2016 (7) TMI 1217 - HC - Income Tax

Entitlment under sec. 80P(2)(d) of the entire interest received from the cooperative Bank? - Held that - Section 80P(2)(d) of the Act allows whole deduction of an income by way of interest or dividends derived by the co-operative society from its investment with any other co-operative society. This provision does not make any distinction in regard to source of the investment because this Section envisages deduction in respect of any income derived by the co-operative society from any investment with a co-operative society. It is immaterial whether any interest paid to the cooperative society exceeds the interest received from the bank on investments. The Revenue is not required to look to the nature of the investment whether it was from its surplus funds or otherwise. The Act does not speak of any adjustment as sought to be made out by learned counsel for the Revenue. The provision does not indicate any such adjustment in regard to interest derived from the co-operative society from its investment in any other co-operative society. In the present case, the loan was taken for business purpose more particularly purchase of yarn and not for fixed deposits. Questions raised in the present appeals are answered in favour of the assessee and against the revenue

Issues Involved:

1. Entitlement of the assessee co-operative society to deduction under Section 80P(2)(d) for interest received from the co-operative bank.

Issue-wise Detailed Analysis:

1. Entitlement of the assessee co-operative society to deduction under Section 80P(2)(d) for interest received from the co-operative bank:

The primary issue in all four appeals (Tax Appeal Nos. 93, 94, 95, and 96 of 2008) was whether the assessee co-operative society was entitled to the entire interest received from the co-operative bank under Section 80P(2)(d) of the Income Tax Act. The amounts in question were ?10,17,976/-, ?9,97,298/-, ?12,19,538/-, and ?9,01,062/- for the assessment years 1991-92, 1992-93, 1993-94, and 1994-95 respectively.

The Assessing Officer had allowed deductions under Section 80P(2)(d) to the extent of net interest instead of gross interest, leading to a disallowance of the excess claimed deductions. The deductions granted and amounts disallowed were tabulated for clarity.

The assessee's counsel argued that similar deductions were allowed in previous years and cited several judgments, including the Apex Court decision in Excel Industries, which emphasized consistency in tax assessments. The counsel also referenced decisions from various High Courts that supported the claim for gross interest deductions under Section 80P(2)(d).

The revenue's counsel contended that the deductions should be limited to net interest, as the funds were borrowed for business purposes, and allowing gross interest deductions would be improper. The counsel cited several judgments to support this view.

Upon hearing both sides, the Court noted that the Tribunal had not challenged the decision in the case of Petlad Taluka Purchase & Sales Union Ltd., which favored the assessee. The Court also referenced the Apex Court's decision in Kaumudini Narayan Dalal, which held that the revenue could not accept a judgment in one case and challenge it in another without just cause.

The Court concluded that the assessee, having been granted the benefit of deduction in earlier years, should be granted the same for the relevant assessment years. The Court accepted the assessee's contention that the entire interest received from the co-operative bank should be deductible under Section 80P(2)(d).

The Court referenced several judgments, including those from the Kerala High Court and Punjab & Haryana High Court, which supported the view that deductions under Section 80P(2)(d) should be based on gross interest and not net interest. The Court also noted that the purpose of borrowing funds (for business purposes) did not affect the entitlement to deductions under Section 80P(2)(d).

Conclusion:

The questions raised in the appeals were answered in favor of the assessee and against the revenue. The Court quashed and set aside the order passed by the Tribunal, thereby allowing the assessee to claim deductions on the entire interest received from the co-operative bank under Section 80P(2)(d) for the relevant assessment years.

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