SAINI CO-OPERATIVE THARIFT AND CREDIT SOCIETY LTD,DELHI vs. ITO WARD-48(1), DELHI

We note in this factual backdrop that the tribunal’s recent decision in ITO Vs. Shri Bhairavnath Multistate Cooperative Credit Society Ltd. (2024) 164 taxmann.com 382 (Pune Trib.) has already rejected the Revenue’s very stand as under: “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 banks/socieites, 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 Ltd. v. ITO [IT Appeal No. 1700 (Pune) of 2017, dated 27-12-2021], 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 nonmembers 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 v. Punjab State Cooperative Federation of Housing Building Societies Ltd. [2011] 11 taxmann.com 448 (Punjab & Haryana) , the Hon'ble Gujarat High Court in the case of State Bank of India v. CIT [2016] 72 taxmann.com 64/241 Taxman 163/389 ITR 578 (Gujarat), the Hon'ble Delhi High Court in the case of Mantola Cooperative Thrift & Credit Society Ltd. v. CIT [2014] 50 taxmann.com 278/229 Taxman 68 (Delhi), the Hon'ble Punjab & Haryana High Court in the case of CIT v. Punjab State Cooperative Agricultural Development Bank Ltd. [2017] 77 taxmann.com 308/245 Taxman 125/389 ITR 68 (Bombay) and the Hon'ble Kolkata High Court in the case of CIT v. Southern Eastern Employees Cooperative Credit Society Ltd. [2016] 73 taxmann.com 123/390 ITR 524 (Calcutta) 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. v. 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 Maryadit v. ITO (ITA Nos.559/560/PUN/2018, dated 11-122018) 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

We have heard the rival submissions through virtual court and gone through the relevant material on record. The assessee is admittedly a credit co-operative society providing credit facility to its members. The assessee earned interest income, inter alia, on FDRs with State Bank of India and co-operative banks. The Assessing Officer (AO) examined this issue and came to hold that interest of Rs. 1,39,695/- on FDRs made with State Bank of India was not eligible for deduction u/s 80P. The assessee accepted that aspect and did not dispute it further. Now the ld. Pr. CIT has taken a view that interest income of Rs. 22,34,270/- earned from investments made with co-operative banks also does not qualify for deduction. This evidences that the availability of deduction u/s 80P(2) on the remaining amount of interest earned from the members etc., has also been accepted by the ld. Pr.CIT.

The short point of view of the ld. Pr.CIT is that interest earned from co-operative banks cannot be covered under clause (d) of sub-clause (2) of section 80P. Section 80P(1) provides that: 'Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.' Sub-section (2) opening with: 'The sums referred to in sub-section (1) shall be the following', has clauses (a) to (f). Clause (d), which has been invoked by the ld. Pr. CIT reads: '(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income.' It is axiomatic that only interest derived by a cooperative society from its investments with any other co-operative society is eligible for deduction under clause (d). Conversely, if the payer of the interest is not a co- operative society, its payee, a cooperative society cannot claim deduction thereon under this clause. Admittedly, the assessee received interest from a co-operative bank and not a co-operative society. A fortiori, such an amount is not eligible for deduction u/s 80P(2)(d) of the Act.

The term "profits and gains of business attributable to" providing credit facilities has a wider connotation. It encompasses not only the income derived strictly from providing credit facilities to its members but also any other income which is attributable to such business. So long as there exists a live link, not necessarily direct, between the income and carrying on of the business of providing credit facilities, the resultant income qualifies for deduction. If a particular amount is received by a co- operative society from its members as deposits and a part of the same has been provided as a credit facility to its members, the unspent amount for the time being not required by the members as loan, if utilised elsewhere, will nonetheless lead to generation of profits and gains of business of providing credit facilities to its members. The thread of link between income and business of providing credit facilities to the members will be broken if despite there being the members wanting to avail credit facilities, the cooperative society chooses to prefer making deposits with banks etc. rather than advancing sums to its members.

