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TMI Blog2024 (4) TMI 1161X X X X Extracts X X X X X X X X Extracts X X X X ..... edit facilities to its members. The decision of Totgar Co-operative Sale Society [ 2010 (2) TMI 3 - SUPREME COURT ] is relevant. The assessee s claim u/s 80P(2)(a)(i) is not maintainable. There is no evidence on record to substantiate /prove that these funds were invested by the assessee with the Commercial Banks under any statutory requirement with respect to its business activity of providing credit facilities to its members. Alternative claim u/s 80P(2)(c)(ii) - This claim of the assessee cannot be accepted because of the simple and plain language of the statute. The assessee by depositing its surplus funds with banks /institutions who are not members of the assessee nor are these banks are credit societies but are commercial banks, has earned interest income which is income from other sources chargeable to tax u/s 56 - No evidence is brought on record to substantiate that these amounts were deposited with commercial banks under the statutory requirements with respect to its business activities of providing credit facilities to its members, and are not merely surplus funds placed with these commercial banks with a view to earn interest income. The claim of the assessee for deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA no. 525/Ahd/2023 for assessment year 2017-18. ITA No. 525/Ahd/2023-Assessment Year:2017-18 2. The Revenue has raised following grounds of appeal in Memo of Appeal filed with the Income Tax Appellate Tribunal, Ahmedabad (hereinafter called the tribunal ) w.r.t. Appeal in ITA no. 525/Ahd/2023 for the assessment year 2017-18 :- (a) The Ld. CIT (A) has erred in law and on facts in allowing the deduction of Rs. 32,449/- claimed u/s 80P(2)(a)(i) of the IT Act in respect of the interest received from the Nationalized Banks. (b) The Ld. CIT (A) has erred in law and on facts in allowing the deduction of Rs. 1,62,24,334/- claimed u/s 80P(2)(d) of the IT Act in respect of the interest received from the Co-operative Banks. (c) The Ld. CIT (A) has erred in law and on facts in allowing the deduction of u/s 80P(2)(a)(i) of the IT Act without considering the provisions of section 56 of the IT Act. (d) The appellant craves leave to add, alter and/or to amend all or any of the ground before the final hearing of the appeal. 3. The brief facts of the case are that the assessee is a Co-operative Credit Society engaged in providing credit facility to its members. The assessee filed its return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income earned from surplus invested in short term deposits and securities is to be brought to tax under section 56 of the Act and hence the addition was made by the AO by denying the deduction under section 80P(2)(a)(i) of the Act while bringing the same as income chargeable to tax under section 56 of the Act to the tune of Rs. 32,449/-. Disallowance out of deduction under section 80P(2)(d) of the Act. 3.3 The AO further observed during assessment proceedings that the assessee has received interest income of Rs. 1,62,24,334/- from Co-operative Banks, which was claimed as deduction u/s 80P of the 1961 Act, as detailed hereunder:- Sr. No. Name of Bank Interest receipt (Rs.) 1. Interest income from Mehsana Urban Co-op. Bank Ltd. 1,59,13,246/- 2. Interest income from Kukarwada Nagrik Bank Ltd 3,02,706/- 3. Interest income from Mehsana Dist. Bank 159/- 4. Interest Income from Vijapur Nagarik Sahakari Bank Ltd. 31,168/- 3.4. The AO observed that as per the decision of Hon ble Karnataka High Court in the case of PCIT v. Totgar Cooperative Sale Society (2017) 83 taxman.com 140(Kar.), deduction of interest income earned from deposit with Co-operative Bank is not allowable deduction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was submitted that the claim for deduction for proportionate expenses u/s 57 is to be allowed as under:- Sr. No. Particulars Amount 1. Gross Receipts as per P L a/c. 4,26,45,889/- 2. Gross income as per Computation of income 2,19,39,346/- 3. Expense claimed from gross receipts (1-2) out of total expenses of Rs. 3,74,95,389/- debited in P L account 2,07,06,543/- 4. Interest on investment with co-op banks 1,62,24,334/- 5. Proportionate expenses available as deduction u/s. 57 of the I.T. Act. 20706543*(16224334/42645889) 78,77,661 6. Income from other sources (4-5) 83,46,673/- 7. Deduction u/s 80P(2)(d) 83,46,673/- 3.6 The assessee also submitted that the assessee is entitled for aggregate deduction under section 80P(2)(c)(ii) of Rs. 50,000/- from interest income earned from the Nationalized Banks and also interest income from Co-operative Banks. 3.7 The AO rejected the contention of the assessee by holding that the interest income is chargeable to tax under section 56 of the Act under the head income from other sources. The AO relied upon the decision of Hon ble Karnataka High Court in the case of PCIT v. Totgar Cooperative Sale Society (2017) 83 taxmann.com 140, and held that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im deduction on interest earned from Co-Operative Banks u/s 80P(2)(d) of the Act. The Hon'ble Gujarat High Court in the case of State Bank of India Vs. CIT (2016) 389 ITR 578 (Guj), held that 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. The Honourable Gujarat High Court made following observations in respect of interest earned from deposits kept with a cooperative bank: Therefore, it is only the interest derived from the credit provided 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 State Bank of India not being attributable to the business carried on by the appellant, cannot be deducted under section 80P(2)(a)(i) of the Act. If the appellant wants to avail of the benefit of deduction of such interest income, it is always open for it to deposit the surplus funds with a co-operative bank and avail of deduction under section 80P(2)(d) of the Act. 5.2 In the case of Surat Vankar Sahakari Sangh Ltd. vs Assistant Commissioner of Income-tax [2016] 72 taxmann.com 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve which inter-alia has claimed as deduction u/s 80P of I.T.Act, is not eligible for such deduction. Therefore, the deduction claimed by the assessee to the extent of Rs. 32,449/- is disallowed treating the same as income u/s 56 of I.T. Act and added to the income declared for the year under consideration. 