2018 (1) TMI 1670 - AT - Income Tax

Deduction u/s 80P - interest income earned on staff advances - HELD THAT - It is not disputed that assessee was given deduction u/s.80P(2)(a)(i) of the Act on interest earned by it from its business of providing credit facility to its members. Such deduction was denied only on the interest received by the assessee on advances given to employees and interest earned on the deposits in savings bank account. In so far as interest earned from employees are concerned, contention of the assessee is that this was to be construed as a part of its main business activity of providing credit facility to its members. Certificate of registration of the assessee issued by the office of the Central Registrar of Cooperative Societies, which is available on record, clearly indicate that it is a Multi State Co-operative Society. It is obviously not a society engaged in the business of banking. As noted by the Hon'ble Apex Court in the case of The Citizen Co- operative Society Ltd 2017 (8) TMI 536 - SUPREME COURT there are two classes of businesses mentioned in the above clause. First class is those Co-operative societies carrying on business of banking and second class is Co-operative societies providing credit facilities to its members. Assessee falls in the second class. While holding that liberal interpretation has to be given for Sec.80P(2)(a)(i) of the Act, since said Section was enacted for encouraging its Co-operative Sector, their lordships took a view that interest earned by a Co-operative Societies providing credit facilities to its Associate Members would not be eligible for deduction u/s. 80P(2)(a)(i) of the Act. If interest earned from credits provided to Associate Members is not eligible for claiming the benefit of Section 80P(2)(a) (i) of the Act, it will nigh be impossible to give such benefit to interest earned on advances given to staff. Considering the view taken by Hon'ble Apex Court on the extent of applicability Sec. 80P(2)(a)(i) of the Act, on a Co-operative Society providing credit facilities to its members, the decision of Jaipur Bench of the Tribunal in the case of Jalwar Sahkari Bhoomi Vikas Bank Ltd . 2015 (3) TMI 1411 - ITAT JAIPUR relied on by the ld. Authorised Representative, in our opinion pales into insignificance. Availability of such deduction on interest earned from deposits with savings bank account - Except for stating that the bank account on which it had earned interest was maintained with Schedule bank to enable it to carry out day to-day business, nothing has been brought on record by the assessee to show how such bank account was used for its business. What I notice is that interest was earned was savings bank account and saving bank accounts are not generally used for regular business activity. Assessee was also unable to demonstrate that what was parked by it in its saving bank account was only temporary surplus. Coming to the decision of Bangalore Bench of the Tribunal in the case of M/s. KPTC HESCOM Employees Co-Op Credit Society Ltd. 2015 (10) TMI 941 - ITAT BANGALORE strongly relied on by the ld. Authorised Representative, money which was deposited was surplus remaining with the concerned assesses since there were no takers for loans. Against this, as mentioned be me nothing was brought on record by the assessee to show that deposits in the savings bank were money meant for lending remaining surplus because there were no takers. No reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals) on both the issues raised by the assessee

Issues Involved:
1. Deduction under Section 80P(2)(a)(i) of the Income Tax Act for interest earned on staff advances.
2. Deduction under Section 80P(2)(a)(i) of the Income Tax Act for interest earned on savings bank accounts.

Issue-wise Detailed Analysis:

1. Deduction under Section 80P(2)(a)(i) for Interest Earned on Staff Advances:

The assessee, a Co-operative Society registered under the Multi State Cooperative Society's Act, 2002, contended that the interest of ?97,19,096/- earned on advances given to its staff should be eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act. The argument was based on the premise that these advances were given as a matter of commercial expediency and thus, the interest earned should be considered part of the business operations of providing credit facilities to its members.

However, the Departmental Representative argued that the interest on staff advances could not be considered as part of the profits attributable to the society's activities of providing credit facilities to its members, as the staff were not members of the society. The judgment of the Apex Court in the case of Citizen Co-operative Society Ltd vs. CIT was cited, where it was held that even interest received from loans given to associate members would not be eligible for deduction under Section 80P(2)(a)(i).

The Tribunal, after considering the rival contentions and the orders of the authorities below, concluded that the assessee's claim for deduction of interest received on staff advances was rightly disallowed. The Tribunal noted that the assessee was not engaged in the business of banking but in providing credit facilities to its members. The relevant section, 80P(2)(a)(i), applies to co-operative societies engaged in the business of banking or providing credit facilities to its members. The Tribunal emphasized that the interest earned from credits provided to associate members is not eligible for deduction under this section, making it impossible to extend such benefit to interest earned on advances given to staff.

2. Deduction under Section 80P(2)(a)(i) for Interest Earned on Savings Bank Accounts:

The assessee also claimed that the interest of ?14,85,237/- earned on savings bank accounts should be eligible for deduction under Section 80P(2)(a)(i). The argument was that these deposits were made from temporary surplus funds and were incidental to the main object of providing credit facilities to the members.

The Departmental Representative countered that the interest received from savings bank accounts could not be considered as profits attributable to the business of providing credit facilities to the members. It was argued that earning such interest was independent of the society's primary activity.

The Tribunal observed that the interest earned from savings bank accounts was not demonstrated to be from temporary surplus funds intended for use in the business of providing credit facilities to its members. The Tribunal noted that the assessee failed to show how the bank account was used for its business operations and that savings bank accounts are generally not used for regular business activities. The Tribunal also found that the assessee could not prove that the deposits in the savings bank account were only temporary surplus funds.

The Tribunal referred to the decision of the Bangalore Bench of the Tribunal in the case of M/s. KPTC & HESCOM Employees Co-Op Credit Society Ltd, where it was held that money deposited was surplus remaining with the concerned assessee due to the lack of loan takers. However, in the present case, the assessee failed to provide evidence that the deposits were surplus funds meant for lending.

Conclusion:

The Tribunal dismissed the appeal of the assessee on both grounds. It upheld the decision of the lower authorities, denying the deduction under Section 80P(2)(a)(i) for interest earned on staff advances and savings bank accounts. The Tribunal emphasized that the assessee's activities did not align with the requirements for claiming such deductions under the specified section of the Income Tax Act.

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