Right now we are confronted with a situation in which the assessee co-operative society has made deposits with co-operative banks and earned interest income, which is extantly the bone of contention. The stand of the assessee is that these are short term deposits of the money not required for the time being. The ld. Pr. CIT has not returned any contrary finding. In such a scenario, the entire interest income - not only the one derived from its members by providing credit facilities but also that earned by utilizing the surplus available funds for the time being at some places like investment in FDR etc. - also falls within the ambit of "profits and gains of business attributable to" providing credit facilities to its members.

At this juncture, it is relevant to note that we are dealing with a case in which the ld. Pr. CIT has invoked his power u/s.263 of the Act. It is trite that the exercise of such a power is ousted in case of a debatable issue. An assessment order can be termed as erroneous and prejudicial to the interest of the Revenue if the AO has taken a view which is not legally sustainable. Per contra, if two views are available on a particular issue and the AO adopts one of such possible views, the case goes outside the purview of revisional power to be exercised by the Pr.CIT u/s.263 of the Act.

The Pune Benches of the Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit v. Pr. CIT [IT Appeal No. 713(PUN) of 2016, dated 9-4-2019] decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit v. ITO [IT Appeal No. 604(PN) of 2014, dated 19-8-2015] has allowed similar deduction. In the said case, the Tribunal discussed the contrary views expressed by the Hon'ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO [2015] 55 taxmann.com 447/230 Taxman 309 allowing deduction u/s. 80P on interest income and that of the Hon'ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. v. CIT [2014] 50 taxmann.com 278/[2015] 229 Taxman 68 not allowing deduction u/s.80P on interest income earned from banks. Both the Hon'ble High Courts took into consideration the ratio laid down in the case of Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283 (SC). There being no direct judgment from the Hon'ble jurisdictional High Court on the point, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred to go with the view in favour of the assessee by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra).

Insofar as the reliance of the ld. DR on the case of Pr. CIT v. Totagars Cooperative Sales Society [2017] 83 taxmann.com 140/395 ITR 611 (Kar.) is concerned, we find that the issue in that case was the eligibility of deduction u/s.80P(2)(d) of the Act on interest earned by the assessee co-operative society on investments made in co-operative banks. In that case, the assessee was engaged in the activity of marketing agricultural produce by its members; accepting deposits from its members and providing credit facility to its members; running stores, rice mills, live stocks, van section, medical shops, lodging, plying and hiring of goods and carriage etc. It was in that background of the facts that the Hon'ble High Court held that the assessee could not claim deduction u/s.80P(2)(d) of the Act. When we consider the impact of this decision, it turns out that the same is not germane to case under consideration in view of the position that the claim of the instant assessee is directly about the eligibility of deduction u/s.80P(2)(a)(i) of the Act and not & 4261/Del/2025 Saini Co-operative Thrift & Credit Society Ltd. u/s.80P(2)(d). Moreover, so many decisions relied on by the ld. AR amply go to prove that the view taken by the AO, cannot by any standard, be construed as not a possible view. We, therefore, hold that the ld. Pr. CIT was not justified in exercising the revisional power anent to interest income of Rs. 22,34,270/- earned on investments made with co-operative banks.

Now we advert to the second issue espoused by the ld. Pr. CIT about the interest income of Rs. 2,334/- received by the assessee on refunds u/s.244A of the Act. We find that this issue is fully and directly covered by the Special Bench order passed by the Mumbai benches of the Tribunal in the case of Maharashtra State Cooperative Bank Ltd. v. Asstt. CIT [2010] 38 SOT 325 holding that interest on income-tax refund u/s.244A is covered within the expression "profits and gains of business" occurring in section 80P(2)(a) and ergo eligible for deduction u/s.80P(2)(a)(i) of the Act. Albeit interest amounting to Rs. 2,334/-received u/s.244A of the Act is chargeable to tax but at the same time the same is also deductible in full u/s.80P(2)(a)(i) of the Act. The assessment order in not adding such interest to the total income, cannot be construed as prejudicial to the interest of revenue because such interest income is tax- neutral in the context of the assessee due to the simultaneous availability of deduction u/s.80P(2)(a)(i) on such amount.

We, therefore, hold that the ld. Pr.CIT was not justified in revising the assessment order on both the counts. The impugned order is set-aside.

In the result, the appeal is allowed.”