2015-VIL-1057-ITAT-MUM

Equivalent Citation: [2015] 43 ITR (Trib) 138 (ITAT [Mum])

Income Tax Appellate Tribunal MUMBAI

I.T.A. No.6627/Mum/2014

Date: 10.08.2015

M/s JAOLI TALUKA SAHAKARI

Vs

INCOME TAX OFFICER 15 (1) (2) , MUMBAI.

For The Appellant : Shri Prakash Jhunjhunwala
For The Respondent : Shri Maurya Pratap

BENCH

SHRI B.R.BASKARAN, J.

JUDGMENT

PER BENCH:

The assessee has filed this appeal challenging the order dated 12- 06-2014 passed by ld CIT(A)-26, Mumbai and it relates to the assessment year 2010-11. The assessee is aggrieved by the decision of ld CIT(A) in holding that the interest income earned on the deposits kept with banks is not eligible for deduction u/s 80P(2)(a)(i) of the Act and hence liable to be assessed as income from other sources.

2. The appeal is barred by limitation by 47 days. The assessee has filed an affidavit requesting the bench to condone the delay. It is stated in the affidavit that the auditor to whom the order of Ld CIT(A) was given to was very busy with tax audit works and hence he could not go through the same. Later the copy of order was given to the present counsel who advised to file the present appeal. Accordingly it was submitted that the delay occurred for bonafide reasons and accordingly it is prayed that the delay be condoned. I heard the parties on this preliminary issue. Having heard to the submissions made in the affidavit, I am of the view that there is reasonable cause for the delay in filing the present appeal. Accordingly I condone the delay and admit the appeal for hearing.

3. The facts relating to the above said issue are stated in brief. The assessee is a co-operative credit society registered under Maharashtra Cooperative Society Act, 1960. The main objects of the society is to provide credit/loans to its members and collect deposits from its members by way of fixed deposits, saving deposits and daily recurring deposits. The assessee filed its return of income for the year under consideration declaring NIL income after claiming deduction u/s 80P(2)(a)(i) of the Act. Sec. 80P(1) of the Act provides for deduction of income specified in sec. 80P(2) in case of an assessee, being a co-operative society. Sec. 80P(2)(a)(i) provides deduction of the whole of the amount of profits and gains of business attributable to any one or more of such activities. Since the assessee is a co-operative society engaged in carrying on the business providing credit facilities to its members, it claimed deduction u/s 80P(2)(a)(i) of the Act. However, sec. 80P(4) was inserted by Finance Act 2006 w.e.f. 1.4.2007 and the same reads as under:-

“80P(4) The provisions of this section shall not apply in relation to any co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank.

According to Explanation given under sec. 80P(4), the expressions “Cooperative Bank” and “Primary agricultural credit society” shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949. The expression “primary co-operative agricultural and rural development bank” means a society having its area of operation confined to a taluk and the principal object of which is to provide for long term credit for agricultural and rural development activities.

4. The assessing officer, after referring to the provisions of Banking Regulation Act held that the assessee is a bank and hence it is hit by the provisions of sec. 80P(4) of the Act. Accordingly he rejected the claim for deduction u/s 80P of the Act.

5. In the appellate proceedings, the ld CIT(A) held that the assessee cannot be considered to be a co-operative bank. On this decision, the revenue has not come on appeal before the Tribunal and hence the finding given by Ld CIT(A) has attained finality. Since the assessee is not considered as bank, the provisions of sec. 80P(4) shall not apply and hence the original ground on which the AO had denied deduction u/s 80P(2)(2)(a)(i) stood reversed by Ld CIT(A).

