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TMI Blog2022 (1) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... guous and clear. Therefore we do not find any merit in the ground of appeal raised by the assessee. Interest expenses incurred against income of the other sources - As provisions of section 57 of the Act provides for the deduction of the expenses which have been incurred in generating the income i.e. income from other sources. In the present case if there is income on the deposits made with the nationalized bank, then the corresponding expenses in the nature of interest which has been incurred by the assessee in generating such income shall be allowed. In other words, the only net of interest income from the deposits made with the banks will only be excluded while calculating the amount eligible for deduction under section 80P(2)(a)(i) of the Act. With this observation, we modify the order of the learned CIT (A) to this limited extent i.e. by allowing the interest expenses incurred against such income of the other sources. Whether the assessee was eligible for deduction of the interest/dividend income received from the co-operative bank? - As relying on NARSANDA MERCANTILE CO. OP. CREDIT SOCIETY LTD [ 2018 (8) TMI 1844 - ITAT AHMEDABAD] the assessee is eligible to claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orroborative evidence on record and failed to appreciate the fact that status of co-operative bank is still co-operative society and as such deduction u/s. 80P(2)(d) is admissible in the case of the appellant. 6. It is therefore, prayed that the order of the Id. Commissioner of Income-Tax (Appeals)-XX, Ahmedabad may be set-aside and the return of income of the appellant be accepted. 7. The Appellant Crave leave to add, amend, alter, vary or withdraw any or all the grounds of appeal before or at the time of hearing of appeal. 2. The issues raised by the assessee are interconnected with each other and therefore we have clubbed all of them together for the purpose of adjudication and convenience. 3. The interconnected issue raised by the assessee is that the learned CIT (A) erred in directing the AO to allow the claim of the assessee after verification for the deduction with respect to the interest income whether it includes from nonmembers though there is no power under the provisions of section 251(1) of the Act. Likewise, the deduction claimed under section 80P(2)(d) of the Act amounting to ₹ 72,39,179/- was rejected by the learned CIT (A) under the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 80P(2)(a)(i) of the Act. As per the learned CIT (A), the benefit of deduction under the provisions of section 80P(2)(a)(i) of the Act is limited to the interest income derived by the assessee from financing activities with the members. Accordingly the learned CIT (A) direct the AO to verify the interest income shown by the assessee whether it includes interest income from the deposits made with the nationalized banks. Thus, the ground of appeal of the assessee was allowed by the learned CIT (A) subject to the verification. 6.2 With respect to interest and dividend income of ₹ 72,39,179/- received from the co-operative banks, the learned CIT (A) denied the benefit of the deduction provided under section 80P(2)(d) of the Act on the reasoning that the deposits and investments made in these co-operative banks do not represent the deposits and investment in the cooperative societies as mandated under the provisions of section 80P(2)(d) of the Act. 7. Being aggrieved by the order of learned CIT (A), the assessee is in appeal before us. 8. The learned AR before us contended that the interest/dividend income received by the assessee on the deposits made with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT (A) to this limited extent i.e. by allowing the interest expenses incurred against such income of the other sources. 10.2 Coming to the next issue whether the assessee was eligible for deduction of the interest/dividend income received from the co-operative banks, in this connection we note that this tribunal in combined order of various assessee being cooperative society bearing ITA Nos. 1992/Ahd/2017, 1313, 1314, 1295, 1296/Ahd/2018 has decided the issue against the assessee vide order dated 29th August 2018 by observing as under: In respect of the claim of the Ld. Counsel that interest earned from investment of surplus funds with the cooperative bank is entitled for deduction u/s 80P(2)(d) of the act we have noticed that as per section 80P(2)(d) of the act, the whole of interest and dividend income derived by a co-operative society from its investment in any other co-operative society is deductible u/s. 80P(2)(d). We find that 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 has held that it is only primary agricultural credit society with i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; under section 56, whereas for availing the exemption or 100 per cent deduction under section 80P, the income is specified in clauses (a) to (f) of sub section (2) of section 80P which should be its business or operational income. [Para 12] What section 80P(2)(d) which was though not specifically argued and canvassed before the Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other cooperative society. The words 'Co-operative Banks' are missing in clause (d) of sub section (2) of section 80P. Even though a cooperative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the primary agricultural credit society with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under section 80P of the Act. [Para 13] The banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, cannot be contrarily held as exempted and deductible now for these years, merely because the depository bank, with whom the investments were made by the assessee happens to be a co-operative bank. One cannot appreciate this distinction so as not to apply the binding precedent of the Supreme Court for subsequent years merely on account of the change of the bank where such deposits were made by the assessee, all other facts remaining the same, particularly the nature and character of the income earned by it. The interest income of assessee continues to be not attributable to its business operations even in these subsequent years. [Para 17] The character of income depends upon the nature of activity for earning that income and though on the face of it, the same may appear to be falling in any of the specified clauses of section 80P(2) of the Act, but on a deeper analysis of the facts, it may become ineligible for deduction under section 80P(2) of the Act. Hence, the income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a scheduled bank or a co-operativ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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