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TMI Blog2020 (3) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in FDRs is made out of own funds and borrowed funds has been utilized for business purpose and therefore, no interest expenditure can be attributed for earning the interest income. Grounds of Revenue s Appeal: 1. Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance made by the AO on account of payment made to sparsh trust of ₹ 1,43,57,553/- registered u/s 12A of the IT Act 1961, treating the same as business expenditure in place of donation allowable u/s 80G of the IT Act 1961 despite the fact that the said receipt of donation was declared by the trust as donation income and corresponding expenditure was claimed as application of income. 2. Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of ₹ 2,15,18,255/- made by the AO on account of deduction claimed u/s 80P(2)(d) of the I.T Act, 1961 as the same was earned by way of investment made with the co-operative banks and not eligible for deduction u/s 80P(2)(d). 2. Firstly, we take up Ground No. 1 and 1.1 of the assessee s appeal and the Ground No. 2 of the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e be allowed by dismissing the appeal of department. 5. On merit, it was further submitted by the ld AR that during the year, the assessee has received interest income on FDR s amounting to ₹ 6,21,99,978/- from Jaipur Central Co-operative Bank Ltd. It is a bank registered under The Rajasthan Co-operative Society Act, 2001. Thus, interest income claimed as deduction u/s 80P of the Act is available to the assessee as the Jaipur Central Co-operative Bank Ltd. is a cooperative society. The Ld. CIT(A) has therefore, rightly held that deduction u/s 80P(2)(d) is available to the assessee in respect of interest received from another cooperative society. Reliance in this connection is placed on the decision of ITAT, Jaipur Bench in case of ITO Vs. Shree Keshorai Patan Sahakari Sugar Mill (ITA No. 418 419/JP/2017 order dated 31.01.2018). In this case, assessee is a co-operative sugar mill. It claimed deduction u/s 80P(2) 80P(2)(d) in respect of interest of ₹ 2,65,43,870/- on fixed deposits with co-operative banks. AO disallowed the deduction holding that assessee is not carrying out banking business nor the income is derived from providing any credit facilities to its me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments. The Hon ble Supreme Court in case of CIT Vs. Reliance Industries Ltd. (2019) 175 DTR 1 has held Tribunal having found that the interest free funds available to the assessee were sufficient to meet its investment, it could be presumed that funds were given to subsidiaries out of interest free funds and therefore, interest referable to funds given to subsidiaries is allowable as deduction under sec. 36(1)(iii) . Hence, the observation of Ld. CIT(A) that assessee has incurred interest expenditure of ₹ 4,06,81,723/- to earn the interest income of ₹ 6,21,99,978/- from JCCB in incorrect. 8. It may be noted that the position of interest expenditure incurred and interest income earned are reflected in the profit loss account are as under:- Interest Income - Interest on FDR - Interest on Others 17,33,56,089/ - 1,81,83,070/- Total interest income 19,15,39,159/- 19,15,39,159/- Interest Expenditure - Interest on OD - Interest on DCS - Interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs Cooperative Sale Society [2017] 83 taxmann.com 140 (Karnataka). 11. We have heard the rival contentions and perused the material available on record. The Co-ordinate Bench in assessee s own case in ITA No. 512, 633, 513 634/JP/2019 for A.Y 2011-12 2012-13 vide its order dated 02.09.2019 has held as under:- 12. We have heard the rival contentions and perused the material available on record. The issue under consideration is whether the interest income on FDRs placed by the assessee cooperative society with Jaipur Central Cooperative Bank Ltd is eligible for deduction u/s 80P(2)(d) of the Act which reads as under: 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in subsection (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a) .. (b) .. (c) .. (d) in respect of any income by way of interest or dividends derived by the co-operative society fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has derived income on investment with cooperative banks is entitled to deduction u/s 80P(2)(d). The provisions of Section 80P(2)(d) of the Act provide deduction in respect of income by way of interest or dividend on investments made with other Cooperative society. For the purposes of better proper understanding of these two provisions the relevant extract of the section are reproduced below: 80P: Deduction in respect of income of co-operative Societies. 1. Where, in the case of an assesssee being a co-operative society, the gross total income, includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. 2. The sums referred to in sub-section (1) shall be the following, namely:- (a) In the case of a co-operative society engaged in- (i) Carrying on the business of banking or providing credit facilities to its members. The whole of the amount of profits and gains of business attributable to any one or more of much attributes. (d) In respect of any income by way of interest or dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 14,88,107/-in respect of interest received/derived by it on deposits with coop. banks and therefore the appeal of the assessee is allowed by reversing the order of the CIT(A). The AO is directly accordingly. 6.2 We further note that the Hon ble Jurisdictional High Court in the case of CIT vs. Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd. (supra) by following the decision of Hon ble Gujarat High Court in the case of Surat Vankar Sahakari Sangh Ltd. Vs. ACIT, 72 taxmann.com 169 has held in as under:- 8. We have considered the decisions cited by learned advocate for the assessee as well as the revenue. We feel that the decisions cited by the learned advocate for the assessee shall be applicable on the facts of the present case. In the case of K. Nandakumar v. ITO [1993] 204 ITR 856/[1994] 72 Taxman 223 (Ker.), the Kerala High Court has held as under: '4. The effect of Section 80AB is that, for the purpose of computing the deduction under Section 80L, the amount of income of that nature as computed in accordance with the provisions of the Act shall alone be deemed to be the amount of income of that nature. What the section means is that the net i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(d) can be allowed. To appreciate this argument, we have to look to the provisions of Section 80P(2)(d) of the Act, For facility of reference, it is reproduced as under : 80P. (2)(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society, the whole of such income. 6. So far as the principle of interpretation applicable to a taxing statute is concerned, we can do no better than to quote the by-now classic words of Rowlatt J., in Cape Brandy Syndicate v. IRC [1921] 1 KB 64, 71 : ...In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used, 7. The principle laid down by Rowlatt J., has also been time and again approved and applied by the Supreme Court in different cases including the one, Hansraj Gordhandas v. H. H. Dave, Assistant Collector of Central Excise and Customs, AIR 1970 SC 755, 759. 8. Section 80P(2)(d) of the Act allows whole deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ularly purchase of yarn and not for fixed deposits. 9. In view of the above, the questions raised in the present appeals are answered in favour of the assessee and against the revenue. The order passed by the Tribunal is accordingly quashed and set aside. 6. Further the Hon ble Karnataka High Court in case of PCIT and Another vs. Totagars Co-operative Sale Society 392 ITR 0074 as relied upon by the Ld. AR of the assessee as held in para 7 to 11 as under:- 7. However, the contention being taken by the learned counsel is untenable. For the issue that was before the ITAT, was a limited one, namely whether for the purpose of Section 80P(2)(d) of the Act, a Co-operative Bank should be considered as a Co-operative Society or not? For, if a Co-operative Bank is considered to be a Co-operative Society, then any interest earned by the Co-operative Society from a Cooperative Bank would necessarily be deductable under Section 80P(1) of the Act. 8. The issue whether a Co-operative Bank is considered to be a Cooperative Society is no longer res integra. For the said issue has been decided by the ITAT itself in different cases. Moreover the word Cooperative Socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant case, 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) of the Act. 15. Now, coming to a related issue as to whether by virtue of provisions of Section 80P(4) of the Act, the claim of the assessee under section 80(P)(2)(d) can be denied to the assessee society. The relevant provisions of section 80P(4) reads as under: (4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. 16. The Coordinate Bench in case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd. vs Income-tax Officer-21(2)(1), Mumbai [2018] 94 Taxmann.com 15 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-op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication of the issue before us. 80P(2)(d) (1) Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a) to (c)** ** ** (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income; Thus, from a perusal of the aforesaid Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee co-operative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. (supra) (ii) Sea Green Cooperative Housing and Society Ltd. (supra) (iii) Marwanjee Cama Park Cooperative Housing Society Ltd. (supra). We further find that the Hon'ble High Court of Karnataka in the case of Totagars Cooperative Sale Society(supra) and Hon'ble High Court of Gujarat in the case of State Bank Of India (supra), had also held that the interest income earned by the assessee on its investments held with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, as had been relied upon by the ld. A.R, also makes it clear beyond any scope of doubt, that the purpose behind enactment of sub-section (4) of Sec. 80P was to provide that the cooperative banks which are functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. We are of the considered view that the reliance placed by the CIT (A) on the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court of Gujarat in the case of State Bank Of India (supra), wherein it was observed that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9. We thus in the backdrop of our aforesaid observations are unable to persuade ourselves to be in agreement with the view taken by the lower authorities that the assessee would not be entitled for claim of deduction under Sec. 80P(2)(d), in respect of the interest income on the investments made with the cooperative bank. We thus set aside the order of the lower authorities and conclude that the interest income of ₹ 27,48,553/-earned by the assessee on the investments held with the co-operative bank would be entitled for claim of deduction under Sec. 80P(2)(d). 17. In light of above, 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. 18. 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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble on the facts of the present case. In the case of K. Nandakumar v. ITO [1993] 204 ITR 856/[1994] 72 Taxman 223 (Ker.), the Kerala High Court has held as under: '4. The effect of Section 80AB is that, for the purpose of computing the deduction under Section 80L, the amount of income of that nature as computed in accordance with the provisions of the Act shall alone be deemed to be the amount of income of that nature. What the section means is that the net income by way of interest computed in the manner provided by the provisions of the Act shall alone be taken into account for computing the benefit. But it must be noted that payment of interest under a loan transaction incurred for the purpose of deriving income from business is not an item which arises in the computation of interest income in accordance with the provisions of the Act. The said amount has to be paid irrespective of whether any interest income is otherwise received or not. Though the interest is payable to the same bank, the fact remains that the amount of income by-way of interest is not calculated under the provisions of the Act with reference to such outgoings which fall under different heads. