GRAMIN SEWA SAHAKARI SAMITI MARYADIT AMDI,AMDI V. INCOME TAX OFFICER, DHAMTARI

ITA 367/RPR/2024

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The case involves Gramin Sewa Sahakari Samiti Maryadit, a cooperative society, appealing against the order of the Commissioner of Income-Tax (Appeals), which sustained the disallowance of a deduction claimed under section 80P(2)(a)(i) of the Income Tax Act on interest income from bank deposits. The society argued that the interest income was part of its business activities and should be deductible. The Tribunal referenced a similar case, Gramin Sewa Sahakari Samiti Maryadit Vs. ITO-1(3), Raipur, and found in favor of the society, allowing the deduction.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 469804 (ITAT-RAIPUR)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-10-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 07-08-2024
• Other Referred Cases: Totgars Co-operative Sale Society Ltd vs. ITO, Tumkur Merchants Souharda Cooperative Ltd vs. ITO, Commissioner of Income Tax III Hyderabad vs. Andhra Pradesh State Cooperative Bank Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYANKA PATEL
• Assessee Lawyers: YOGESH SETHIA; PROVIDING CREDIT FACILITIES
• Keywords: Set aside; Business income; Question of law
• Section: 143(2); 56; 80P

Judgement Text

"आयकर अपीलȣय अͬधकरण Ûयायपीठ रायपुर मɅ। IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No. 367/RPR/2024 Ǔनधा[रण वष[ / Assessment Year : 2018-19 Gramin Sewa Sahakari Samiti Maryadit, Amdi Amdi, Dhamtari-493 773 PAN: AJJPS3306F .......अपीलाथȸ / Appellant बनाम / V/s. The Income Tax Officer, Dhamtari (C.G.) ……Ĥ×यथȸ / Respondent Assessee by : Shri Yogesh Sethia, CA Revenue by : Dr. Priyanka Patel, Sr. DR सुनवाई कȧ तारȣख / Date of Hearing : 23.10.2024 घोषणा कȧ तारȣख / Date of Pronouncement : 24.10.2024 2 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee society is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 27.05.2024, which in turn arises from the order passed by the A.O under Sec.143(3) r.w.s. 143(3A) & 143(3B) of the Income-tax Act, 1961 (in short ‘the Act’) dated 27.01.2021 for the assessment year 2018-19. The assessee, a co-operative society, has assailed the impugned order on the following grounds of appeal before us: “1. That the Ld. CIT(A) has erred in sustaining the disallowance of deduction u/s.80P(2)(a)(i) made by the Ld Assessing-Officer at Rs 8,97,362/-. 2. That the Ld. CIT(A) had erred in law as well as on facts, in sustain the disallowance of the deduction claimed u/s80P(2)(a)(i) of Rs.8,97,362/- being income from interest earned on bank deposits treated the income from banking activities as income from other source instead of its true nature of business income. 3. The appellant reserves the right to addition, after or omit all or any of the grounds of appeal in the interest of justice.” 2. Shri Yogesh Sethia, Ld. Authorized Representative (for short ‘AR’) for the assessee society at the threshold submitted that the present appeal involves a delay of 12 days. Elaborating upon the reasons leading to the impugned delay, the Ld. AR had taken us through an application dated 23.10.2024 and “affidavit” dated 21.10.2024 filed by the asssessee. 3 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 3. We have heard the Ld. Authorized representatives of both the parties on the issue of the delay involved in filing the present appeal. As the delay involved is not inordinate and there are justifiable reasons which had led to the same, therefore, we condone the same. 4. Succinctly stated, the assessee society had filed its return of income for A.Y.2018-19, declaring an income of Rs. Nil (after claiming deduction u/s. 80P(2)(a)(i) of Rs.5,75,881/-). Thereafter, the case of the assessee society was selected for scrutiny assessment u/s. 143(2) of the Act. 5. During the course of the assessment proceedings, the A.O., being of the view that the interest income received by the assessee society on its bank accounts was not eligible for deduction u/s. 80P(2)(a)(i) of the Act, thus, disallowed its claim for deduction and framed the assessment vide its order u/s.143(3) r.w.s. 143(3A) & 143(3B) of the Act, dated 27.01.2021. 6. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. For the sake of clarity, the observations of the CIT(Appeals) are culled out as under: “6.2 I have perused the assessment order, grounds of appeal and submission filed by the appellant carefully. I find from the assessment order that the appellant had received interest income of Rs.8,97,362/-from investments made with banks out of surplus funds. The appellant requested to allow the deduction u/s 80P(2)(a)(i) on the above amount of Rs.8,97,362 /- relying on various decisions. However the AO denied the deduction u/s.80P(2)(a)(i) relying on the decision of Hon'ble Supreme Court 4 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 of India in the case of Totgars Co-operative sale society Ltd ( 322 ITR 283(SC). During appellate proceedings, the appellant submitted that the facts of the case law in the case of Totgars Co-operative sale society Ltd are totally different and hence not applicable to the appellant's case. Further by relying various decisions, the appellant contended that the appellant is entitled for deduction u/s.80P(2)(a)(i) on interest income of Rs.8,97,362/- earned on the investments made with nationalized bank and other banks. I have considered the submission of the appellant and facts of the case. I fi that as per para 11 of the decision of Hon’ble Supreme Court of India in the case Totgars Co-operative sale society Ltd (322 ITR 283(SC)(2010), it has been clear held that the deduction u/s 80P(2)(a)(i) is admissible on operational income and n( on other income. The para 11 of the decision of Hon’ble Supreme Court of India ii the case of