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TMI Blog2020 (3) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... e commercial bank the Jurisdictional Hon ble High Court in the case of SBI vs. CIT [ 2016 (7) TMI 516 - GUJARAT HIGH COURT] has held that interest income on deposit placed with the commercial bank is not entitled for deduction u/s. 80P(2)(a)(i) of the act. In the light of the above, we are of the view that the income by way of interest earned by deposit of idle fund does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a co-operative bank. The identical issue on the similar facts has been adjudicated by the Co-ordinate Bench of the ITAT after considering the decision in the case of Pr. CIT s. Tatagars Co-operative Sale Society [ 2010 (2) TMI 3 - SUPREME COURT] . The Narsanda Mercantile Co.Op. Credit Society Ltd. [ 2018 (8) TMI 1844 - ITAT AHMEDABAD] has adjudicated the identical issue on similar fact and held that earning of interest income either from nationalized or co-operative bank is not entitled for deduction u/s. 80P(2)(d) - Decided against assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial bank to the amount of ₹ 82,21,635/- in its claim of deduction u/s. 80P(2)(a)(i) of the act. The interest income of ₹ 82,21,635/- was treated as income from other sources u/s. 56 of the act and claim of deduction was disallowed. We consider that earning of interest income from bank is not the activity for which income would be deductible for deduction 80P(2)(a)(i) of the act. However, the assessee has claimed deduction under the aforesaid provision on interest learned from surplus funds deposited with the nationalized banks in the form of fixed deposit. We are inclined with the findings of the ld. CIT(A) that investing surplus funds in a bank is no part of the business of providing credit facilities to its members which is deductible under section 80P(2)(a)(i) of the act, and the interest derived by depositing surplus funds with the nationalized bank not being attributable to the business carried on by the assessee and the same cannot be deducted u/s. 80P(2)(a)(i). We have perused all the judicial pronouncements referred by the assessee, however, we find that the Hon'ble jurisdictional high court has decided the identical issue in favour of the Revenue vide S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. During the course of appellate proceedings before us, the ld. counsel has contended that assessee is entitled for deduction u/s. 80P(2)(d) of the act on interest income earned from co-operative bank and she has placed reliance on the decision of Hon'ble Jurisdictional High Court in the case of CIT-II Vs. Sabarkantha District Co-operative Milk Producers Union Ltd. dated 16-06-2014 and other case laws. On the other hand, ld. departmental representative has supported the order of assessing officer and stated that assessee is not entitled for deduction u/s. 80P(2)(d) of the act on interest earned on idle funds kept with the co-operative bank as fixed deposit. The ld. departmental representative has stated that the interest earned on the fund invested with the co-operative bank was not the operational income of the assessee from its member. 8. We have heard both the sides and perused the material on record. During the course of appellate proceedings before us, the ld. counsel has placed reliance upon the decision of Hon'ble High Court of Gujarat in the case of CIT-II Vs. Sabarkantha District Co-operative Milk Producers Union Ltd. Vide Tax Appeal No. 473 of 2014. We have perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive Milk Producers Union Ltd. On the other hand, the issue involved in this case of the assessee is claim of deduction of interest income u/s. 80P(2)(d) of the act earned on idle funds placed with co-operative bank. However, on the issue of earning similar nature of interest from the commercial bank the Jurisdictional Hon'ble High Court in the case of SBI vs. CIT (2016) 72 taxman.com 64 has held that interest income on deposit placed with the commercial bank is not entitled for deduction u/s. 80P(2)(a)(i) of the act. In the light of the above, we are of the view that the income by way of interest earned by deposit of idle fund does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a co-operative bank. The identical issue on the similar facts has been adjudicated by the Co-ordinate Bench of the ITAT after considering the decision of Hon'ble High Court of Karnatka in the case of Pr. CIT s. Tatagars Co-operative Sale Society (2017) 83 taxman.com 140 (Karnataka) dated 16th June, 2017. On the same proposition the Co-ordinate Bench of the ITAT vide ITA Nos. 1992/Ahd/2017, 1313/Ahd/2018, 1314/Ahd/2018, 1295/Ahd/2018 & 1296/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P and further stated that interest income earned from surplus deposit with co-operative bank is not entitled for deduction 80P(2)(d). The relevant part of the decision of the Hon'ble High Court of Karnataka, in the case of (2017) 83 taxmann.com 140 (Kar) Principal CIT vs. Tatagars Co-operative Sale Society on identical issue and facts is reproduced as under:- "Admittedly and undoubtedly, the assessee is a co-operative Society engaged mainly in the activity of marketing of agricultural produces grown by its members. The assessee co-operative society also accepts deposits from its members and provides credit facility to its members, runs Kirana Stores, rice mills, live stocks, van section, medical shops, lodging, plying and hiring of goods carriage, etc. [Para 10] The assessment years involved in the instant appeals are assessment years 2007-08 to 2011-12. The bone of contention is that the deduction under section 80P(2) is now claimed by the assessee under section 80P(2)(d) and not under section 80P(2)(a) of the Act. The reason is that now the investments and deposits after the Supreme Court's decision against the assessee in Totgar's Co-operative Sale Society Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in section 80P was to exclude the applicability of section 80P altogether to any co-operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in section 80P(4) are significant. They are: 'The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society…………….' The words 'in relation to' can include within its ambit and scope even the interest income earned by the assessee, a co-operative society from a Co-operative Bank. This exclusion by section 80P(4) even though without any amendment in section 80P(2)(d) is sufficient to deny the claim of the assessee for deduction under section 80P(2)(d). The only exception is that of a primary agricultural credit society. The depository Kanara District Central Bank Limited in the present case is admittedly not such a primary agricultural credit society. [Para 14] The amendment of section 194A(3)(v) excluding the Co-operative Banks from the definition of 'Co-operative Society' by Finance Act, 2015 and requiring them to deduct tax at source under section 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not apply in the facts and circumstances of the present case. The person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible for deduction under section 80P of the Act. [Para 23] In view of the aforesaid, the appeal filed by the revenue deserves to be allowed.:" [Para 24] In the light of the above facts and legal findings we consider that the income by way of interest earned by deposit or investment of idle or surplus does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a co-operative bank and thus clause (d) of section 80P(2) of the act would not apply in the facts and the circumstances of the present case. The assessee has earned interest income on surplus funds deposited with nationalized bank and the cooperative Bank and the same is not attributable to business operation of the assessee co-operative society as interest earned on the fund invested with the commercial bank is not operational income from providing credit facilities to its members. We consider that earning of such i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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