THE B S N L EMP CCS LIMITED,GUNTUR vs. INCOME TAX OFFICER, WARD -2(1), GUNTUR
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Income Tax Appellate Tribunal, VISAKHAPATNAM “SMC” BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE
Per Shri Duvvuru RL Reddy, Judicial Member :
These appeals are filed by the assessee against the orders of Commissioner of Income Tax (Appeal) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi vide orders dated 29.03.2023 and 30.03.2023 for the Assessment Year (A.Y.)2017-18, 2018-19 and 2020-21. Since the grounds raised in these appeals are common, these appeals are clubbed, heard together and a common order is being passed for the sake of convenience as under. Facts are extracted from I.T.A.165/Viz/2023. 2. Brief facts of the case are that the assessee society, the B.S.N.L.Emp C.C.S Ltd registered with Cooperative Society No.Z.613, Chilakaluripet,
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deriving interest income both from it’s members and banks, filed it’s return of income for the A.Y.2017-18 on 31.03.2018, declaring total income of Rs.Nil after claiming deduction under Chapter VI-A u/s 80P of the Income Tax Act, 1961 (in short “Act”) to the tune of Rs.21,28,318/-. The return of income was processed u/s 143(1) of the Act on 15.06.2018. Subsequently, the case was selected for limited scrutiny for examination of issue of claim of deduction u/s 80P of the Act. The Assessing Officer (AO) after issuing statutory notices completed the assessment u/s 143(3) of the Act, by disallowing the interest received from the investments made in GDCC bank and Indian Bank of Rs.13,57,722/-. The AO after allowing proportionate expenses of Rs.10,09,160/-, disallowed an amount of Rs.3,48,572/-.
Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) dismissed the appeal of the assessee.
Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before the Tribunal by raising the following grounds of appeal :
The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case.
The learned Commissioner of Income Tax(Appeals) is not justified in sustaining the addition of Rs.3,48,572 made by the assessing officer towards disallowance of deduction claimed u/s 80P of the Act.
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Any other grounds may be urged at the time of hearing.
Ground No.1 and 3 are general in nature which does not require specific adjudication.
Ground No.2 is related to disallowance of deduction claimed u/s 80P of the Act. At the outset, the Ld.AR submitted that the assessee society earned interest income from GDCC Bank and Indian Bank. Relying on the decisions of M/s Veer Cooperative Group Housing Society Ltd. Vs. ITO, Ward-39(4), New Delhi and M/s Guntur District Cooperative Marketing Society Ltd. Vs. ACIT, Circle1(3), Guntur, the Ld.AR submitted that assessee can claim deduction u/s 80P. He, therefore, pleaded to quash the order passed by the Ld.CIT(A) and allow the deduction claimed u/s 80P.
Per contra, the Ld.DR submitted that the AO has rightly held that the assessee is not eligible to claim deduction u/s 80P as the facts of the cases relied upon by the assessee are distinguishable to the facts of the assessee’s case. He, therefore, pleaded to uphold the orders passed by the revenue authorities and dismiss the appeal of the assessee.
I have heard both the parties and perused the material available on record. In the instant case, it is an admitted fact that the assessee has claimed deduction u/s 80P of the Act. The contention of the AO is that the 4 I.T.A. No.165-167/Viz/2023,A.Y.2017-18, 2018-19 & 2020-21 The BSNL Emp C.C.S Ltd., Chilakaluripet
interest earned from GDCCB and Indian Bank to the tune of Rs.13,57,732/- is not eligible for deduction u/s 80P, since it is connected to banking activities and GDCCB is no more a society. The Ld.CIT(A) upheld the addition made by the AO holding that deduction is not extended to the interest income received from investments made with any cooperative bank or scheduled bank. The Ld.CIT(A) relied on the decision of Hon’ble Karnataka High Court in the case of Totgars Cooperative Sale Society Ltd. (322 ITR 283) and held that interest earned from the cooperative bank is not eligible for deduction u/s 80P(2)(d). I have perused the ratio laid down in the case of M/s Totgars Cooperative Sale Society Ltd.(supra) and find that the society is engaged in marketing of the agricultural produce by it’s members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members u/s 80P(2)(a)(i) of the Act. In that case, the society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits / securities and shown as liability on the balance sheet. Therefore, the Hon’ble Apex Court held that interest earned from retaining the amount payable to its members shall not be considered as income from other sources. However, in the instant case, the facts are 5 I.T.A. No.165-167/Viz/2023,A.Y.2017-18, 2018-19 & 2020-21 The BSNL Emp C.C.S Ltd., Chilakaluripet
distinguishable and hence in my view the ratio laid down in the case of M/s Totgars Cooperative Sale Soceity Ltd.(supra) shall not be applied to the assessee’s case. It is pertinent to mention that the coordinate bench of the Tribunal, on similar facts and circumstances, in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society Ltd. in I.T.A.No.107/Viz/2022 and CO No.07/Viz/2022 dated 30.08.2023, dismissed the appeal filed by the revenue. For the sake of clarity and convenience, relevant part of the order of the coordinate bench of the Tribunal is extracted as under.
