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IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (Accountant Member)
.. ,
./I.T.A. No.6627/Mum/2014
( / Assessment Year :2010-11)
M/s Jaoli Taluka Sahakari, / Income Tax Officer 15(1)(2), ,
Patpedhi Maryadit, Mumbai.
Vs.
5, Jolly Bhavan No.2, Gr.Floor,
7, New Marine Lines,
Churchgate,
Mumbai-400020
( /Appellant) .. ( / Respondent)
. / . /PAN/GIR No. :AAAAJ3360M
/ Appellant by Shri Prakash Jhunjhunwala
/Rspondent by Shri Maurya Pratap
/ Date of Hearing : 10.8.2015
/Date of Pronouncement : 10.8.2015
/ O R D E R
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
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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 Co-
operative 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.
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According to Explanation given under sec. 80P(4), the expressions "Co-
operative 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
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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 Co-
operative 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
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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
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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
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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.
10th August, 2015
Sd
(.. / B.R. BASKARAN)
/ ACCOUNTANT MEMBER
Mumbai: 10th
Aug, 2015.
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
True copy
(Asstt. Registrar)
, /ITAT, Mumbai
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