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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI ARUN KHODPIA
आदेश / ORDER
PER RAVISH SOOD, JM:
The present appeal filed by the revenue is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 07.09.2022, which in turn arises from the order passed by the A.O. u/s.143(3) r.w.s. 147 of the Income-tax Act, 1961 (for short ‘Act’) dated 26.12.2018 for A.Y. 2015-16. The revenue has assailed the impugned order on the following grounds of appeal before us:
“1. On the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC erred in deleting the amount of Rs.1,63,14,290/- u/s.80P(2)(d)(i) without appreciating the facts that interest income earned by the society comes to the category of income from other sources.
2. On the facts and circumstances of the case, the Ld. CIT(A) erred in appreciating the fact that the assessee for the year under consideration as earned interest income from bank which is not acceptable in light of decision of Kerala High Court in Pr. CIT Vs. Peroorkada Service Co-Op Bank Ltd. (Ker.) wherein it has been held that the interest income earned by the society comes with category of income from other sources and section 80P(2)(d) deals with the eligible deduction in this behalf.
3. Any other ground that may be adduced at the time of hearing.”
On the basis of information received by the A.O. that though the assessee cooperative society had taxable income but had not filed its return of income for the year under consideration, the A.O. initiated proceedings u/s.147 of the Act. Notice u/s.148 of the Act dated 26.03.2018 was issued to the assessee society. In 3 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit response, the assessee society filed its return of income for A.Y 2015-16 on 21.12.2018, declaring an income of Rs. Nil.
During the course of the assessment proceedings, it was, inter alia, observed by the A.O. that the assessee society had claimed a deduction u/s.80P of Rs.1,78,54,220/-. On a perusal of the records, it was observed by the A.O that the assessee society was in receipt of interest on its funds lying in saving bank account and fixed deposits aggregating to Rs.2,47,66,570/-, as under:
1. Saving interest Rs. 14,602/- 2. Fixed deposit interest Rs.2,47,52,968/- The A.O was of the view that as the assessee society was in receipt of the aforesaid interest income from its investments/deposits with banks other than cooperative banks, the same, thus, was not eligible for deduction u/s.80P(2)(d) of the Act. Accordingly, the A.O on the basis of his aforesaid observations, after allocating on a proportionate basis the expenditure debited in the profit & loss a/c to the extent attributable to interest income earned from banks other than cooperative banks, disallowed the assessee’s claim for deduction u/s.80P of the Act of Rs.1,63,14,289/- (out of Rs.1,78,54,220/-). Accordingly, the A.O vide his order passed u/s. 143(3) r.w.s. 147 of the Act dated 26.12.2018 determined the income of the assessee society at Rs.1,63,14,290/-.
Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). After deliberating on the contentions advanced by the assessee, the CIT(Appeals)
4 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit found favor with the same. It was the claim of the assessee that interest income on its investment/deposits with the commercial banks was its business income, which, thus, was eligible for deduction u/s.80P of the Act. Elaborating on his aforesaid contention, it was the claim of the assessee society that as it was engaged in the business of providing credit facilities to its members, therefore, interest income that was received from its member societies against loans advanced to them along with interest income received from the surplus funds, which were in the normal course of its business parked with the banks in the form of deposits in the savings bank account and fixed deposits were eligible for deduction u/s.80P(2)(a)(i) of the Act. Carrying its contention further, it was the claim of the assessee society that as interest income on the aforesaid deposits or investments with the banks were kept ready for the purpose of its business, viz. providing credit facilities to its member cooperative societies, therefore, interest income from such funds being attributable to its main business of providing credit facilities to its members fell within the realm of sub-section (2)(a)(i) of Section 80P of the Act. In support of its aforesaid contention, the assessee society had relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Karnataka State Cooperative Apex Bank, 251 ITR 194 (SC) and that of Special Bench of the Tribunal in the case of Surat District Co- operative Bank, 85 ITD 1.
Apart from that, the assessee society, in order to buttress its claim that interest earned on saving bank/fixed deposits with commercial banks was its business income, had drawn support from the order of the ITAT, Indore in ACIT Vs. M/s. M.P
5 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit State Cooperative Housing Federation Society, and 1051/Ind/2016, wherein the Tribunal had observed that the judgment of the Hon’ble Apex Court in the case of Totgars Co-operative Sale Society Vs. ITO (2010) 188 Taxman 282/322 ITR 283 (SC) was not applicable to interest earned on surplus funds deposited by a cooperative society with commercial banks.
6. Also, the CIT(Appeals) had drawn support from the judgment of the Hon’ble High Court of Patna in the case of Bihar State Housing Co-operative Society Ltd. Vs. CIT, 315 ITR 286, wherein the Hon’ble High Court had held that interest income on deposit of surplus funds by a cooperative society with the bank is entitled to exemption u/s.80P(2)(a)(i) of the Act. Accordingly, based on his aforesaid deliberations, the CIT(Appeals) found favor with the contentions advanced by the assessee and directed the A.O. to recompute its claim for exemption u/s.80P of the Act.
