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TMI Blog2019 (6) TMI 1703X X X X Extracts X X X X X X X X Extracts X X X X ..... .K. Rawat (Jt. CIT) ORDER PER BENCH : These three appeals by the assessee are directed against three separate orders of ld. CIT (A) dated 4th January, 2017, 3rd January, 2017 and 28th November, 2017 for the assessment years 2012-13 to 14-15 respectively. Common ground has been raised in these appeals. The ground for the assessment year 2012-13 is reproduced as under :- 1. That on the facts and in the circumstances of the case the ld. CIT (A) is wrong, unjust and has erred in law in confirming action of the assessing officer in disallowing deduction of Rs. 48,97,480/- claimed by the appellant u/s 80P/80P(2)(d) of the I.T. Act, 1961 on interest income on FDR(s) with Kota Nagrik Sehkari Bank Ltd. and others. 2. That the appellant craves the permission to add to or amend to any of the above grounds of appeal or to withdraw any of them. 2. The assessee is a cooperative society registered under the Cooperative Societies Act, 1916. The assessee society is governed by the Co-operative Societies Act and Rajasthan Co-operative Rules amended from time to time. As it is apparent from the name of the assessee society, it was formed for the benefit of the employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 139/2002, 20, 24 27/2004 and submitted that by following the said decision, the Tribunal in case of ITO vs. Shree Keshorai Patan Sahakari Sugar Mill, Bundi vide order dated 31.01.2018 in ITA No. 418 419/JP/2017 has decided this issue in favour of the assessee. The ld. A/R has also relied upon the decision of Hon ble Telangana Andhra Pradesh High Court in case of Vavveru Co-operative Rural Bank Ltd. vs. Chief CIT, 396 ITR 371 and submitted that the Hon ble High Court has considered all the relevant provisions of section 80P(2) and held that the investments made by the Co-operative Society in fixed deposits in nationalized banks of their own money, yield interest income is eligible for deduction under section 80P(2)(a) of the Act. 4. On the other hand, the ld. D/R has submitted that the AO as well as the ld. CIT (A) has followed the decision of Hon ble Supreme Court and, therefore, once the interest earned on the Fixed Deposits is not income from the business activity of the assessee, then the same is not eligible for deduction under section 80P(2)(a) of the Act but the same is eligible only under section 80P(2)(d) if it is earned from the deposits made in any other Co-op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 3,221/- as interest on mollasses fund. After reducing the interest paid on FDR loans from Bundi Central Co-operative Bank of Rs. 20,03,200/-, the net interest income was declared by the assessee at Rs. 2,65,43,871/-. The assessee claimed deduction u/s 80P(2)(c)(ii) in respect of the interest deposit in saving bank with SBBJ of Rs. 34,779/- and deduction u/s 80P(2)(d) in respect of the interest from cooperative banks of Rs. 2,65,09,092/-. The AO disallowed the claim of the assessee in toto, on the ground that the assessee is not in the business of banking or not providing credit facilities to its members. The Ld. CIT(A) allowed the claim of the assessee by following the various decisions of the Hon ble High Court as well as this Tribunal as under:- The brief facts of the case are that the assessee had claimed deduction u/ s 80P (2)(d) of the Act in respect of interest of Rs.2,65,43,870/ - on fixed deposits with Coop. Banks. The AO disallowed the said deduction as claimed by the by rejecting the claim of the assessee by holding that since the appellant assessee was not carrying out any commercial activities since year 2000, it was not providing any credit facilities to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) it is clear that the former deals with deduction in respect of profits and gain of business in case of the co-operative society carrying on business of banking or providing credit facilities to its members if the said income is assessable as income from business whereas latter provides for deduction in respect of income by way interest and dividend derived by assessee from its investments with other cooperative society. Thus it is amply clear that a cooperative society can only avail deduction u/s 80P(2)(a)(i) in respect of its income assessable as business income and not as income from other sources if it carries on business of the banking or providing credit facilities to its members and has income assessable under the head business whereas for claiming u/s 80P(2)(d) it must have income of interest and dividend on investments with other Co-operative society may or may not be engaged in the banking for providing credit facilities to its members and the head under which the income is assessable is not material for the claim of deduction under this section. The Honble Supreme Court in the case of Totagar's Co-operative Sale Society Ltd.(Supra) held that a society has su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in para 8.3 as under:- 8.3 We have heard the rival submissions and perused the material on record. We find that the CIT(A) enhanced the income of the assessee by rejecting the deduction u/s 80P(2)(d) of the Act of Rs.14,88,107/- being interest on investment with other Coop. banks by following the decision in the case of Bandra Samruddihi Co-operative Housing Society Ltd.(Supra) which was passed on the basis of the decision passed by the Hon'ble Supreme Court in the case of Totagar's Co-operative Sale Society Ltd. In the case of Totagar's Co-operative Sale Society Ltd v/s ITAT (supra) the Hon'ble Supreme Court while interpreting the section 80P(2)(a)(i) of the Act held that surplus funds not immediately required in the business and invested in the short term deposit would be assessable under the head income from other sources where the Co-operative society is engaged in carrying on business of banking or providing credit facilities to its members and consequently no deduction is allowable u/s 80P(2)(a)(i) of the Act. Whereas in the case before us the issue is whether a co-operative society which has derived income on investment with cooperative banks is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this section. Now will evaluate the assessee's case in the light of the decision of the Hon'ble Supreme court. The Honble Supreme Court in the case of Totagar's Co-operative Sale Society Ltd.