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Facts
The assessee, a co-operative marketing processing society, claimed deduction under section 80P(2)(a)(i) for interest earned from unutilized funds invested in various banks (including nationalized, private, and co-operative banks) and HAFED. The Assessing Officer disallowed this deduction, treating the interest income as taxable under section 56, which was largely confirmed by the Ld. CIT(A) leading to an assessment of income at INR 36,94,570/-.
Held
The Tribunal dismissed the assessee's appeal, holding that interest earned from nationalized and other private banks on unutilized funds is taxable under section 56 and not eligible for deduction under section 80P(2)(a)(i). The Tribunal clarified that while the Ld. CIT(A) had directed allowing deduction for interest from co-operative banks and societies, this finding for co-operative *banks* might be misplaced based on Supreme Court precedents concerning co-operative *banks* versus co-operative *societies* investing in banks.
Key Issues
1. Whether interest income earned by a co-operative society from investments in banks (other than co-operative banks) on unutilized funds is eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act. 2. Whether such interest income is taxable under section 56 of the Income Tax Act.
Sections Cited
80P(2)(a)(i), 56, 143(2), 142(1), 80P(2)(a), 80P(2)(d), 80P
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI “SMC” BENCH: NEW DELHI
Before: SHRI KUL BHARAT & Dr.B.R.R.KUMAR
PER KUL BHARAT, JM :
The present appeal filed by the assessee is directed against the order passed by Ld.CIT(A), National Faceless Appeal Centre (“NFAC”), Delhi dated 03.08.2023 for the assessment year 2018-19.
The assessee has raised following ground of appeal:-
1. “The Ld.CIT(Appeal) has erred in law and on facts in holding that the interest earned by the assessee Gohana Co-operative Marketing Processing Society ltd. from unutilized funds invested in the banks other than the Co-operative bank 348681 on fixed deposit receipts and SB account, is not liable to be deducted under section 80P(2)(a)(i) of the Income tax Act, 1961.”_ 3. At the time of hearing, no one attended the proceedings on behalf of the assessee. It is seen from the record that no one has been attending the proceedings on behalf of the assessee despite various opportunities were provided to the assessee. On the last date of hearing i.e. 22.02.2024, one Shri Akshat Sharma, Advocate had appeared on behalf of the assessee but no Power of Attorney (“PoA”) was filed. The matter was adjourned for today i.e. 24.04.2024 but no one attended the proceedings on behalf of the assessee nor any request for making adjournment is made. Therefore, the appeal of the assessee is taken up for hearing in the absence of the assessee and is being decided on the basis of material available on record.
4. The only effective ground raised by the assessee in this appeal is against the confirming of action of the AO regarding taxing the interest on fixed deposits u/s 56 of the Income Tax Act, 1961 (“the Act”), made by the assessee in the Co-operative Society and banks.
Facts in brief are that the case of the assessee was taken up for limited scrutiny for examining the issue of allowability of deduction of total income under Chapter VIA of the Act. The statutory notices were issued to the assessee u/s 143(2) and 142(1) of the Act, calling upon it as to why deduction u/s 80P(2)(a) of the Act, should not be disallowed. In response thereto, the assessee had filed certain document i.e. Registration & Deed/By-laws of Society, Audited Balance Sheet, Profit & Loss Account etc. Thereafter, the Assessing Officer (“AO”) after considering the material available on record, disallowed the claim of deduction and made addition of interest income amounting to INR 33,85,440/- and assessed the income of the assessee at INR 36,94,570/-.
Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions and various case laws, confirmed the impugned addition and partly allowed the appeal of the assessee. Page | 2
Aggrieved against the order of Ld.CIT(A), the assessee preferred appeal before this Tribunal.
On the other hand, Ld. Sr. DR for the Revenue opposed these submissions and supported the orders of the authorities below. Ld.Sr. DR submitted that the issue is no more res-integra. The Hon’ble Supreme Court has decided the issue in favour of the Revenue in the case of CIT vs Nawanshahar Central Cooperative Bank Ltd. [2007] 289 ITR 6 (SC) and the Co-ordinate Bench of the Tribunal in the case of M/s. Krishnarajpet Taluka Agri Pro Co Marketing Society Ltd. in for the Assessment Year 2015-16 and in other cases, also followed the judgement of Hon’ble Supreme Court. Further, he made reliance on the judgment of Hon’ble Supreme Court in the case of M/s. Totgar’s Co-operative Sale Society Ltd. Vs ITO 322ITR 283 (SC). He therefore, prayed that the appeal be dismissed.
