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TMI Blog2024 (6) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... urplus funds not immediately required for day to day banking were kept in Bank deposits. The income earned there from thus would be income from banking business eligible for deduction u/s 80P(2)(a)(i). Thus, we find that CIT (A) has erred in upholding the assessment order. The Appellant Cooperative society is entitled for deduction u/s 80P as claimed in the return. Decided in favour of assessee. - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI K.M. ROY, ACCOUNTANT, MEMBER For the Assessee : Shri Naresh Jakhotia, CA For the Revenue : Shri Surjit Kumar Saha, Sr.DR ORDER PER K.M.ROY, A.M. The present appeal has been preferred by the assessee challenging the impugned order dated 12/02/2021, passed under section 143(3) of the Income Tax Act, 1961 ( the Act ) by the learned AO, National E-Assessment Centre, [ learned ITO, NEAC ], for the assessment year 2018-19. 2. The assessee has raised following grounds of appeal: 1] Whether on the facts and circumstances of the case and in law, income earned by the Appellant is income arising in the course of business of banking or not? 2] Whether on the facts and circumstances of the case and in law, income from the investment of the Appellant is inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income is not eligible for deduction. 5. It appears that there is a delay of 62 days in filing the appeal. The condonation petition along with the supporting affidavit has been perused. Being satisfied, we condone the delay and proceed for adjudication. 6. Before us, the appellant has submitted the detailed submissions contained in page 6 to 21 of paper book, which are reproduced below for clear understanding of the gamut of the dispute. 6.1 With above short summary of the case, Appellant would humbly like to submit the following for your kind consideration : Sr.No. Grounds of Appeal Appellant Submission 1. Whether on the facts and circumstances of the case and in law, income earned by the Appellant is income arising in the course of business of banking or not? Appellant is not having any other activities or business except the business of banking. Appellant only source of income was banking business only. Investment in the Term Deposit was done in the course of the business of banking only. 2. Whether on the facts and circumstances of the case and in law, income from the investment of the Appellant is income from business or income from other source? Hon ble ITAT Nagpur i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year as well as that the Appellant is in the business of banking, no disallowance u/s 80P is warranted for any of its income whatsoever. Second Condition vs. Appellant In the present case of the Appellant, Appellant is a credit co-operative society and is engaged in the business of banking, thereby satisfying the condition is totality of deduction u/s 80P. In the present case, Appellant would like to submit that it do not have any other business except the activity of banking. Appellant humbly beg to submit that, since both the conditions (as against permissible single condition) stipulated by section 80P is fulfilled, deduction u/s 80P towards income may be allowed. 6.3 DISTINGUISHING TOTGARS CO-OPERATIVE SALES SOCIETY LTD VS ITO (2010) 188 TAXMAN 282 (SC); (a) The facts of the case of Totgars Co-operative Sales Society Ltd Vs ITO (2010) 188 Taxman 282 (SC) were totally different and need not be applied here. Supreme Court in this case has made the following observation which is verbatim produced hereunder for your kind consideration: At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in liquid forms considering the requirement of the members in near future. (f) The statutory requirement is further back by the commercial principle as the society has to repay the amount to the depositor member as and when the same is demanded back. This could be by way of withdrawals by such member or by way of pre-mature withdrawals of FD by such member. If all the deposit amount received by the appellant is given as loan then it may not be possible for the appellant the repayment obligation of the customers. Needless to say, this would result in the reputation and credential of the appellant. One can just imagine the consequences of refusing the repayment of the deposit amount by the bank or the societies by saying that There is no fund presently and will make repayment later . The newspaper, social media, competitors, etc., would ensure that such an institutions die instantly in such a situation no matter howsoever fundamentally strong it may be. In short, some fund is required to be kept from the perspective of the prudence besides statutory requirements. (g) The society has to maintain a CD ratio (Current Assets vs. Deposit Ratio) i.e., ratio of Loans to Deposit as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant in Totgars was carrying on some of the activities listed in Clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to 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 Totgars struck a different note. (k) Even Totgars case has taxed the income from Interest as Business Income only : In above judgment, Division Bench of Karnataka High Court held that when a society not carrying on any banking business had invested its surplus funds in security term deposit, the interest accrued from such securities and deposits should be taken as relatable profits and gains of the society. (l) The case of Totgars Co-operative Sale Society