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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
Assessment Year: 2017-18 Arth Nagari Sahakari V The Income Tax Officer, Patsanstha Limited, s Ward-1(1), Nashik. Gala No.4, Shanti Daya Society, Hirawadi Shakti Nagar, Panchavati, Nashik – 422003. PAN: AACAA7908C Appellant/ Assessee Respondent / Revenue Assessee by Shri Prashant Shrishrimal – AR Revenue by Shri Manoj Tripathi – DR Date of hearing 26/11/2024 Date of pronouncement 27/11/2024 आदेश/ ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the assessee against the order of ld.Commissioner of Income Tax(Appeals)[NFAC] for Assessment Year 2017-18 dated 01.08.2024 passed u/sec.250 of the Income tax Act, 1961. The Assessee has raised the following grounds of appeal :
1. On the facts and in law the Ld.CIT(A) has erred in holding that interest from nationalized bank Rs.3,13,518/- is not eligible for deduction u/s 80P(2)(a)(i) and held it to be taxable income of the society.
2. On the facts and in law the Ld.CIT(A) has erred in assessing gross interest received from nationalized bank as income without allowing expenditure for earning the said interest income on pro-rata basis.
3. The appellant craves leave to add alter delete above or any other ground/s of appeal.” Submission of ld.AR : 2. Ld.AR for the Assessee submitted that Assessee had earned interest income of Rs.3,13,518/- from Nationalized Bank. The AO has disallowed Assessee’s claim for deduction u/sec.80P(2)(a)(i) of the Act and held that interest income shall be taxed under the head “Income from Other Sources”. Ld.AR relied on following decisions of ITAT Pune Bench : DCIT Vs. Shree Parshwanath Nagari Sah. Pat Sanstha Ltd., in dated 27.01.2022. Baliraja Gramin Bigar Sheti Sahakari Patsanstha Maiyadit V. ITO, & 51/PUN/2017, A.Y. 2012-13 and 2014-15, date of order 26/03/2018. Shivneri Nagari Sahakari Pat Sanstha Maryadit, Kolhapur Vs. ITO Kolhapur I.T.A. No. 2223/PN/2013 A.Y. 2009-10 order dated 31/10/2014. Shri. Venkatesh Nagari Sahakari Pat Sanstha I.T.A.No. 2178/PN/2013 Niphad Nagari Sahakari Pat Sanstha. Tata Motors Karmachari Sahakari Pat Pedhi Ltd. Vs. ITO Ward 10(1) Pune. I.T.A. No. 1756/PN/2012 order dated 8/7/2014.
I.T.O. 1(4) Nashik Vs. Shriram Suganmalji Surana Vyapari Saha. Pat Sanstha Maryadit, Deola, Nashik A.Y. 2008-09 order dated 29/04/2014. ITO Ward 1(1) Nashik Vs. HAL (ND) Employees Co-op Credit Society, Nashik A.Y. 2009-10 order dated 24/02/2014. It is pertinent to note here that the Hon’ble Jurisdictional ITAT, Pune in the case of Ratnadeep Sah. Nagari Patpedhi Maiyadit, in ITA No.388/PUN/2022 A.Y. 2017-18, order dated 01/09/2022. 3. ld.AR submitted that the said amount shall be allowed as deduction u/sec.80P(2)(a)(i) of the Act.
Submission of ld.DR : 4. Ld.DR for the Revenue relied on the order of the Assessing Officer(AO) and ld.CIT(A).
Findings & Analysis : 5. We have heard both the parties and perused the records. The only issue before us is whether interest of Rs.3,13,518/- earned by assessee from Nationalized Bank is eligible for deduction u/sec.80P(2)(a)(i) of the Act or not! 5.1 The Assessing Officer in para 10, 11 and 12 of the assessment order has observed as under : “10. Moreover, the decision of the Hon. Supreme Court in the case CIT Vs Nawashahar Central Co-operative Bank Ltd (2007) 160 Taxman 48(SC) and CBDT Circular No. 18/2015 dated 02/11/2015, it is clear that deduction u/s 80P(2)(a)(i) of the Income Tax Act 1961 is available to a cooperative bank doing the banking business, meaning thereby which is covered by the Rules and Legislation of the RBI. Whereas a cooperative society known as a patsanstha, which is the case of the assessee, this deduction u/s 80P(2)(a)(i) is not allowed, as the assessee is not controlled by the RBI guidelines and is not covered by the Banking Regulation Act 1949.
Further, the Hon'ble Delhi High Court in the case of Mantola Co- Operative Thrift & Credit Society Ltd. Vs. Commissioner of Income Tax [2014] 50 taxmann.com 278 (Delhi) held in the favor of Revenue that where assessee, a co-operative society, engaged in providing credit facilities to its members, deposited surplus funds in fixed deposits and earned interest thereon, said interest would be assessable as 'income from other sources' and, thus, not eligible for deduction under section 80P(2)(a)(i) of the I.T. Act, 1961. Being aggrieved by the said decision of the High Court the assessee filed an SLP before the Apex Court (Mantola Co-operative Thrift & Credit Society Ltd. Vs Commissioner of Income-tax[2016] 70 taxmann.com 296 (SC)) which is still pending for adjudication.
Therefore, the interest income of Rs.3,13,518/- on investment made with nationalized banks i.e. other than co-operative society, deduction u/s 80P(2) of the I.T. Act is not allowable to the assessee society and the same is added to the total income. The assessee has under-reported its return of income, hence, penal proceedings under section 270A of the Income-tax Act, 1961 is separately initiated.” 5.2 Thus, Assessing Officer has held that interest income earned from Co-operative Bank is only allowable as deduction. The AO relied on the decision of the Hon’ble Delhi High Court.
5.3 However, the Hon’ble Andhra Pradesh & Telangana High Court has taken a contrary view as under:
5.3.1 The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under : Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub- section (2) of section 80P or not.
While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. ……………………
The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.
But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be.
The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to".
Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” Unquote. 5.4 Thus, the Hon’ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business and Profession by a Credit Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act.
5.5 No contrary decision of the Hon’ble jurisdictional High Court has been brought to our notice.
5.6 The Hon’ble ITAT Pune Bench in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com 322 (Pune Tribunal) has held as under : Quote “7………………………..I am of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted. Therefore, I direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from cooperative bank/scheduled bank. Thus, the ground of appeal filed by the assessee stands allowed.”Unquote 5.7 The Hon’ble ITAT Pune Bench in the case of Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO in dated 04.06.2024 held that the assessee was eligible for deduction u/sec.80P(2)(a) of the Act on the Interest earned by assessee.
5.8 It is a well settled principle now that whenever two contrary decision of Non-Jurisdictional Hon’ble High Courts are available on the issue, and no decision of the Hon’ble Jurisdictional High Court is available, then, the decision which is favourable to the assessee would be followed.
5.9 Therefore, respectfully following the decision of the Hon’ble AP & TS High Court(supra) and ITAT Pune(supra), we hold that assessee is eligible for deduction u/sec.80P(2)(a)(i) of the Act for the Interest Income referred above. Accordingly, grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 27th November, 2024.