“8. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. It is an admitted fact that the assessee has claimed deduction U/s. 80P(2)(a)(i) of the Act on the interest accrued and received by the assessee U/s. 80P(2)(a)(i) of the Act. The contention of the Ld. AO is that as per section 80P(2)(d), the assessee is eligible to claim deduction U/s. 80P(2)(a)(i) of the Act only when it is invested with any other cooperative society. The Ld. AO also placed heavy reliance in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) while disallowing the claim made by the assessee U/s. 80P(2)(a)(i) of the Act. We have perused the ratio laid down by the Hon’ble Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) and found that in that case the society is engaged in marketing of the agricultural produce by its members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members U/s. 80P(2)(a)(i) of the Act. In that case, the Society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits / securities. It is also found that the amount payable to its members realized from sale proceeds of the agricultural produce of its members was retained by the society and was shown as liability on the balance sheet. Therefore, the Hon’ble Apex Court has held that interest earned from retaining the amount payable to its members shall not be considered as income from other sources.
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However, in the instant case the facts are distinguishable and hence in our view the ratio laid down in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) shall not be applied. Section 80P(1) of the Act entitles the Cooperative Societies to deduct the sums specified in sub- section (2) from its gross total income while computing the total income. Sub-section (2) of section 80P, in the sub-clause (a) allows deduction to cooperative society which is engaged in the following activities: “(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) a cottage industry, or [(iii) the marketing of agricultural produce grown by its members, or] (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, [or] [(vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,] the whole of the amount of profits and gains of business attributable to any one or more of such activities:”
Further, we also extract below the provisions of section 80P2(d) and (e) of the Act for reference: “(d) 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; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income;”
From the plain reading of section 80P(2)(a)(i) of the Act, the whole of amount of profits and gains of the business attributable to one or more of such activities shall be allowed as a deduction. Further, section 80P(2)(d) and 80P(2)(e) of the Act also allows similar deductions. It is clear that the deductions available under clauses (a) to (e) of section 80P(2) are activity based whereas clauses (d) and (e) are investment based. The distinction between clauses (a) and clauses (d) & (e) on the other hand is that the benefit under clause (a) is restricted to only into those activities of a cooperative society enlisted
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in sub-clause (a) whereas the benefit of clauses (d) & (e) are available to all cooperative societies without any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be limited only to the profits & gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such 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 cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression “attributable to” and not any one of the expressions viz., “derived from” or “directly attributable to”. The Hon’ble juri ictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, we extract the relevant para 34 of the judgment of the Hon’ble Andhra Pradesh and Telangana High Court herein below:
“34. 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.”
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Further, the Hon’ble juri ictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another (supra) held that the cooperative society is eligible for deduction U/s. 80P(2)(a)(i) of the Act on the interest income received from investment in banks. The Hon’ble High Court in paras 35 to 37 of its judgment held as under:
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.”
Further, the Coordinate Bench of Hyderabad in Tirumala Tirupati Devasthanams Employees Coop. Credit Society vs. ITO also affirmed the same view by following the decision of the Hon’ble AP High Court in the case of Vavveru Cooperative Rural Bank Ltd (supra). In the instant case also, the assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore by respectfully following the juri ictional High Court are of the view that interest income should be allowed as deduction U/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A)- NFAC has rightly held by deleting the addition made by the Ld. AO and hence we find no infirmity in the order of the Ld. CIT(A)-NFAC.
In the result, appeal of the Revenue is dismissed.”
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Respectfully following the ratio laid down by the Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society Ltd., I hold that interest income should be allowed as deduction u/s 80P. Therefore, I am inclined to quash the orders passed by the lower authorities and direct the AO to delete the addition of Rs.3,48,572/-.
Since the appeal of the assessee for the A.Y.2017-18 is allowed, the same ratio applies to the appeals of the assessee for the A.Y.2018-19 and 2020-21 also mutatis mutandis.
In the result, appeals of the assessee are allowed. Order pronounced in the open court on 18th October, 2023. (दुव्वूरु आर.एल रेड्डी) (DUVVURU RL REDDY) न्याधयक सदस्य/JUDICIAL MEMBER Dated : 18.10.2023 L.Rama, SPS
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आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee – M/s B.S.N.L.Emp. C.C.S.Ltd.No.Z 613, Chilakaluripet, Guntur 2. रधजस्व/The Revenue – The Income Tax Officer, Ward-2(3), Guntur
The Principal Commissioner of Income Tax, Visakhapatnam 4. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम / DR,ITAT, Visakhapatnam 5..गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam
