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Income Tax Appellate Tribunal, “SMC” BENCH, NAGPUR
Before: SHRI PARTHA SARATHI CHAUDHURY, JM
ORDER This appeal preferred by the assessee emanates from the order of the ld. CIT(A)-1, Nagpur dated 03-07-2017 for assessment year 2008-09 as per the grounds of appeal
on record.
2. At the very outset, the ld. Counsel for the assessee submitted that there is a delay of 29 days in filing the appeal before the Tribunal. In this regard, the ld. Counsel for the assessee has filed an affidavit and condonation petition. I have gone through the contents of the said Affidavit and condonation petition. I find that this delay of 29 days is absolutely circumstantial and it cannot be held to be attributable to any deliberate or malafide intention of the assessee. The ld. DR did not raise any objection for condonation of the delay. Therefore, I condone the delay of 29 days and the case is heard on merits.
3. The only issue for adjudication in this case is the addition made by the Department u/s 80P(2)(a)(i) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) whether it is justified or not. It is the case of the revenue that the assessee had invested fixed deposits in various banks from the funds which it had procured by obtaining loans from various other banks and financial institutions and that the fund
2 ITA 386/NAG/2017 Sharda Urban Co-op. Society A.Y. 2008-09 is not out of the interest received from the Members of the assessee’s credit-society for the loans given and therefore, it cannot be said to be attributable to the business activity of the assessee which is admittedly providing credit facilities to its members.
Per contra, the ld. A.R submitted that the assessee is in the business of providing credit facilities to its Members and apart from that the assessee is also authorized by various banks and financial institutions to provide drafts bankers’ cheques facilities to its Members on credit. For example, if any Member of the society approaches for demand draft the society issues such demand draft to the Member on credit and this is authorized by the bank concerned for the fact that the assessee society in the form of security is providing fixed deposits etc. in the said bank in form of investments. Meaning thereby, whenever such banker’s cheque, demand drafts, etc. are issued by the assessee society to any Member,
the corresponding OD account of the bank which had authorized the assessee-society to issue such credit facilities gets debited and this facility the bank provides because of the fact that the assessee society has placed fixed deposits in that bank which is treated as security. Again, it is a matter of fact that such fixed deposits, the assessee-society is able to make in those banks from the funds accumulated by way of interest earned from the Members of the society for giving credit facilities. So, therefore, the entire process is inter-linked. That the assessee society is giving credit facilities to its Members which is receiving interest on such loans given to the Members, thereby the fund accumulation is there and such fund is kept as fixed deposits in various banks and other financial institutions and such banks treat those fixed deposits as security and authorize the assessee-society to provide demand drafts, bankers’ cheques, etc. on credit to Members. Therefore, this is very much part and parcel of the business activity of the assessee and allowable for deduction u/s 80P(2)(a)(i) of the Act.
3 ITA 386/NAG/2017 Sharda Urban Co-op. Society A.Y. 2008-09
I find the exact identical fact situation and circumstances in a recent decision of Pune Tribunal which was also before me for adjudication, in for A.Y. 2017-18 in the case of Nirmiti Nagari Sahakari Patsanstha Ltd. Vs. ITO Ward 1(2) Nashik, order dated 26-10-2022. The relevant paras are extracted as follows: “7. I find in a recent decision of Pune Tribunal exactly an identical issue was adjudicated in ITA No.388/PUN/2022 for A.Y. 2017-18, order dated 01.09.2022. The relevant paras are extracted as follows:
“2. The assessee is aggrieved by the denial of deduction u/s.80P in respect of interest of Rs.9,46,230/- earned from deposits kept with nationalized banks.
I have heard the ld. DR and gone through the relevant material on record. There is no appearance from the side of assessee. However, this issue is no more res integra by virtue of series of orders passed by the Pune Tribunal. The Pune Benches of the Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITA No.713/PUN/2016) 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 Vs. ITO (ITA No.604/PN/2014) 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. Vs. ITO (2015) 230 Taxman 309 (Kar.) allowing deduction u/s. 80P on interest income and that of the Hon’ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT (2014) 110 DTR 89 (Delhi) 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 Cooperative Sale Society Ltd. (supra). No direct judgment from the Hon’ble jurisdictional High Court on the point having been pointed out, 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). I, therefore, overturn the impugned order on this score and allow the deduction.”
In the aforesaid decision, the Tribunal relied on the decision of Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (2015) 230 Taxman 309 (Kar) allowing deduction u/s 80P(2)(a)(i) of the Act on interest income in the identical facts and circumstances. In another decision of the Pune Bench in dated 27.12.2021, it was held as follows: “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 non-members does not qualify 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 difference 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 4 ITA 386/NAG/2017 Sharda Urban Co-op. Society A.Y. 2008-09
Act. The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Punjab State Cooperative Federation of Housing Building Societies Ltd. 11 taxmann.com 448, the Hon’ble Gujarat High Court in the case of State Bank of India Vs. CIT 389 ITR 578 (Guj.), the Hon’ble Delhi High Court in the case of Mantola Co-operative Thrift & Credit Society Ltd. Vs. CIT 50 taxmann.com 278, the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Punjab State Cooperative Agricultural Development Bank Ltd. 389 ITR 68 and the Hon’ble Kolkata High Court in the case of CIT Vs. Southern Eastern Employees Cooperative Credit Society Ltd. 390 ITR 524 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. Vs. 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 Vs. ITO (ITA Nos.559/560/PUN/2018, dated 11-12-2018) 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 No. 1 & 2 stands allowed.”
In the aforesaid decision also, the Tribunal relied on another decision of Co- ordinate Bench of Pune in order dated 11.12.2018 which has also taken a view in favour of the assessee following the judgment of Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (supra).
Therefore, these decisions clearly have extended the scope and ambit and interpretation of the word ‘profits and gains of business’ attributable to the activities of the assessee in a way that it has been considered when the assessee is in the business of providing credit facilities and earning interest from its members, the basic premise of that fund arises from the said business activity of the assessee society only. In the absence of that business, there would not have been any question of having surplus fund. Once that surplus fund is accumulated, those are given on investment for short term basis in nationalized banks and interest earned therefrom. This activity is, therefore, held as not alien or foreign to the primary business activity of the assessee society. In view thereof, I set aside the order of ld. NFAC and direct the AO to grant deduction to the assessee u/s 80P(2)(a)(i) of the Act for Rs.1,98,659/“. 6. That in the aforestated decision of the Tribunal, it had relied on various other decisions including the decision of Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. (supra) and Hon’ble Telengana and Andhra Pradesh High Court in the case of Vaveru Co-op. Rural Bank Ltd. (supra) which has taken a view regarding what can be held to be attributable to the business activities of the society which can be held as eligible for deduction u/s 80P(2)(a)(i) of the Act. In a way these decisions have extended the scope and ambit and the interpretation of the words “profits and gains of business” attributable to the business
5 ITA 386/NAG/2017 Sharda Urban Co-op. Society A.Y. 2008-09 activities of the assessee-society in a way that it has been considered when the assessee is in the business of providing credit facilities and earning interest from its Members, the basic fact remains that the funds arises from the said business activity of the assessee-society. In absence of that business there would not have been any question of having surplus funds for making investments as fixed deposits in various Nationalized Banks and other Financial Institutions. This is also the applicable facts so far as present case is concerned. The present assessee before me also accumulates the funds by providing credit facilities to its Members and obtaining interest for giving such loans. That on having accumulated the funds, the same are invested as fixed deposits and such fixed deposits are treated as security by those banks and therefore, they allow the assessee also to issue bankers cheque, demand drafts, etc. on behalf of those banks to the Members of the assessee on credit. Therefore, the entire transactions are inter-linked and none of the part of such transactions can be bifurcated and said that it is not part of the business activity of the assessee. That upon examination of the facts and circumstances and the business model of the assessee, I am satisfied that the assessee is eligible to get deduction u/s 80P(2)(a)(i) of the Act. I set aside the order of the ld. CIT(A) and direct the A.O to grant deduction to the assessee u/s 80P(2)(a)(i) of the Act. Grounds of appeal are allowed.
7. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 31st October, 2022.
Sd/- Sd/- Sd PARTHA SARATHI CHAUDHURY JUDICIAL MEMBER Pune; Dated : 31st October, 2022 Ankam
6 ITA 386/NAG/2017 Sharda Urban Co-op. Society A.Y. 2008-09 Copy of the Order forwarded to :