ACIT, CIRCLE - 40, KOLKATA , KOLKATA vs. M/S. SBI STAFF ASSOCIATION CO-OP BANK LTD., , KOLKATA

The only issue is to be decided as to whether the CIT(A) is justified in deleting the addition made u/s 80P(2)(a)(i) of the Income Tax Act, 1961 (in short “Act”) in the facts and circumstances of the case.

Heard both parties and perused material available on record. According to AO, the assessee is a co-operative society and claimed deduction of Rs.3,01,97,145/- u/s 80P of the Act. The AO found that an amount of Rs.1,52,61,800/- out of above said total deduction as claimed by the assessee is related to interest income derived from fixed deposits. The AO asked the assessee how the exemption u/s 80P(2)(a)(i) of the Act is applicable to the interest income derived from fixed deposits. It was explained that the assessee has temporary surplus funds which are deposited in fixed deposits with State Bank of India and that has been done mainly to utilise funds gainfully when they are not deployed in giving loans to Members and claimed allowance of full

(ASSESSMENT YEAR-2014-15) deduction. The AO did not accept the submissions made by the assessee and held the activity of depositing surplus funds under fixed deposits in State Bank of India is in the trade nature resultant interest is certainly profit and liable to be taxed under the Income Tax Act. The AO further placed reliance in the case of South Eastern Railways Employees co-operative Credit Society of Hon’ble High Court of Calcutta and disallowed Rs.1,52,61,800/- by observing that the said amount derived under the head interest from investment is not eligible to claim exemption u/s 80P of the Act. The CIT(A) by placing reliance on the decision of this Tribunal in assessee’s own case deleted the said addition and held the assessee is entitled to claim deduction u/s 80P(2)(a)(i) of the Act. It is noted that the Hon’ble High Court of Calcutta in the case of South Eastern Railways Employees co-operative Credit Society (supra) did not agree with the contention that the interest earned from investment is attributable to the business of providing credit facilities to its member and made it clear that the interest earned from deposits from bank is not eligible for deduction u/s 80P of the Act. Therefore, we hold that the said amount is ineligible claim deduction u/s 80P of the Act.

For better understanding, relevant portion in the case of South Eastern Railways Employees co-operative Credit Society (supra) of Hon’ble Calcutta High Court is reproduced hereunder for ready-reference:-

“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 facilties to its members. We have not been impressed by the judgments cited by Mr. Khaitan.

We are unable to agree with the views of Patna High Court in the case of Bihar State Housing Co-operative Federation Ltd. (supra). The Division Bench in that case relied on the judgment of the Apex Court in the case of CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194/118 Taxman 321. That was a case of a co-operative bank. A co-operative bank and a co- operative society do not stand on the same footing. The whole of the income of co-operative bank is deductible whereas in the case of a society the income attributable to anyone 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 (ASSESSMENT YEAR-2014-15) 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 judgement cited by Mr. Khaitan in the case of Guttigedarara Credit Co- operative Society Ltd. (supra) is not applicable because the caution appearing in sub-section (1) of Section 80P, that only an income referred to in sub- section (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 members" was not contemplated. The assessee cannot claim any deduction which is not provided for by the section. Moreover the judgment in the case of Totgars Co- operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC) 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 impression 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, from 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 artificially 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 lakhs and Rs. 1.12 crores respectively. The expenditure incurred for 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 be allowed.

In that view of the matter, 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, remanded to the Assessing Officer (a) to work out the interest earned under Sections 63 and 64 of the Multi-State Co-operative Societies Act, 2002 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 (ASSESSMENT YEAR-2014-15) 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.”

On perusal of the afore-mentioned decision, it is noted the Hon’ble High Court of Calcutta remanded the matter to the file of AO to work out the interest expenses that might have been incurred by the assessee for earning the impugned amount from State Bank of India and to pass the order in accordance with the observation made by the Hon’ble High Court of Calcutta. Thus, the matter is remanded to the file of AO for his fresh consideration in terms of the findings of Hon’ble High Court of Calcutta as indicated above, grounds raised by Revenue are allowed for statistical purposes.

In the result, the appeal of the Revenue is allowed for statistical purposes.