Ltd., v. ITO was well distinguished by Telangana AP High Court in the case of Vavveru Co-operative Rural Bank Ltd vs CCIT, Buchireddy Palem Co-operative Rural Bank Ltd vs CCIT. It was also disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that investment is attributable to the business of banking falling under the head Profit and gains of business and profession . For ease of reference, the copy of circular is enclosed herewith. It may be appreciated that Hon ble Apex Body CBDT itself has clarified affirmed the view of the Supreme Court in the case of CIT Vs. Nawanshahar Central Co-op Bank Ltd (2007) 160 Taxman 48 (SC) and has categorically reproduce that; Investment made by a banking concern are part of the business of banking. CBDT has very clearly and in explicit terms have concluded that, Therefore, the income arising from such investment is attributable to the business of banking falling under the head Profit and Gains of Business and Profession . 6.5 Deduction u/s 80P(2)(d): (a) It is respectfully submitted that Appellant has also received interest from co-operative societies which are operating as a bank duly authorized by the RBI. The said interest is eligible for deduction u/s 80P(2)(d) as well. The relevant part of section which provides for deduction from Gross Total income offers the deduction for the following. (d) in respect of any income by way of interest or dividends derived by the co-operative s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i ITAT has held as under: We also find that Section 80P(2)(d) of the Act allows whole deduction of an income by way of interest or dividends derived by the co-operative 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. The revenue is not required to look to the nature of the investment whether it was from its surplus funds or otherwise. We have also considered the case of Totgars Co-operative Sale Society Ltd. 322 ITR 282 relied upon by the ld. DR and find that the Hon ble Supreme Court has deliberated on the issue of deduction u/s 80P(2)(a)(i) but not on Section 80P(2)(d). We also observed that in the case of Totgars Co-operative Sale Society Ltd., itself the Hon ble High Court of Karnataka has allowed the claim of deduction u/s 80P(2)(d) vide order dated 05.01.2017. Hence, keeping in view the provisions of the Act and the judgments of the Hon ble High Court and Supreme Court in the case of Totgars Co-operative Sale Society Ltd., we her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02.06.2016] 4] Mumbai ITAT in the case of Palm Court M Premises Cooperative Society Limited vs. PCIT-30, Mumbai, ITA 561/Mum/2021, Dated 09.09.2022. 5] Pune ITAT in Subordinate Engineers Ass. MSEB Co-op Society vrs. ITO, Ward 2(2), Kolhapur - [ITA No. 261/Pun/2023, decided on 16.05.2023 ] 8. The learned authorized representative vehemently submitted that both the lower authorities have seriously misapplied upon law and facts in denying the deduction under Section 80P(2)(a)(i). Even submitted before us the assessment order for the Assessment Year 2016-17, wherein in the course of assessment under Section 143(3), deduction under Section 80P(2)(a)(i) was allowed. There being no change in the underlying facts and circumstances. He pleaded, the similar deduction should be allowed in the current year also. Upon confronting these facts before the departmental representative, he pleaded that reliance may be made upon the orders of the lower authorities in view of the fact that interest from fund not required immediate for business purposes is not eligible for deduction under Section 80P. 9. Upon hearing both the counsel and perusing the record, we find that the issue involved is covered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ag/2012 vide order dated 27.05.2015 has adjudicated similar issue as under:- 11. Upon careful consideration, we not that identical issue was the subject matter of consideration by ITAT, Ahmedabad Bench decision in the case of Dhanlaxmi Credit Cooperative Society Ltd (supra), in which one of us, learned Judicial Member, was a party. The concluding portion of the Tribunal s decision is as under: 4. With this brief background, we have heard both the sides. It was explained that the Co-operative Society is maintaining operations funds and to meet any eventuality towards repayment of deposit, the Co-operative society is maintaining some liquidated funds as a short term deposit with the banks. This issue was thoroughly discussed by the ITAT B Bench Ahmedabad in the case of The Income Tax Officer vs. M/s.Jafari Momin Vikas Co-op Credit Society Ltd., bearing ITA No. 1491/Ahd/2012 (for A.Y. 2009-10) and CO No. 138/Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portion is reproduced below :- 19. The issue dealt with by the Hon ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts as under : What is sought to be taxed under section 56 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emphatically from marketing of agricultural produces. 19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 19.4 While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1) in the case of assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds:- - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it had not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; - in the case of Totgars, the Hon ble Supreme Court had not spelt out anything with regard to operational funds; 19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co-operative bank, but its nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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