(Supra) held that a society has surplus funds which are invested in short term deposits where the society is engaged in the business of banking or providing credit facilities to its members in that case the said income from short term deposits shall be treated and assessed as income from other sources and deduction u/s 80(P)(2)(a)(i) would not be available meaning thereby that deduction u/s 80(P)(2)(a)(i) is available only in respect of income which is assessable as business income and not as income from other sources. Whereas in distinction to this , the provisions of section 80(P)(2)(d) of the Act provides for deduction in respect of income of a coop society by way of interest or dividend from its investments with other coop. society if such income is included in the gross total income of the such coop society. In view these facts and circumstances we are of the considered view that the assessee is entitled to the deduction of Rs. 14,88,107/-in respect of interest received/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest paid on the loan transactions has to be deducted from the business income, and not from the interest received from the bank on the fixed deposits. The assessees were therefore right in the submissions which they made before the Commissioner of Income-tax in the revision petitions which they filed. This aspect of the matter has been overlooked by the Commissioner in passing the order, exhibit P-5.' 8.1 Similarly, in the case of Doaba Co-operative Sugar Mills Ltd (supra), the Punjab Haryana High Court has held as under: '5. The contention of Mr. Gupta, learned counsel appearing for the Revenue, is that the Tribunal was wrong in allowing deduction under Section 80P(2) (d) of the Act because it is not established that the assessee had derived the interest by investing all the amount of surplus funds. It is further contended by Mr. Gupta that the assessee has paid interest to Jalandhar Central Co-operative Bank and has also received interest from the said co- operative bank, thereby showing that the assessee has on the aggregate paid interest to the bank and, therefore, no deduction under Section 80P(2)(d) can be allowed. To appreciate this argument, we have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the hank. Therefore, the reference is answered against the Revenue in the affirmative and in favour of the assessee.' 8.2 Moreover, the Bombay High Court in the case of Bai Bhuriben Lallubhai (supra) has held that the purpose for which the assessee borrowed money had no connection whether direct or indirect with the income which she earned from the fixed deposit and that she was not entitled to the deduction claimed under Section 12(2). The High Court held that if an assessee had no option except to incur an expenditure in order to make the earning of an income possible, then undoubtedly the exercise of that option is compulsory and any expenditure incurred by reason of the exercise of that option would come within the ambit of section 12(2) of the Indian Income-Tax Act but where the option has no connection with the carrying on of the business or the earning of the income and the option depends upon personal considerations or upon motives of the assessee, that expenditure cannot possibly come within the ambit of Section 12(2). In the present case, the loan was taken for business purpose more particularly purchase of yarn and not for fixed deposits. 9. In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel has relied on the case of The Totgars Cooperative Sale Society Ltd. Vs. Income Tax. Officer, (supra). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case. 6.4 Thus, the Hon ble High Court has held that the Co-operative Bank is considered to a cooperative society for the purpose of section 80P(2)(d). Accordingly, in view of the decisions as cited (supra), we do not find any error or illegality in the orders of the Ld. CIT(A) to the extent of the allowing the claim of the assessee u/s 80P(2)(d) in respect of interest income from deposits/FDRs with the Co-operative Banks. Thus the Tribunal after considering the decision of Hon ble Jurisdictional High Court in case of CIT vs. Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd. (supra) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same business ; The whole of the amount of profits and gains on such business. (c) (1) A consumer co-operative society engaged in activities other than those specified in clause (a) or clause (b) either independently of, or in addition to, all or any of the activities so specified. So much of the profits and gains attributable to such activities not exceeding Rs. 100,000 (one hundred thousand rupees). (2) Co-operative society other than a consumer cooperative society engaged in activities other than those specified in clauses (a) and (b). So much to these profits and gains attributable to such activities not exceeding Rs. 50,000 (fifty thousand rupees). (d) Interest or dividends derived by the co-operative society from its investments with any other cooperative society The whole of such income. (e) Any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities ; The whole of such income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved therefrom, the case would be covered by clause (e) of section 80P(2). 31. The only area of distinction between clause (a) on the one hand and clauses (d) and (e) on the other hand is that the benefit under clause (a) is restricted only to those activities of a co-operative society enlisted in subclauses (i) to (vii) of clause (a). On the other hand, the benefit under clauses (d) and (e) are available to all co-operative societies, without any restriction as to the nature of the activities carried on by them. 32. In simple terms, the position can be summarised like this. If there is a cooperative society, which is carrying on several activities including those activities listed in sub-clauses (i) to (vii) of clause (a), the benefit under clause (a) will be limited only to the profits and gains of business attributable to any one or more of such activities. But, in case the same co operative society has an income not attributable to any one or more of the activities listed in subclauses (i) to (vii) of clause (a), the same may go out of the purview of clause (a), but still, the co-operative society may claim the benefit of clause (d) or (e) either by investing the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note. 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be. 36. The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression attributable to and not any one ..... 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