7. The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
We have heard the Ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
9. Before proceeding any further, we may herein observe that the assessee co- operative society was formed on the reorganization of MP and Chhattisgarh State
6 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit by division of assets and liabilities of erstwhile MP State Co-operative Housing Federation Ltd. (registered as co-operative society under MP State Societies Act). The assessee society was also registered under the MP Societies Act as a cooperative society, whose primary business was to grant loans to member co- operative housing societies for house construction. To sum up, the activities of the assessee society are similar to those of M.P State Cooperative Housing Federation Limited and is controlled by the State Government.
10. Controversy involved in the present appeal lies in a narrow compass, i.e., as to whether or not interest income received on the savings bank account and fixed deposits held by the assessee society with commercial banks is entitled for deduction u/s.80P(2)(a)(i) of the Act?
At the very outset, we may herein observe that the ITAT, Indore Bench had looked into the issue involved in the present appeal in the case of parent co-operative society, i.e., M.P State Cooperative Housing Federation Society in its order passed in DCIT Vs. M/s. M.P State Cooperative Housing Federation Society in and ITA No.1051/Ind/2016 dated 27.03.2017, wherein the Tribunal on the issue in question had held as under:
“1.5 We have carefully considered the rival submissions of the parties in the wake of the facts of the case. So far as the decision of the Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd.(supra) as relied upon by the revenue is concerned, we find that on similar facts, Income tax Appellate Tribunal ‘B’ Bench Mumbai, in in the case of ITO vs. Malad Sahkari Bank Ltd. Malad, Mumbai, had an occasion to consider the judgment of the Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. (supra) and vide its order dated 30.9.2011 it was observed as under :-
7 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit
1. By way of this appeal, the Assessing Officer has called into question correctness of CIT(A)’s order dated 10th February, 2010, in the matter of assessment under section 143(3) of the Income tax Act, 1961, for the assessment year 2005-06 on the following ground: “
Whether on the facts of the case and in law, the CIT(A) erred in holding that income in the form of interest from investment of surplus fund with other banks qualify for deduction u/s.80P(2)(a) of the Act which is no inconsonance with the Supreme Court decision in the case of M/s. The Totgars Cooperative Sale Society ltd v. ITO, Karnataka in Civil Appeal No.1622 of 2010 (arising out of SLP (C) No.7572 of 2009) decided on 8.2.2010.”
2. Facts in brief are that during the course of assessment proceedings, the Assessing officer completed the assessment under section 143(3), inter alia, observing that the income received on fixed deposits amounting to Rs.13,43,280 from banks other than co-operative bank are not eligible for benefit of section 80P(2) of the Income tax Act. The assessee carried the matter in appeal before the CIT(A). The CIT(A) following the decision of the ITAT in assessee’s own case for the assessment year 2003-04, held that the assessee is entitled to deduction u/s.80P on interest income received by it from banks other than co-operative bank. The Assessing officer is not satisfied and is in appeal before us.
3. While learned Departmental Representative fairly accepts that the issue is covered in favour of the assessee by order of the cooperative Bench of this Tribunal as also an unreported judgment of Hon’ble Bombay High Court in the case of ITO vs. The Mahanagar Cooperative Bank ltd., dated 28.7.2011 in of 2010 , he places his reliance of Hon’ble Supreme Court’s judgment in the case of The Totgars Cooperative Sale Society ltd, 229 CTR 209(SC). When it was pointed out to him that Hon’ble Bombay High Court in the case of The Mahanagar Cooperative Bank ltd., has duly considered the said judgment of Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society ltd (supra), he had nothing to say except to reiterate that what has been held by Hon’ble Supreme Court in the case of The Mahanagar Cooperative Bank ltd.(supra) applies equally in the case of The Mahanagar Cooperative Bank ltd(supra).
4. We find that the issue is squarely covered in favour of the assessee by Hon’ble Bombay High court’s judgment in the case of The Mahanagar Cooperative Bank ltd (supra) as also coordinate Bench of this Tribunal in assessee;’s own case (supra). As regards reliance placed by learned Departmental Representative in the case of Totgars Cooperative Sale Society ltd(supra), we have noted that Their Lordships of Hon’ble Bombay High Court have distinguished the said judgment by, inter alia, observing as follows: “In our opinion, there is no merit in the above contention because in the case of Totgars Cooperative Sale Society ltd(supra),the Apex Court in para 11 of its judgment has held that the decisions relating to the cooperative
8 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit banks are distinguishable from the cases relating to the cooperative sale society. Moreover, the Apex court in the case of Nawanshahar Central cooperative bank (supra) has held that the investments made by the cooperative banks with a view to earn interest constitute banking business. As the income arising from investments are attributable to the business of banking assessable under the head “profits and gains of business”, deductible u/s.80P(2)(a)(i) of Income tax Act, 1961 would be allowable to the assessee. Thus, the decision of the Apex Court in the case of Togar’s cooperative sale society Ltd (supra) would not be applicable to the facts of the present case.”
5. In this view of the matter and respectfully following the esteemed views of Hon’ble Jurisdictional High Court in the case of The Mahanaghar Cooperative Bank ltd (supra) and also the decision of the coordinate Bench in assessee’s own case (supra), we uphold the conclusions arrived at by the CIT(A) and decline to interfere.