7.1 Again, I find this issue of the appellant to be squarely covered in favour of the appellant by the decision of ITAT in assessee's own case for the Assessment Year 2009-10 vide ITA No. 1723/Ahd/2012 Along with C.O. No. 161/Ahd/2012 holding that: we find that there is force in the argument of the assessee that the assessee not a cooperative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs. 13,69,955/-. In overall consideration of all the aspects, we are of the considered view that the ratio laid down by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that as per decision of Hon ble Gujarat High Court in the case of CIT v. Sabarkantha District Milk Cooperative Producers Union Ltd. in Tax Appeal No. 473 of 2014 order dated 16.06.2014, the interest income earned from Cooperative Bank is to be allowed as deduction. It was submitted that the Tribunal has followed this decision in many cases. The ld. Counsel for the assessee also relied upon the judgment of Hon ble Kerela High Court in the case of PCIT v. Peroorkada Service Cooperative Bank Ltd.(442 ITR 141), in which the claim of deduction is allowed by Hon ble Kerela High Court, and ld. Counsel for the assessee also relied upon other decision as per the paper book filed. The ld. AR submitted that with respect of interest of Rs. 32,449/- earned from the nationalized banks, the same cannot be allowed, keeping in view the decision of Hon ble Gujarat High Court in the case of SBI v. CIT(supra) in favour of Revenue. The Ld. Counsel for the assessee submitted that since it is an amount of Rs. 32,449/-, and as per section 80P(2)(c)(ii) deduction of upto Rs. 50,000/-is allowed, and it was submitted that the claim of deduction of Rs. 32,449/- is to be allowed. The ld. Counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT, Ahmedabad Bench in ITA no. 1723/Ahd/2012 along with CO No. 161/Ahd./2012 for AY : 2009-10 in assessee s own case. The ITAT has also decided this issue in favour of the assessee for ay:2010-11. The Revenue has come in appeal before the ITAT against the decision of ld. CIT (A) granting relief to the assessee for the impugned assessment year. It is abundantly clear that the assessee has deposited its surplus funds with aforesaid banks, and these banks/institutions are not members of the assessee cooperative credit society nor these banks are credit societies, but rather these banks are commercial banks. The interest income arising from deposit of surplus funds made with banks/institution is chargeable to tax u/s 56 of the 1961 Act, and is not an income arising from the business of providing credit facilities to its members. The decision of Hon ble Supreme Court in the case of Totgar Co-operative Sale Society(supra) is relevant. The assessee s claim u/s 80P(2)(a)(i) is not maintainable. There is no evidence on record to substantiate /prove that these funds were invested by the assessee with the Commercial Banks under any statutory requirement with respect to its business activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents with respect to its business activities of providing credit facilities to its members, and are not merely surplus funds placed with these commercial banks with a view to earn interest income. Under these facts and circumstances, the claim of the assessee for deduction u/s 80P(2)(c)(ii) for deduction of Rs. 32,449/- is not maintainable in the eyes of law, and hence the addition as made by ld. AO is sustained, and the appellate order of ld. CIT (A) is set aside so far as adjudication of this issue is concerned. The Revenue succeeds on this issue. We order accordingly. 7.2 The assessee has also claimed deduction u/s 80P(2)(d) of Rs. 1,62,24,334/- towards interest earned from deposits made with Co-operative banks, detailed hereunder: Sr. No. Name of Bank Interest receipt (Rs.) 1. Interest income from Mehsana Urban Co-op. Bank Ltd. 1,59,13,246/- 2. Interest income from Kukarwada Nagrik Bank Ltd 3,02,706/- 3. Interest income from Mehsana Dist. Bank 159/- 4. Interest Income from Vijapur Nagarik Sahakari Bank Ltd. 31,168/- The AO has denied the deduction u/s 80P(2)(d) to the assessee by following the decision of Hon ble Karnataka High Court in the case of PCIT v. Totgar Co-operative S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of interest earned by it from deposits made with nationalised/private banks, however, said benefit was available in respect of interest earned on deposits made with co-operative bank. 5.4 In the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn), the Karnataka High Court has held that the interest income earned by a cooperative 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. 5.5 Respectfully, following the decision of Honourable High Court of Gujarat and other cases cited above, in our view, interest earned by the assessee on surplus held with cooperative banks would be eligible for deduction under Sec.80P(2)(d) of the Act. 6. In the result, the appeal of the revenue is dismissed. Respectfully following the aforesaid decision of ITAT, Ahmedabad Bench (which has followed the decision of jurisdictional High Court), in assessee s own case, for assessment year 2016-17 which is immediately preceding year, and in order to maintain consistency, we allow the claim of the assessee for deduction u/s 80P(2)(d) with respect to interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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