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used, 7. The principle laid down by Rowlatt J., has also been time and again approved and applied by the Supreme Court in different cases including the one, Hansraj Gordhandas v. H. H. Dave, Assistant Collector of Central Excise and Customs, AIR 1970 SC 755, 759. 8. Section 80P(2)(d) of the Act allows whole deduction of an income by way of interest or dividends derived by the cooperative 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 co- operative 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 prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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. 13. However, in the aforesaid decision, on the related issue of whether deduction u/s 80P(2)(d) should be allowed on gross interest income on FDR on or net interest income calculating after deducting the interest expenditure, the Coordinate Bench has relied on the Hon ble Gujarat High Court decision in case of Surat Vankar Sahakari Sangh Ltd vs ACIT (supra) and the decision of the Hon ble Rajsthan High Court in case of Rajasthan Rajya Sahkari Upbhokta Sangh Ltd (supra) which has been brought to our notice by the ld. CIT DR was not considered and being the decision of the Jurisdictional High Court, the same is binding on the Tribunal and therefore, to this extent the decision rendered by the Co-ordinate Bench fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was considered in detail in the case of Kota Co-operative Marketing Society Ltd. v. CIT [1994] 207 ITR 608 (Raj.), wherein it has been held that if a co-operative society is carrying on business and earning income, part of which is exempted and part of which is not exempted, the profits and gains attributable to the exempted activity has to be arrived at on the basis of the books of account maintained by the assessee. If separate books or separate accounts of expenditure have been maintained for the exempted and non-exempted activities, there is no problem. If separate books of account have not been maintained and expenses have been incurred jointly for earning both the incomes then such expenses relatable to earn the non-exempted activities must be estimated. 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. The use of the words 'the whole of the amount of profits and gains of business attributable to any one or more of such activities' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re available, then the investment has been made out of interest free funds. It was accordingly submitted that since interest free funds were used for placing the FDRs with JCCB, no part of interest expenditure can be attributed to earning of such interest income. In our view, 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. However, 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 plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g all these expenditure itself. Just for betterment of administrative services, the assessee created the Trust through whom these expenses are incurred. The Profit Loss account of the Trust is maintained, copy of which is placed in the compilation and it is seen that whatever the amount has been given by assessee or reimbursed by assessee that has been spent by the Trust on the animals to get better quality and quantity of milk. The assessee had contributed @ ₹ 0.05 paise per liter of milk procured to its Trust for the purpose of incurring expenditure for better quality of milk. An agenda note was prepared which clearly states that the purpose of contribution is for medical and health facility of the animals of the milk producers at the District Level. The contribution made by assessee to trust is thus directly linked with the procurement of better quality, hygienic and more quantity of the milk. It is in the interest of the assessee that the milk animals at the village level from where it procures the milk are healthy for this purpose, SPARSH trust incurred expenditure in providing vaternity care, regular treatment, emergency care, preventive care, breed improvement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has received grant for revival of the societies from the Apex Society i.e. Rajasthan Co-operative Dairy Federation Limited at ₹ 22,91,920/- which has been offered for taxation by the assessee. The expenditure of ₹ 3 lacs or odd has been incurred for the same purpose i.e. for registering the members and the societies at village level so that regular supply of milk from these persons/societies can be maintained. In view of these facts and circumstances, we are of the view that the AO and ld. CIT (A) were not justified in not allowing the claim of the assessee. On one hand assessee is taxing the grant received by assessee and on the other hand the expenditure incurred for the same purpose is not allowed, which is not justified. In view of the above facts and circumstances, we delete this addition also. And thereafter, decided the matter in favour of the assessee and the relevant findings of the Hon ble High Court are contained at para 8 to 10 which read as under:- 8. Taking into consideration that the Tribunal has observed that the expenses actually given in donation to the trust was to be with the requirement of trust for the benefit and betterment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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