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Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: SHRI PARTHA SARATHI CHAUDHURYAND DR. DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
1. This is an appeal filed by the Revenue against the order of ld.Commissioner of Income Tax Appeal[NFAC], passed under section 250 of the Income Tax Act, 1961 dated 26.09.2023 for A.Y.2018-19. The Grounds of appeal raised by the Revenue are as under : “i) On the fact and in the circumstances of the case, the Ld. CIT(A) has erred in allowing deduction u/s 80P(2)(a)(i) of the Act to the assessee. Mahesh Nagari Sahakari Pathsanstha [R] ii) On the fact and in the circumstances of the case, the Ld. CIT(A) has erred in allowing deduction u/s 80P(2)(a)(i) of the Act without appreciating the fact that the assessee has earned interest on investment which is not allowable for such deduction. iii) Any other ground of appeal
that may be urged at the time of hearing.” Submission of ld.Authorised Representative(ld.AR) :
2. No one appeared on behalf of the assessee.
Submission of ld.Departmental Representative(ld.DR) : 3. The ld.DR for the Revenue relied on the order of the Assessing Officer(AO). The ld.DR also filed copy of the ITAT “SMC” Bench, Bangalore’s order in the case of for A.Y.2017-18 dated 18.12.2023 of M/s.Bantwal Public Employees Consumers Co-operative Society.
Findings & Analysis : 4. We have heard ld.DR for the Revenue and perused the records.
4.1 Assessee is a Co-operative Credit Society registered under the Maharashtra Co-operative Societies Act, 1960. Assessee is engaged in providing credit facility to its members/customers. It is also accepting deposits from its members. Assessing Officer Mahesh Nagari Sahakari Pathsanstha [R] observed that assessee had deposited surplus funds in Co-operative Banks and Scheduled Banks. Assessee had earned interest on these deposits. Assessee had earned interest of Rs.1,48,48,447/-. Assessee claimed deduction under section 80P(2)(a)(i) of the Act in the Income Tax Return. Assessing Officer in the assessment order held that assessee is not eligible for deduction under section 80P(2)(a)(i) of the Act. The AO in para 6.4 of the assessment order observed that interest income earned from deposits kept with Co-operative Society is eligible for deduction under section 80P, but Interest earned from Scheduled bank which is not a co- operative society, is not eligible for deduction under section 80P of the Act. However, it is important to mention here, nowhere Assessing Officer in the assessment order has given the exact interest earned by assessee from Scheduled Banks and from Co- operative Societies. The assessment order only refers to the total interest income of Rs.1,48,48,447/-.
4.2 Aggrieved by the assessment order, assessee filed appeal before the ld.CIT(A). The assessee submitted written submission before the ld.CIT(A) which has been reproduced by ld.CIT(A) in Mahesh Nagari Sahakari Pathsanstha [R] the order. The relevant part of the written submission is reproduced here as under : “Whereas appellant society is co-operative society registered under MAHARASHTRA COOPERATIVE SOCIETIE'S ACT, 1960, as society is co-operative society and following arethe provision regarding maintaining cash reserve ratio and liquidity ratio.
As per section 70 of Maharashtra Cooperative societies act,1960 , the societies has to invest its funds as per the list mentioned in section 70 only. The appellant has made investment as per statutory requirement and in case of Co-operative Societies, the appellant is member of said co-operative society.
Appellant society engaged in the business of providing credit facilities to its members and hence entire income attributable and derived from this activities are entitled for deduction under section 80P(2)(a)(i) of the Income Tax Act. However the Ld AO is of the opinion that deduction is only applicable on the Income from the business of providing credit facilities from members only and not to the interest received from investment in various banks and co-operative societies but said deposits were kept from interest bearing borrowed funds accepted from members.
A Co-operative 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 if not immediately required to be lent to the members, the society 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 Mahesh Nagari Sahakari Pathsanstha [R] 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."
