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Income Tax Appellate Tribunal, BANGALORE BENCH C, BANGALORE
Before: SHRI. N. V. VASUDEVAN & SHRI. ABRAHAM P. GEORGE
Assessee by : Shri. S. Ranganath, CA Revenue by : Shri. Sunil Kumar Agarwala, JCIT Heard on : 19.08.2015 Pronounced on : 26 .08.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by assessee which is a cooperative society it is aggrieved that interest received by it on deposits placed with cooperative banks was denied deduction u/s.80P(2)(d) of the Income-tax Act, 1961 (‘the Act’ in short). 02. Facts apropos are that assessee, a cooperative society providing credit facilities to its members had filed its return declaring nil income. Assessee had ITA.920/Bang/2014 Page - 2 claimed deduction u/s.80P(a)(2)(i) of the Act and 80P(2)(d) of the Act. AO was of the opinion that assessee was doing banking business and hence not eligible for claim of deduction u/s.80P(2)(a)(i) of the Act. Vis-a-vis claim of deduction u/s.80P(2)(d) of the Act, AO was of the opinion that interest earned by assessee from deposits placed with cooperative banks would not fall within the ambit of the said sub-section.
Aggrieved assessee moved in appeal before the CIT (A). CIT (A) held that assessee was only a credit cooperative society covered u/s.80P(2)(a)(i) of the Act and not a cooperative bank. As per the CIT (A) assessee could not be denied deduction claimed since it was not a cooperative bank within the meaning of section 80P(4) of the Act. However, vis-a-vis claim for deduction u/s.80P(2)(d) of the Act, CIT (A) was of the opinion that interest earnings on surplus funds parked with commercial banks could not be given deduction. Reliance was placed on the decision of Hon’ble Supreme Court in the case of M/s. Totgars’ Cooperative Sale Society Ltd v. ITO [(2010) 322 ITR 0283].
Now before us, Ld. AR strongly assailing the order of CIT (A) submitted that similar issue had come up before this Tribunal in the case of Menasi Seemeya Group Gramagala Seva Sahakari Sangha Niyamitha V. CIT [ITA Nos.609 & 610/Bang/2014, dt.06.02.2015]. As per the Ld. AR the coordinate bench had held that interest earned from cooperative banks was also eligible for claiming deduction u/s.80P(2)(d) of the Act.
5. Per contra, Ld. DR supporting the order of CIT (A) submitted that Section 80P(2)(d) of the Act mentioned interest on investments and not on deposits.
ITA.920/Bang/2014 Page - 3
We have perused the orders and heard the rival contentions. Coordinate bench in the case of Menasi Seemeya Group Gramagala Seva Sahakari Sangha Niyamitha (supra) held as under in para 6 of the order :
“6. Now coming to the question as to whether the interest on deposits earned by a Co-operative Society, where such deposits were with a Co-operative Bank, we are of the opinion that restrictive interpretation given by the learned CIT(A) to section 8OP(2)(d) was not warranted by it wordings. Section 80P(2)(d) is reproduced hereunder: “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”
This Tribunal in the case of Bagalkot District Central co- operative Bank had held that a cooperative bank which is also a cooperative society cannot be excluded from the purview of benefits available to a cooperative society, unless the provisions of the Act so stipulate. No doubt in the said decision the Tribunal was considering the application of Section 194A(3)(v) of the Act, wherein it was mandated that a cooperative society was not required to deduct tax at source if the interest credit were paid to any cooperative society. It had unequivocally held that the said provision applied to all cooperative society including a cooperative society engaged in the business of the bank or in other words, a cooperative bank. Therefore, the view taken by the AO that income by way of interest or dividends earned by the assessee society from the cooperative bank namely Kanara Dist. Central Co-operative bank which was also a cooperative society was eligible for deduction cannot be faulted. We cannot say that the order of the AO was erroneous and prejudicial to the interest of the revenue. Order of the learned CIT, therefore, stand quashed and appeals of the assessee are allowed.”
7. In our opinion deposits placed with banks could be considered only as investments irrespective of the classification done by an assessee. All deposits will be investments, unless the context otherwise suggest, whereas all investments may not be deposits. Therefore assessee ITA.920/Bang/2014 Page - 4 was eligible for claiming deduction u/s.80P(2)(d) of the Act. As to whether interest income earned on surplus kept as deposit, was eligible for deduction u/s.80P(2)(a)(i) of the Act, issue has been settled in favour of the assessee by the judgment of Hon’ble jurisdictional High Court in the case of Tumkur Merchants’Souharda Credit Cooperative Society v. ITO [ITA No.307/Bang/2014, dt.28.10.2014]. Their lordships held as under :
"4. The learned counsel for the assessee assailing the impugned order contended, the interest accrued in a sum of Rs.1,77,305/- is from the deposits made by the assessee in a nationalized bank out of the amounts which was used by the assessee for providing credit facilities to its members and therefore the said interest amount is attributable to the credit facilities provided by the assesseeand forms part of profits and gains of business and therefore he submits the appellate authorities were not justified in denying the said benefit in terms of Sub-sec.(2) of Section 80P of the Act. In support of his contentions, he relied on several judgments and pointed out that the Apex Court in the aforesaid judgment has not laid down any law.
Per contra, learned counsel for the Revenue strongly relied on the said judgment of the Supreme Court and submitted, the case is covered by that judgment of the Apex Court and no case for interference is made out.
6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs. 1,77,305/- represents the interest earned from short-term deposits and from savings bank account. The assessee is a Cooperative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law ie., Section 80P(2)(a)(i): “Deduction in respect of income of co-operative societies:
ITA.920/Bang/2014 Page - 5 80P (1) 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. (2) The sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in — (i) )carrying on the business of banking or providing credit facilities to its members, or (ii) xxx (iii) xxx (iv) xxx (v) xxx (vi) xxx (vii) xxx the whole of the amount of profits and gains of business attributable to any one or more of such activities.”
The word ‘attributable’ used in the said section is of great importance. The Apex Court had an occasion to consider the meaning of the word ‘attributable’ as supposed to derive from its use in various other provisions of the statute in the case of CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME-TAX, GUJARAT-ll reported in ITR VOL. 113 (1978) PAGE 842 at page 93 as under: “As regards the aspect emerging from the expression “attributable to” occurring in the phrase “profits and gains attributable to the business of the specified industry here generation and distribution of electricity on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression “attributable to” and not the expression “derived from”. It cannot be disputed that the expression “attributable to” is certainly wider in import than the expression “derived from”. Had the expression “derived from” been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed ITA.920/Bang/2014 Page - 6 out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General, it has used the expression “derived from”, as, for instance, in section 80J. In our view, since the expression of wider import, namely, “attributable to”, has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.”
Therefore, the word ”attributable to” is certainly wider in import than the expression “derived from”. Whenever the legislature wanted to give a restricted meaning, they have used the expression “derived from”. The expression “attributable to” being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act.
In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they ITA.920/Bang/2014 Page - 7 are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law.
In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME- TAX III, HYDERABAD vs. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., reported in (2011) 200 TAXMAN 220/12 In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order. Appeal is allowed." The above judgment duly considered the effect of Hon’ble Apex Court decision in Totgar Cooperative Sale Society Ltd (supra). Accordingly we are of the opinion that assessee was eligible for claim of deduction u/s.80P(2)(d) of the Act. Ordered accordingly.