MANTOLA CO-OPERATIVE THRIFT & CREDIT SOCIETY LTD vs. PRINCIPAL COMMISSIONER OF INCOME- TAX- 21,

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ITA/128/2017HC DelhiDLHC01341832201607 March 2017Bench: HON'BLE MR. JUSTICE S. RAVINDRA BHAT,HON'BLE MR. JUSTICE NAJMI WAZIRI4 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court held that the ITAT's disallowance of deduction for interest earned from investments in other co-operative banks was unsustainable, as per previous judgments. The court also held that the assessee is entitled to claim proportionate expenditure for income earned from non-exempt sources like interest from commercial banks.

What were the facts?

The assessee, a co-operative society, claimed deductions under Section 80P on interest income earned from deposits in commercial banks and co-operative banks. The ITAT disallowed deductions on interest earned from commercial banks and on interest from co-operative banks where it couldn't be established that the investment was exclusively with other co-operative banks.

What were the issues?

Whether interest income earned by a co-operative society from deposits in commercial banks and other co-operative banks is eligible for deduction under Section 80P, and the allowability of proportionate expenditure.

Which sections of the Income-tax Act were involved?

Section 80P

AI-generated summary — verify with the full judgment below

$~2-8 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 128/2017, 129/2017, 130/2017, 131/2017, 132/2017, 133/2017 & 134/2017 MANTOLA CO-OPERATIVE THRIFT & CREDIT SOCIETY LTD. .... Appellant Through: Mr. Gautam Jain, Adv. versus PRINCIPAL COMMISSIONER OF INCOME- TAX- 21, ..... Respondent Through: Ms. Vibhooti Malhotra, Adv. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE NAJMI WAZIRI O R D E R % 07.03.2017 CM 4908/2017 (condonation of delay) in ITA 128/2017 CM 4909/2017 (condonation of delay) in ITA 129/2017 CM 4911/2017 (condonation of delay) in ITA 130/2017 CM 4913/2017 (condonation of delay) in ITA 131/2017 CM 4915/2017 (condonation of delay) in ITA 132/2017 CM 4917/2017 (condonation of delay) in ITA 133/2017 CM 4919/2017 (condonation of delay) in ITA 134/2017 1. Issue notice. 2. Ms. Vibhooti Malhotra accepts notice for the respondent. For the reasons given therein, the applications are allowed and the delay is condoned. The applications stand disposed off. ITA Nos. 128/2017, 129/2017, 130/2017, 131/2017, 132/2017, 133/2017 & 134/2017 3. Issue notice. ITA 128/2017 & Connected matters Page 1 of 4

4.

Ms. Vibhooti Malhotra accepts notice for the respondents. 5. The question urged by the assessee is whether the impugned order of the ITAT to the extent it disallowed the deduction claimed by the assessee towards interest income earned on deposits made in commercial banks and interest earned on deposits made in co- operative banks, are not eligible for deduction under Section 80P of the Income Tax Act, 1961 (in short the Act). 6. As far as treatment under Section 80P is concerned i.e. vis-a-vis the interest from commercial banks, the previous judgments of this Court in ITA No. 569/2013 and connected cases (Mantola Co- operative Thrift & Credit Society Ltd. vs CIT decided on 27.08.2014) could govern the issue. However, with respect to the treatment of interest the ITAT has held as follows: “...8. Applying the legal provision u/s 80P to the gross total income earned as enumerated in the chart, we hold that the Assessing officer was right in allowing the deduction u/s 80P only to the extent of interest earned from members who availed the credit facility. Further from the column of interest earned from investments with Co-operative Banks/ Societies, the assessee has neither been able to establish before us nor before the authorities below that interest has been earned exclusively from investment with other cooperative banks. 8.1 Accordingly ground No.3 for assessment year 2004-05 to 2007-08, 2009-10, 2010-11 and ground No. 1 for assessment year 2008-09 stands dismissed.....” 7. We notice at the outset that the ITAT had in the course of its impugned order – in the immediately preceding paragraph i.e. para 7, ITA 128/2017 & Connected matters Page 2 of 4

applying the ratio in ITA No. 839/2009 (CIT vs National Agricultural Co-operative Marketing Federation of India Ltd., decided on 03.05.2011), held that the assessee was eligible to deduction under Section 80P(2)(d) in respect of interest earned from investments made by the Society in other co-operative banks. In these circumstances, the ITAT’s findings in this regard are unsustainable. The matter is remitted for appropriate tax treatment to the authorities having regard to the material placed before the Revenue which is broadly reflected in the chart produced in para 7.1 of the impugned order. 8. The Revenue had sought to contend that as far as the expenditure goes, this Court in a previous order dated 15.02.2017 in ITA No. 148/2017 (PR. CIT-21 vs The Mantola Co-operative Thrift & Credit Society Ltd.) had not made a distinction between two types of expenditure attributable to the income derived i.e. expenditure towards interest earned from deposits in commercial banks on the one hand and expenditure towards interest earned from deposits made in co-operative banks on the other. Para 4 and 6 of this Court’s order clearly noted the two different streams of income and also held that the proportionate expenditure could be allowed, the only rider being that in case the AO felt that the expenditure claimed was “extraordinary or seemingly disproportionate”, he could pass appropriate orders. 9. In these circumstances, it is held that the assesse is entitled to claim proportionate or suitable expenditure with respect to the income earned out of the non-exempt income i.e. interest earned from ITA 128/2017 & Connected matters Page 3 of 4

commercial banks. The AO shall carry out the necessary consequential exercise. The appeals are allowed in the above terms. S. RAVINDRA BHAT, J NAJMI WAZIRI, J MARCH 07, 2017/kk ITA 128/2017 & Connected matters Page 4 of 4

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