Reliance is placed on following citations of jurisdictional ITAT, i.e., PUNE ITAT.
Jan Kalyan Nagri Sahakari Pat Sanstha Ltd Vs. ITO [Pune ITAT] Niphad Nagari SahakariPatsanstha Ltd, Niphad-Nashik (ITA No.1336/PN/2011- A.Y.2009-10) dt. 31-07-2013 HAL(ND) Employees Co-op Credit Society( A.Y.2010-11 dt.10-06-2016.
Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO, Ward-1(3), Kolhapur order dated 19-08-2015 Mahesh Nagari Sahkari Pat Sanstha Ltd., Sangli vs ITO Assessment Year: 2010-11 dt. 13-05-2015.
Sindhudurga Zilla Madhyamik Adhyapak Va Ucchya Madhyamik Shikshak Va Shikshaketar Karmachari Sahakari Patpedhi Maryadit Vs ITO ward 2(4), Kudal (ITA No.154/PUN/2015)- A.Y.2011-12 dt.31/05/2018:"
4.3 The ld.CIT(A) observed that in appellant’s own case in A.Y.2009-10, ITAT Pune in had allowed assessee’s appeal. Similarly, for A.Y.2010-11, ld.CIT(A) had observed that “assessee is not hit by the provisions of section Mahesh Nagari Sahakari Pathsanstha [R] 80P(4) of the Act”. The ld.CIT(A) held that assessee is eligible for deduction under section 80P for the interest earned.
4.4 The ld.DR for the Revenue has not brought to our notice any decision of the Hon’ble Jurisdictional High Court on this issue.
4.5 The only issue involved in this case is eligibility of interest earned from deposits kept with Scheduled Banks/Co-operative Societies for deduction under section 80P(2)(a) of the Act in the case of the assessee. Admittedly, assessee is a co-operative credit society, as observed by Assessing Officer in the assessment order. Assessee is also registered as Co-Operative Credit Society under the Maharashtra Co-operative Society Act, 1960. The identical question came up for consideration of the Hon’ble Andhra Pradesh High Court in the case of Vavveru Co-operative Rural Bank Limited Vs. CCIT 396 ITR 371(AP HC), order dated 15.03.2017. In the case of Vavveru Co-operative Rural Bank Limited, the Hon’ble High Court of Andhra Pradesh has specifically observed that “Though the petitioners in these writ petitions are named as Co-operative Rural Banks, the petitioners claim that they are Primary Agricultural Co-operative Credit Societies, registered under the Co-operative Societies Act, 1932. The Assessing Officer Mahesh Nagari Sahakari Pathsanstha [R] has also treated both these institutions as Primary Agricultural Credit Societies and did not treat them as banks”. The Question of Law before the Hon’ble High Court(supra) was as under: “whether the denials, by the Assessing Officers, of the benefit of deduction under section80P(2)(a) to the petitioners is correct or not.”
4.6 The Hon’ble Andhra Pradesh High Court(supra) held as under : 30. Therefore, what follows is that when a co-operative society engaged in any one of the activities stipulated in sub-clauses (i) to (vii) of clause (a) makes profits and gains out of business attributable to anyone of those activities, the case would fall under clause (a). The moment the income derived from one of those activities is invested in another co-operative society and an interest or dividend is derived therefrom, the case would be covered by clause (e). In case the profits and gains of business arising out of the activities listed in sub-clauses (i) to (vii) of clause(a) is invested in immovable properties, such as, godowns or warehouses and an income is derived therefrom, the case would be covered by clause (e) of section 80P(2).
The only area of distinction between clause (a) on the one hand and clauses (d) and (e) on the other hand is that the benefit under clause (a) is restricted only to those activities of a cooperative society enlisted in sub-clauses (i) to (vii) of clause (a). On the other hand, the benefit under clauses (d) and (e) are available to all co-operative societies, without any restriction as to the nature of the activities carried on by them.