We have heard Ld. Sr. DR for the Revenue and perused the material available on record and gone through the orders of the authorities below. The AO has noted that out of total interest of INR 33,85,440/-, the assessee has earned interest and dividend from HAFED amounting to INR 15,29,972/- and INR 13,59,350/- respectively. Apart from this, the assessee has also earned interest from other banks i.e ICICI Bank, Axis Bank, Bank of Baroda, Punjab National Bank and Co-operative Bank, total amounting to INR 4,96,118/-.We find that Ld.CIT(A) has decided the issue by observing as under:-
C) Interest earned FROM SCHEDULED/NATIONALISED BANKS: Next issue under consideration is the allowability of interest income earned from the investment made with the other Banks, other than those fall under Page | 3 the category of cooperative societies. In this connection decision of hon'ble ITAT, 'A' Bench Bengaluru in Disposing of for Assessment Year 2015-16 in the case of M/S Krishnarajpet Taluka Agri pro co of Marketing society limited is referred in which it has ruled that the income earned from investment made in any Banks not being a cooperative society is not deductible U/S 80P(2)(d) of the IT Act relevant paragraph no. 13 and 15 of the ITAT order referred is reproduced as follows:- "13. The Hon'ble Karantaka High Court in the aforesaid decision also placed reliance on a decision of the Hon'ble Gujarat High Court in the case of STATE BANK OF INDIA (SBI) vs. COMMISSIONER OF INCOME TAX 389 ITR 0578 (Guj) did not agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision of the Supreme Court in Totagars Co-operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law. The Hon'ble Gujarat High Court held that in the case of Totagars Co-operative Sale Society (supra) decided by Hon'ble Supreme Court, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. The Hon'ble Gujarat High Court in this regard referred to the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. The Hon'ble Gujarat High Court therefore held that decision in the case of Totagar Co-operative Sales Society rendered by the Hon'ble Supreme Court is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression "profits and gains of business" and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under section 80P(2)(a)(i) of the Act. (Paragraph-13 of the Judgment) 14. It can thus be seen that the ratio laid down by the Hon'ble Karnataka High Court in the case of Totagars Cooperative Sales Society in 395 ITR 611 (Karn) is that in the light of the principles enunciated by the Supreme Court in Totagars Co- operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 8OP(2)(a) of the Act. However, section 8OP(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, Page | 5 not being a co- operative society, is not deductible under section 80P(2)(d) of the Act.)" While ruling that interest earned from investments made by a cooperative society with any other co-operative society, it is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act, the Hon'ble Tribunal has categorically stated that interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act). Respectfully following the above decision, it is held that INTEREST EARNED FROM NATIONALISED/SCHEDULED BANKS ARE NOT ELIGIBLE for claim of deduction U/S 80P of IT Act and the AO is directed to allow the claim of deduction u/s 80P of the IT Act on interest income and dividend income earned form cooperative banks and cooperative societies.”
The Ld.CIT(A) has directed AO to allow deduction u/s 80Pof the Act on interest income and dividend income earned from CO-operative Banks and Co- operative Society. While doing so, Ld.CIT(A) has relied on the judgement of Hon’ble Supreme Court in the case of CIT vs Nawanshahar Central Cooperative Bank Ltd. (supra). In our considered view, the finding of the Ld.CIT(A) is that interest earned from investment made in the Co-operative Bank would be eligible for deduction u/s 80P of the Act, is misplaced. The Hon’ble Supreme Court was dealing with the interest earned by the Co-operative Bank but not by a Co- operative society. For the sake of clarity, the relevant contents of the order of Hon’ble Supreme Court in the case of CIT vs Nawanshahar Central Cooperative Bank Ltd. (supra) is reproduced as under:-
“This Court has consistently held that investments made by a banking concern are part of the business of banking. The income arising from such investments would, therefore, be attributable to the business of bank falling under the head “Profits and gains of business” and thus deductible under section 80P(2)(a)(i) of the Income Tax Act, 1961. This has been so held in Page | 6 Bihar State Co-operative Bank Ltd. v CIT [1960] 39 ITR 114(SC), CIT vs Karnataka State Co-operative Apex Bank [2001] Supp. (2) SCR 35; [2001] 251 ITR 194 (SC) and CIT v. Ramanathapuram District Co-operative Central Bank Ltd. [2002] 255 ITR 423 (SC). The principle in these cases would also cover a situation where a co- operative bank carrying on the business of banking is statutorily required to place a part of its funds in approved securities. The appeals are accordingly dismissed without costs.”
However, the Revenue has not assailed the finding of Ld.CIT(A)which is not subject matter of this appeal. The finding that investment made by a Co- operative Society in a Co-operative society is hereby, affirmed being in accordance with law. Further, interest earned from nationalized bank and other private bank would be taxable u/s 56 of the Act in the light of binding precedents. Hence, there is no reason for interfering into the impugned order. Thus, we do not see any merit into appeal of the assessee, same is hereby dismissed.
In the result, the appeal of the assessee is dismissed.