APOLLO TYRES EMPLOYEES MULTIPUROPSE CONSUMER CO. OPERATIVE CREDIT SOCIETY LTD.,,VADODARA vs. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(1),, BARODA

The assessee has raised following grounds of appeal:- “The learned CIT (Appeals)-3 has erred in erred in law and on the facts in confirming the order of the Assessing Officer holding that the amount of interest income earned on fixed deposits made with nationalized banks and co-operative banks is not profits and gains attributable to the activity of providing credit facilities to members and hence is not eligible for deduction under section 80P of the Act.” 3. In this case, return of income declaring income of Rs. nil was filed on 30th October, 2013. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 2nd September, 2014. The assessee is a co-operative society and engaged in providing credit facility to its members. He has further noticed that assessee has claimed deduction under chapter VIA of the act u/s. 80P to the amount of Rs. 32,19,788/-. During the course of assessment proceedings, on verification of the details submitted by the assessee, it was noticed by the assessing officer that assessee had earned interest income of Rs. 21,56,912/- from nationalized banks and Rs. 15,789/- from co-operative banks. After verification of the aforesaid details, the assessing officer observed that assessee has not derived aforesaid parts of interest income from its activity of providing credit facilities to its members or from its investment in any other co-operative society. Therefore, the interest income earned from bank/co-operative banks amounting to Rs. 21,72,701/- was treated as income from other sources u/s. 56 of the act. Thereafter, the assessing officer held that the net interest income from bank of Rs. 21,72,701/- would not qualify for deduction u/s. 80P of the act, therefore, deduction u/s. 80P was not allowed for interest income of Rs. 21,72,701/-.

Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has sustained the disallowance made by the assessing officer by observing as under:- “5. I have considered the facts of the case, submissions of the appellant and the AO's observations. The entire submission dated 17.08.2016 of the appellant as reproduced in earlier paragraph of this appeal order cannot be accepted in view of recent judgment of Hon'ble High Court of Gujarat as given in the case of State Bank of India (SBI) vs. Commissioner of Income tax (2016) 72 Taxmann.com 64. In this referred case, the assessee was a Co-Operative Society registered with the object of accepting deposits from salaried persons of State Bank of India, Gujarat region with a view to encourage thrift and providing credit facility to them. This assessee for A.Y.2009-10 had declared Nil income after claiming deduction u/s.80P. The AO allowed this claim of deduction of the appellant. Subsequently, the Commissioner invoked powers u/s.263 of the Act ori the ground that interest income from the State Bank of India was not exempt u/s 80P(2)(d). On appeal, the tribunal held that interest income earned on extending credit facilities by the assesse to its members would be business income as there existed nexus between the income and the business of the society, which was extending credit facilities to its members. The Tribunal further held that however it could not be said that there was such nexus between the interest earned on deposits made in State Bank of India and therefore such interest would not be exempt u/s.80P. The assessee filed an appeal to the High Court of Gujarat against the order of the Tribunal. The question arose before the Hon'ble High Court of Gujarat as to whether in the case of Society engaged in providing credit facilities to its members, it is only interest derived from credit provided to its members which is deductible u/s.80P(2)(a)(i) and interest derived by depositing surplus funds with the bank not being attributable to business carried on by the society, cannot be deducted u/s.80P(2)(a)(i). The answer of the Hon'ble High Court of Gujarat was 'yes'. In other words, as per the Hon'ble High Court of Gujarat interest derived by the Co-Operative society by depositing surplus fund with the bank not being attributable to business carried on by the society cannot be deducted u/s.80P. 5.1 The Hon'ble High Court of Gujarat in the case of SBI vs. CIT as referred to in just earlier paragraph of this appeal order has discussed the decision of Hon'ble Supreme Court as given in the case of Totgar's Cooperative sale society vs. ITO (2010) 233 ITR 383 and in the light of observation of Hon'ble Supreme Court it has held that in the case of society engaged in providing credit facilities to its members, income from investments made in the banks does not fall in any of the categories -mentioned u/s.80P(2)(a). The Hon’ble High Court of Gujarat has held that in the light of the principles enunciated by the Supreme Court in Totgars 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 80P(2)(a). As per the Hon'ble High Court of Gujarat however, section 80P(2)(d) specifically exempts interest earned from funds invested in co-operative societies. As per the Hon'ble High Court of Gujarat 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). As per

We have heard the rival contentions and perused the material on record. During the course of appellate proceedings before us, we observed that the ld. CIT(A) has correctly decided the issue after taking into consideration the decision of hon’ble jurisdictional high court on the identical issue in the case of the SBI vs. CIT (2016) 72 taxman.com 64. However, ld. counsel has contended that in respect of claim pro rata expenses for earning interest income, he placed reliance on the decision of Co-ordinate Bench of the ITAT rendered in the case of Dhan Laxmi Credit Co-operative Society vide ITA No. 2426/Ahd/2013 dated 24th Jan, 2017. In the above decision, the Co- ordinate Bench has decided on identical issue on the claim of the assessee for pro rata expenses for earning interest income. The relevant part of the decision is reproduced as under:- “10. We further observe that during the course of hearing before us, Id. AR accepted that assessee is not eligible to claim deduction u/s 80P(2)(a)(i) of the Act on the interest earned on surplus deposits/investments held with Scheduled/Nationalized bank but urged for allowing deduction on pro rata expenses incurred for earning the interest income and also for allowing statutory deduction of Rs.50,000/- u/s 80P(2)(c)(ii) of the Act. Ld. AR also submitted that a total expenses incurred for the year stood at Rs.28,60,298/- and pro rata expenses for earning interest income of Rs.8,55,854/- as against total interest income of Rs.42,39,515/- will be calculated at Rs.5,77,423/-. 11. We observe that Id. AR has referred to the decision of the Co-ordinate Bench in the case of Kherava Co-op. Credit Society Ltd. vs.lTO, Ward-4, Mehsana in ITA No.2704/Ahd/2015 for Asst. Year 2012-13 wherein similar issue of allowing pro rata

In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 18-12-2017