2019 (10) TMI 759 - AT - Income Tax

Deduction u/s 80P - interest on FDRs placed by the assessee society with such cooperative society - Whether by virtue of provisions of Section 80P(4) the claim of the assessee under section 80(P)(2)(d) can be denied to the assessee society? - HELD THAT - For the purposes of section 80P(2)(d) of the Act, Jaipur Central Cooperative Bank Ltd shall be treated as a co-operative society. Therefore, interest on FDRs placed by the assessee society with such cooperative society shall be eligible for deduction u/s 80P(2)(d) The Coordinate Bench in case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd. vs Income-tax Officer-21(2)(1), Mumbai 2018 (4) TMI 1678 - ITAT MUMBAI had an occasion to examine similar contention and it was held that though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, however, as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of co-operative societies, therefore, the interest income derived by a cooperative society from its investments held with a co-operative bank, would be entitled for claim of deduction under Sec.80P(2)(d) of the Act. We see no reason to deviate from the same and agree with the aforesaid view taken by the Co-ordinate Bench By virtue of provisions of Section 80P(4) of the Act, the claim of the assessee under section 80(P)(2)(d) cannot be denied to the assessee society. Another issue that arise for consideration is whether deduction u/s 80P(2)(d) shall be allowed on the gross interest income on FDRs or it should be allowed on the net interest income calculated after deducting the interest expenditure allocable to funds placed in form of FDR. Though the assessee has challenged the findings of the ld CIT(A) to the effect that it has not incurred any interest expenditure, we find that there is no necessity to examine the same as conceptually, the deduction under section 80P(2)(d) has to be allowed on gross and not on net interest income as held by the Hon ble Gujarat High Court in case of Surat Vankar Sahakari Sangh Ltd vs ACIT 2016 (7) TMI 1217 - GUJARAT HIGH COURT The assessee society is held eligible for deduction under section 80P(2)(d) in case of interest income on FDRs placed with Jaipur Central Cooperative Bank Ltd.- Decided in favour of the assessee

Issues Involved:

1. Validity of the order passed by the AO under section 147 of the IT Act, 1961.
2. Eligibility for deduction under section 80P(2)(d) of the IT Act, 1961 for interest income from investments made with Jaipur Central Cooperative Bank Ltd. (JCCB).
3. Attribution of interest expenditure to the interest income earned on FDRs maintained with JCCB.

Issue-wise Detailed Analysis:

1. Validity of the order passed by the AO under section 147 of the IT Act, 1961:

The assessee challenged the validity of the order passed by the AO under section 147 of the IT Act, 1961, which pertains to the reassessment proceedings. However, the Tribunal did not delve into the merits of this legal ground as it became infructuous after deciding the matter on substantive grounds.

2. Eligibility for deduction under section 80P(2)(d) of the IT Act, 1961 for interest income from investments made with Jaipur Central Cooperative Bank Ltd. (JCCB):

The Tribunal examined whether the interest income on FDRs placed by the assessee cooperative society with JCCB is eligible for deduction under section 80P(2)(d) of the IT Act, 1961. The Tribunal noted that JCCB is a cooperative society, and the assessee is also a cooperative society. Therefore, the interest income from JCCB qualifies for deduction under section 80P(2)(d), which allows deduction in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society.

The Tribunal referred to various judicial precedents, including the decision of the Hon'ble Karnataka High Court in the case of PCIT vs. Totagars Co-operative Sale Society and the decision of the Hon'ble Gujarat High Court in the case of Surat Vankar Sahakari Sangh Ltd. vs. ACIT. These decisions affirmed that cooperative banks are considered cooperative societies for the purpose of section 80P(2)(d), and the interest income derived from such investments is eligible for deduction.

The Tribunal concluded that by virtue of section 80P(4), the claim of the assessee under section 80P(2)(d) cannot be denied, as cooperative banks continue to be cooperative societies registered under the relevant cooperative societies act.

3. Attribution of interest expenditure to the interest income earned on FDRs maintained with JCCB:

The Tribunal addressed whether the deduction under section 80P(2)(d) should be allowed on the gross interest income or the net interest income after deducting the interest expenditure attributable to the funds placed in FDRs. The assessee argued that the investment in FDRs was made out of its own funds and not borrowed funds, thus no interest expenditure should be attributed to earning the interest income.

The Tribunal observed that the assessee had sufficient interest-free funds to cover the investment in FDRs with JCCB. It referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. Reliance Industries Ltd., which established the presumption that investments are made out of interest-free funds if such funds are sufficient.

The Tribunal also referred to the decision of the Hon'ble Gujarat High Court in the case of Surat Vankar Sahakari Sangh Ltd. vs. ACIT, which held that the deduction under section 80P(2)(d) should be allowed on the gross interest income and not the net interest income after deducting the interest expenditure.

Based on these findings, the Tribunal held that the assessee is eligible for deduction under section 80P(2)(d) on the gross interest income of ?1,49,40,834 earned from FDRs with JCCB. Consequently, the Tribunal allowed the ground raised by the assessee and dismissed the ground raised by the Revenue.

Conclusion:

The Tribunal concluded that the assessee is entitled to deduction under section 80P(2)(d) on the gross interest income earned from FDRs with JCCB. The legal ground challenging the validity of the proceedings under section 147 was dismissed as infructuous. The Tribunal's findings and directions for AY 2011-12 were applied mutatis mutandis to AY 2012-13, resulting in a decision in favor of the assessee for both years.

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