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2020 (3) TMI 631 - AT - Income TaxDeduction u/s 80P - assessee received interest on FDRs placed with Jaipur Central Cooperative Bank - CIT(A) held that Jaipur Central Cooperative Bank is a cooperative society - HELD THAT - Following the Coordinate Bench decision in assessee s own case for earlier years 2019 (10) TMI 759 - ITAT JAIPUR and considering the principle of consistency, we see no reason to deviate from the earlier decision and accordingly, for the purposes of section 80P(2)(d) of the Act, Jaipur Central Cooperative Bank Ltd shall be treated as a cooperative society. Therefore, interest on FDRs placed by the assessee society with such cooperative society shall be eligible for deduction u/s 80P(2)(d) of the Act and such claim cannot be denied by virtue of provisions of Section 80P(4) of the Act. As decided in RAJASTHAN RAJYA SAHKARI UPBHOKTA SANGH LIMITED 1995 (1) TMI 33 - RAJASTHAN HIGH COURT that the income exempted under section 80P(2) has to be arrived at separately in order to determine the income under section 80P(2) and it can never be envisaged that the total income which has been so received could be allowed without deducting the expenditure incurred in earning the income. In light of the same, the deduction u/s 80P(2)(d) can be allowed only on the net receipt after deducting the expenditure incurred for earning exempt income. Therefore, in the instant case, it needs to be determined whether the assessee has incurred any interest expenditure in earning the interest income. CIT(A) has allocated the whole of the interest expenditure over the interest on FDRs and to the extent of interest attributable to FDRs placed with JCCB, the same has been reduced while working out the net interest income eligible for deduction u/s 80P(2)(d) of the Act. What is relevant to determine is at the relevant point in time, when the FDRs were placed with JCCB, what is the position of availability of funds and whether at that time, interest free surplus funds were available which were deployed in form of FDRs. However, there is nothing on record to this effect. There is no dispute on the legal proposition that where interest free funds are more than the interest bearing funds, a presumption will arise that investment has been made out of interest free funds. Such a presumption has to be tested at the point in time when the investment was made and not at the beginning or at the end of the year. In the instant case, merely stating that the assessee has interest free funds by way of share capital and accumulated profits at the yearend will not help the case of the assessee as the same reflect the position subsequent to deployment of funds in FDRs which were placed sometime during the year and not at the end of the year. Further, whether such interest free funds at the year end are liquid funds or are represented by fixed assets and other currents. In case, there are no liquid funds and all the funds are deployed in fixed and current assets, then the said theory of interest free funds doesn t support the case of the assessee. AR has submitted some figures, however, we find that the matter require further information and verification and in absence of findings of the lower authorities, for the limited purposes of verification of the aforesaid contention, the matter is set-aside to the file of the ld CIT(A) to examine the same afresh. In the result, the respective grounds of appeal are disposed off. Disallowance of contribution to sparsh trust registered u/s 12AA treating the same is business expenditure - HELD THAT - Expenses actually given in donation to the trust was to be with the requirement of trust for the benefit and betterment of quality of milk to meet the health of the animals - Decided in favour of assessee.
Issues Involved:
1. Disallowance of deduction under Section 80P for interest income from FDRs. 2. Justification of payment to 'Sparsh Trust' as business expenditure. 3. Deduction under Section 80P(2)(d) for interest income from investments with cooperative banks. Detailed Analysis: 1. Disallowance of Deduction under Section 80P for Interest Income from FDRs: The assessee received interest income of ?6,21,99,978 on FDRs with Jaipur Central Cooperative Bank (JCCB) and claimed deduction under Section 80P. The Assessing Officer (AO) disallowed this deduction, referencing the Supreme Court decision in Totgar’s Cooperative Sales Society Ltd. Vs. ITO, which stated that interest income from funds not required immediately for business purposes is taxable under 'Income from other sources' and not eligible for deduction under Section 80P. The AO concluded that the interest income from cooperative banks does not qualify for deduction under Section 80P(2)(d). 2. Justification of Payment to 'Sparsh Trust' as Business Expenditure: The Revenue challenged the deletion of disallowance made by the AO on payments to 'Sparsh Trust', arguing that it should be treated as a donation allowable under Section 80G, not as business expenditure. The CIT(A) had allowed this as business expenditure, which the Revenue contested. 3. Deduction under Section 80P(2)(d) for Interest Income from Investments with Cooperative Banks: The CIT(A) allowed partial deduction under Section 80P(2)(d), attributing a proportionate interest expenditure to the interest income from JCCB, reducing the net interest income eligible for deduction. The assessee argued that the investment in FDRs was made from interest-free funds, thus no interest expenditure should be attributed to earning the interest income. Judgment on Issues: 1. Disallowance of Deduction under Section 80P for Interest Income from FDRs: The ITAT held that Jaipur Central Cooperative Bank is a cooperative society, thus interest income from it is eligible for deduction under Section 80P(2)(d). The ITAT referenced previous decisions, including the Hon’ble Gujarat High Court in Surat Vankar Sahakari Sangh Ltd. and the Hon’ble Karnataka High Court in Totagars Cooperative Sale Society, which supported the view that cooperative banks are considered cooperative societies for Section 80P(2)(d). The ITAT concluded that the deduction should be allowed on the gross interest income, not net, following the Hon’ble Gujarat High Court's decision. 2. Justification of Payment to 'Sparsh Trust' as Business Expenditure: The ITAT followed the Hon’ble Rajasthan High Court’s decision in the assessee’s own case, which held that payments to 'Sparsh Trust' were for business purposes, aimed at improving milk quality and animal health, and thus allowable as business expenditure under Section 37(1). The ITAT dismissed the Revenue's ground, affirming the CIT(A)'s decision. 3. Deduction under Section 80P(2)(d) for Interest Income from Investments with Cooperative Banks: The ITAT noted that the CIT(A) incorrectly attributed interest expenditure to the interest income from JCCB. The assessee demonstrated that it had sufficient interest-free funds to cover the FDR investments, invoking the presumption that investments were made from interest-free funds. The ITAT directed the CIT(A) to allow the deduction under Section 80P(2)(d) on the gross interest income without attributing any interest expenditure, aligning with the Hon’ble Gujarat High Court's decision. Conclusion: The ITAT ruled in favor of the assessee on all grounds, allowing the full deduction under Section 80P(2)(d) for interest income from FDRs with JCCB, justifying the payment to 'Sparsh Trust' as business expenditure, and directing the CIT(A) to allow the deduction on gross interest income without attributing interest expenditure. The decision was pronounced on 04/03/2020.
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