6. The Ld CIT(A), however, noticed that the assessee has received interest income as detailed below:-

S.No.	Name of the Bank	FD/SAVING A/c	Interest amount
1	Mumbai Dist.Central Co-op Bank.	FD	13,48,195
2	Mumbai Dist.Central Co-op Bank.	SAVING	196
3	Oriental Bank of Commerce	SAVING	180
4	Punjab National Bank	SAVING	103
5	Punjab National Bank	FD	1230
6	Maharashtra State Sahakari Bank	SAVING	187
7	Apna Sahakari Bank	FD	1,57,714
8	The Greater Bombay Bank	SAVING	1,915
9	Hindustan Co-op Bank	SAVING	51
	Total int.		15,09,773

The Ld CIT(A) took the view that the above said interest income cannot be held to be income generated from business activities and hence the same is required to be assessed under the head income from other sources, in which case the deduction u/s 80P(2)(a)(i) of the Act is not available to it. The assessee submitted that it is holding statutory reserves to the tune of Rs. 134.53 crores under various heads and they have been parked in deposits with Scheduled banks and co-operative banks. Accordingly it was submitted that these interest income also derived from carrying on its business activities and hence the same is exempt u/s 80P(2)(a)(i) of the Act. In the alternative, it was submitted that the interest received from deposits kept with Co-operative societies is exempt u/s 80P(2)(d). The Ld CIT(A) was not convinced with the contentions of the assessee and accordingly held that the interest income received from deposits cited above is assessable as income under the head Income from other sources and accordingly held that the deduction u/s 80P(2)(a)(i) is not available to it. In this regard, he placed reliance on the decision rendered by Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd (2010)(229 CTR (SC) 209) Aggrieved, the assessee has filed this appeal.

7. The Ld A.R submitted that the decision in the case of Totgars Cooperative Sale Society Ltd (supra) has been rendered by the Hon’ble Supreme Court in a different context and hence the Ld CIT(A) was not justified in placing reliance on it. The Ld A.R invited my attention to the decision rendered by Hon’ble Karnataka High Court inthe case of Tumkur merchants Souharda Credit Cooperative Ltd (2015)(230 Taxman 309) and submitted that the Hon’ble Karnataka High Court has discussed about the decision rendered by the Apex Court in paragraph 9 of the order and have held that the same has been rendered under the facts prevailing in the case of the assessee before the Hon’ble Supreme Court. The Hon’ble Karnataka High Court has noticed that the provisions of sec. 80P(2)(a)(i) provides for deduction of whole of profits and gains of business attributable to the activity carried on by the assessee. Hence, by placing reliance on the decision rendered by Hon’ble Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd Vs. CIT (1978)(113 ITR 84), held that the interest earned by the assessee from the deposit kept with banks is attributable to the profits and gains of business of providing credit facilities to its members. The Ld A.R also placed reliance on the decision rendered by the Kolkatta bench of ITAT in the case of S.E.S.E.C & E Co. Railway employees Vs. ACIT (2014)(41 CCH 0218), wherein identical view has been expressed. The Ld A.R submitted that the Hon’ble High Court of Calcutta also taken identical view in ITAT No.135 of 2010 in the case of CIT Vs. South Eastern Railway Employees Co-operative Credit Society.

8. The Ld D.R. on the contrary, placed strong reliance on the order passed by Ld CIT(A).

9. I heard the parties and perused the record. In my view, the decision rendered by Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd (supra) squarely applies to the facts of the present case. In the case before the Hon’ble Karnataka High Court also, the assessee claimed deduction u/s 80P(2)(a)(i) on the interest income earned from deposits kept with banks on the reasoning that the same shall form part of its business income. The Hon’ble High Court upheld the said view by duly considering the decision rendered by Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd (supra). For the sake of convenience, I extract below the observations made by the Hon’ble Karnataka High Court:-

“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 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.

9. 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-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 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.

10. 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.com66. 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:”

10. Respectfully following the decision rendered by Hon’ble Karnataka High Court, referred above, I set aside the order of Ld CIT(A) on this issue and direct the AO to allow deduction u/s 80P of the Act.

11. In the result, the appeal filed by the assessee is allowed.

Pronounced accordingly on 10th August 2015.

 

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