In the result, appeal is dismissed.” 1.5.1 In the case of Totgar's cooperative sale society Ltd (supra), it had surplus funds which the assessee invested in short-term deposits with the Banks and in Government securities. On such investments, interests accrued to the assessee. The Assessee provided credit facilities to its members and also marketed the agricultural produce of its members while in the present case the assessee did not invest the surplus funds in short term deposits with the banks and in Government securities and as such no interest was earned on that account but the assessee earned interest income from fixed deposits and saving bank account. As such, the facts of the present case are clearly distinguishable from the facts of the case obtained in the case of Totgars Cooperative Sale Society Limited (supra). We, therefore, hold that the decision of the Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. (supra) is not applicable to the present case.”
Apart from that, we find that the issue in hand, i.e., entitlement of a Co- operative society for claiming exemption u/s.80P(2)(a)(i) of the Act on surplus funds parked on investment/deposits with commercial banks, had also looked into by the ITAT, Raipur bench in Gramin Sewa Sahakari Samiti Maryadit Vs. Income Tax Officer (2022) 138 taxmann.com.476 (Raipur Trib.), wherein on the issue in hand the Tribunal had held as under:
9 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit
“13. …………….We may herein observe, that though the assessee- society in addition to its business of providing credit facilities to its members was also engaged in other multiple activities for its members, viz. business of paddy procurement, sale of fertilizers, seeds, manures and pesticides and sale of controlled items under Public Distribution System (PDS), however, it is neither the case of the revenue nor a fact discernible from the record that the funds deposited by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) were the amounts that were payable by the society to its members, and the same having being retained were for the time being invested as a short-term deposit/security with the bank. If that would have been so, then, the interest income earned on such short-term deposit/security with the bank would not have been eligible for deduction u/s.80P(2)(a)(i) of the Act. But then, as the amount deposited by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) was in the nature of simpliciter surplus or idle funds of the assessee society, for which there were no takers for the time being in course of its business of providing credit facilities to its members, therefore, depositing of the same by way of short-term deposits with the aforesaid bank, as stated by the ld. A.R, and rightly so, would clearly be inextricably interlinked, or in fact interwoven with its aforesaid primary business activity, i.e., providing of credit facilities to its members. At this stage, we may herein observe, that the Hon’ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. Vs. ITO, Karnataka, 322 ITR 283 (SC), had held, that in a case where the assessee-cooperative society apart from providing credit facilities to its members was also in the business of marketing of agricultural produce grown by its members, and the sale consideration of the agricultural produce due towards its members was thereafter retained and invested as a short-term deposit/security with the bank, then, the interest income therein earned to the said extent could not be said to be attributable to its activity of providing credit facilities to its members. As is discernible from the aforesaid judicial pronouncement of the Hon’ble Supreme Court, we find the Hon’ble Apex Court had clarified beyond doubt that they have confined the judgment to the facts of the case before them, and the same was not to be considered as laying down of any law. Be that as it may, the aforesaid judgment of the Hon’ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. (supra) had thereafter been considered by the Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. (supra) in dated 28.10.2014, wherein the Hon’ble High Court had after exhaustive deliberations held as under : “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 10 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit 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 i.e. section 80P(2)(a)(i): “Deduction in respect of income of cooperative societies: 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 a 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-II 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
11 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit 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 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 s. 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.
8. 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 providing credit facilities to its members, earns profit 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 assessee co-operative society, apart from 12 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit 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 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 impugned order is hereby set aside. Parties to bear their own cost.” In the backdrop of the aforesaid observations of the Hon’ble High Court, we are of a considered view, that as in the case of the assessee
13 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit before us the surplus funds parked by way of short-term deposit with the co-operative bank, viz. Jila Sahakari Kendriya Bank are inextricably interlinked, or in fact interwoven with its business of providing credit facilities to its members, therefore, the same as claimed by the Ld. AR, and rightly so, would duly be eligible for deduction u/s. 80P(2)(a)(i) of the Act. We, thus, in terms of our aforesaid observations, direct the Assessing Officer to allow deduction of Rs. 7,98,705/- u/s. 80P(2)(a)(i) of the Act on the interest income earned by the assessee society on its deposits with the co-operative bank. Thus, the Ground of appeal No.1 raised before us is allowed in terms of our aforesaid observations.”
13. As the facts and issues involved in the present case are identical to those before the Tribunal (supra), we respectfully follow the same. Accordingly, finding no infirmity in the view taken by the CIT(Appeals), who had rightly vacated the addition of Rs.1,63,14,290/- made by the A.O u/s. 80P(2)(a)(i) of the Act, we uphold the same.
In the result, the appeal of the revenue is dismissed in terms of our aforesaid observations.
Order pronounced in open court on 16th day of October, 2023.
Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 16th October, 2023 **SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
1. 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent.
3. The CIT(Appeals)-1, Raipur (C.G.) 4. The Pr. CIT, Raipur-1 (C.G)
14 ACIT, Circle-1 (1), Raipur Vs. Chhattisgarh Rajya Sahkari Awas Sangh Maryadit