose of working out the amount of expenditure incurred in earning the approximate sums of Rs.99 laksh and Rs.1.12crores respectively. The expenditure incurred for Page | 6

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earning those two amounts of income is the amount of interest paid for that money to the members which has to be ascertained and that has to be deducted from the expenditure of the eligible business so that the eligible amount of deduction can be worked out. At the same time, The Assessing Officer has to be directed, according to him, to treat the amount of interest arising out of investments of the funds created under section 63 as an income attributable to the business. Mr. Saraf submitted that this is a new case made out by the assessee before the High Court. This was never the plea before any of the authorities. He is no doubt correct in his submission. But court cannot refuse to give a person what is due to him. As a matter of fact, only that is a good judgment which renders every person his due. Whether the assessee claimed the amount or did not claim the amount, is not of much importance. What is of importance is whether the benefit is allowable in law? If an answer to that question is in the affirmative, then that benefit has to be allowed. In that view of the mater, the question raised for decision is answered in the affirmative and in favour of the Revenue to the extent as indicated above. The appeal is allowed. The matter is, however, remained to the Assessing Officer (a) to work-out the interest earned under sections 63 and 64 of the Multi-Stat Co-operative Societies Act, 20002 and to allow benefit under section 80P and (b) to ascertain the interest paid to the members for the purpose of earning the sums of Rs.99 lakhs and 1.2 crores on account of interest from investments. Such interest shall be deducted from the expenses of eligible business. Consequent increased amount of profits of eligible business as discussed above shall be the amount of deduction available to the assessee under section 80P.” 8. We deem it appropriate to conclude in these peculiar facts and circumstances that assessee’s impugned interest income derived from investment is not eligible for u/s 80P(2)(a)(i) deduction per se. Its reliance on learned co-ordinate bench’s decision in its own case dated 01.03.2018 (supra) is not very well founded since going against the hon'ble jurisdictional subsequent judgment on the very issue. We therefore treat learned co-ordinate bench’s earlier order to be per inquriam as per the CIT vs. B.R. Constructions (1993) 202 ITR 222 (AP)(F.B) since not taking into consideration the law settled by hon'ble jurisdictional high court. The Revenue therefore succeeds in its sole substantive ground in principle. 9. This leaves us with the equally significant aspect of computation of the impugned sec. 80P(2)(a)(i) deduction. There is hardly any dispute about the assessee having derived its interest income from investments made in a nationalised and State co-operative bank (supra). We quote jurisdictional high court’s above stated latter judgment first of all make it clear that the Assessing Officer needs to re-do the entire computation afresh. He shall treat assessee’s interest income if any, earned from investments made from deposits sec. 64 r.w.s. 63 of the Multi-State Co-operative Societies Act, 2002 to be very much attributable to the business of providing credit facility to its members. This shall follow the necessary netting exercise of the impugned interest income vis-à-vis the corresponding interest expenditure as well for arriving at the impugned disallowance. Needles to say, the assessee shall be afforded adequate opportunity of hearing in consequential proceedings. 10. This Revenue’s appeal is allowed for statistical purposes in above terms.”

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restored to the Assessing Officer for appropriate computation. We therefore direct the Assessing Officer to compute the impugned section 80P(2)(a)(i) disallowance in assessee’s case going by the netting method within three effective opportunities of hearing.

Order is pronounced in the open court on 18.10.2019.

Sd/- Sd/- (J. Sudhakar Reddy) (S. S. Godara) ACCOUNTANT MEMBER JUDICIAL MEMBER कोलकाता /Kolkata; �दनांक/ Date: 18/10/2019 (RS, Sr.PS) आदेशक���त�ल�पअ�े�षत/Copy of the Order forwarded to : 1. The Appellant - ITO, Ward-35(3), Kolkata. 2. The Respondent- M/s. Kolkata Reserve Bank Employees Co-operative Credit Society Ltd. आयकरआयु�त(अपील) / The CIT(A), Kolkata [sent through email] 3. 4. आयकरआयु�त/ CIT �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, कोलकाता/ DR, ITAT, Kolkata [sent 5. through email] 6. गाड�फाईल / Guard file. स�या�पत��त