In simple terms, the position can be summarised like this. If there is a co-operative society, which is carrying on several activities Mahesh Nagari Sahakari Pathsanstha [R] including those activities listed in sub-clauses (i) to (vii) of clause (a), the benefit under clause (a) will be limited only to the profits and gains of business attributable to any one or more of such activities. But, in case the same co operative society has an income not attributable to any one or more of the activities listed in sub-clauses (i) to (vii) of clause (a), the same may go out of the purview of clause (a), but still, the co-operative society may claim the benefit of clause (d) or (e) either by investing the income in another co operative society or investing the income in the construction of a godown or warehouse and letting out the same.
In other words, the benefit conferred by clause (d) upon all types of co-operative societies is restricted only to the investments made in other co-operative societies. Such a restriction cannot be read into clause (a), as the temporary parking of the profits and gains of business in nationalised banks and the earning of interest income there from is only one of the methods of multiplying the same income. To accept the stand of the Department would mean that cooperative societies carrying on the activities listed in clauses (i) to (vii), which invest their profits and gains of business either in other co-operative societies or in the construction of godowns and warehouses, may benefit in terms of clause (d) or (e), but the very same societies will not been titled to any benefit, if they invest the very same funds in banks. Such an understanding of section 80P(2) is impermissible for one simple reason. The benefits under clauses (d) and (e) are available in general to all co-operative societies, including societies engaged in the activities listed in clause (a). Section 80P(2) is not intended to place all types of co-operative societies onthe same pedestal. The section confers different types of benefits to different types of societies. Special types of societies are conferred a special benefit. Mahesh Nagari Sahakari Pathsanstha [R]
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). Mahesh Nagari Sahakari Pathsanstha [R] 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.
4.7 Thus, the Hon’ble Andhra Pradesh High Court(supra) held that interest earned from fixed deposits kept with the nationalized banks is eligible for deduction under section 80P(2)(a) of the Act in the case of Co-operative Credit Societies registered under Societies Act.
4.8 The Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO 230 Taxman 309 (Karnataka)[28-10-2014] held as under by distinguishing the Hon’ble Supreme Court’s decision in the case of Totagars Co-Op Sale Society 322 ITR 272 : Quote, “9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative 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 Mahesh Nagari Sahakari Pathsanstha [R] 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 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 CIT v. Andhra Pradesh State co-operative Bank Ltd., [2011] 200 Taxman 220/12 taxmann.com 66. 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. ” Unquote Mahesh Nagari Sahakari Pathsanstha [R] 4.9 The Hon’ble Kerala High Court in the case of PCIT Vs. Peroorkada Service Co-operative Bank Ltd., has held that assessee is eligible for deduction under section 80P(2) on the interest earned from Co-operative Banks.
4.10 ITAT Pune in the case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO 604/PN /2014 vide order dated 19/08/2015 held as under : Quote “Accordingly, we hold that the interest income earned by the assessee on short term deposits kept with banks has to be allowed as deduction u/s.80P(2)(a)(i) of the I.T. Act.” Unquote.
4.11 It is also observed that in the case of the Assessee for A.Y.2009-10 in ITA 1874/PUN/2012 the ITAT has dismissed the Revenue’s appeal holding the assessee was eligible for deduction u/s.80P(2)(a) of the Act for the interest earned. No contrary decision of Hon’ble Jurisdictional High Court has been brought to our notice. Therefore, respectfully following the decision of Hon’ble Andhra Pradesh High Court (supra), Hon’ble Karnataka High Court (supra), Hon’ble Kerala High Court (supra) and ITAT Pune(supra), it is held that the Assessee is eligible for deduction Mahesh Nagari Sahakari Pathsanstha [R] u/s.80P(2)(a) of the Act on Rs.1,48,48,447/-. Accordingly order of the Ld.CIT(A) is upheld and Revenue’s Appeal is dismissed. 5. In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 26th March, 2024.