Totgars Co- operative sale society Ltd ( 322 ITR 283(SC)(2010) is re. produced as under- “To say that the source of income is not relevant for deciding the applicability of section 80P would not be correct because one needs to give weightage to the words the whole of the amount of profits and gains of business' attributable to one of the activities specified in section 80P(2)(a). The words the whole of the amount of profits and gains of business emphasize that the income. in respect of which deduction is sought. must constitute the operational income and not the other income which accrues to the society. In the instant case, the evidence showed that the assessee-society earned interest on funds which were not required for business purposes at the given point of time. Therefore. on the facts and circumstances of the instant case. such interest income fell in the category of 'other income' which had rightly been taxed by the department under section 56……” The Hon’ble Supreme Court has clearly held in the above case that interest income fell in the category of other income which had been rightly taxed by the department under section 56. Therefore the contention of the appellant is not found tenable. I further find that facts of the-Ease laws relied upon by the appellant are distinguishable on facts and hence are not applicable to the case of the appellant. Therefore, contention raised by the appellant is not found acceptable. In view of the above discussion. the addition made by the AO is confirmed and the grounds of appeal raised by the appellant are dismissed.” 5 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 7. The assessee society being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 8. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 9. Shri Yogesh Sethia, Ld. AR for the assessee at the threshold submitted that the issue involved in the present appeal i.e. entitlement of the assessee society for claim of deduction u/s. 80P(2)(a)(i) of the Act of the interest income received on its idle funds deposited with the banks is squarely covered by the order of the Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit Vs. ITO-1(3), Raipur, 2022(3) TMI 75-ITAT Raipur, Page 287 to 301 of APB. The Ld. AR submitted that as the facts and issue involved in the present appeal remains the same as were there before the Tribunal in the aforementioned case, therefore, the declining of assessee’s claim for deduction u/s. 80P(2)(a)(i) of the Act was liable to be vacated. 10. Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities. 11. We have given thoughtful consideration to the issue involved in the present case, i.e. entitlement of the assessee society for claiming deduction 6 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 u/s 80P(2)(a)(i) of the interest income on its idle funds deposited in its bank accounts. Ostensibly, the assessee society had in the course of the assessment proceedings submitted before the A.O that as the interest income earned on its surplus funds, i.e. funds for which there were no takers at the relevant point of time, being inextricably interlinked or in fact interwoven with its business activities, thus, was eligible for deduction u/s. 80(2)(a)(i) of the Act. However, the aforesaid claim of the assessee society was rejected by the A.O. 12. We find that the issue involved in the present appeal, i.e. as to whether or not the interest income on the surplus funds of a co-operative society, i.e. the funds for which there were no takers would be eligible for deduction u/s. 80P(2)(a)(i) of the Act, had been deliberated upon and is squarely covered by the order passed by the ITAT, Raipur in the case of Gramin Sewa Sahakari Samiti Maryadit Vs. ITO-1(3), Raipur, 2022(3) TMI 75-ITAT Raipur. The Tribunal after exhaustive deliberation on the aforesaid issue had held as under: “13. We shall first advert to the assessee’s grievance that the lower authorities had erred in declining its claim for deduction u/s. 80P(2)(a)(i) of the Act, i.e, as regards the interest income that was earned on the surplus funds which were deposited by it with Jila Sahakari Kendriya Bank, i.e, a co-operative bank. After deliberating at length on the issue in hand, we find that the aforesaid claim of the assessee hinges around the aspect that as to whether or not the interest income earned by it on its surplus funds which were parked as deposits in the normal course of its business of providing credit facilities to its members, i.e., at the point of time when there were no takers for 7 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 the said funds, was eligible for deduction u/s. 80P(2)(a)(i) of the Act. We have given a thoughtful consideration to the contentions advanced by the Ld. Authorized representatives for both the parties. Before proceeding any further, we deem it fit to cull out the provisions of section 80P(2)(a)(i) of the Act, the scope and gamut of which is the primary bone of contention before us, 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 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, or (ii) to (iii)……………………………………………” (Emphasis by underlining supplied by us) On a perusal of the aforesaid statutory provision, we find that the same, contemplates, that the income of a co-operative society from its business of banking or providing credit facilities to its members is eligible for deduction u/s. 80P(2)(a)(i) of the Act. Our indulgence in the present appeal is confined to the limited aspect, i.e, as to whether or not the interest income earned by the assessee-society by depositing its surplus funds with a bank can be brought within the meaning of “income from carrying on the business of banking or providing credit facilities to its members”, and thus, would fall within the realm of the deduction contemplated in Section 80P(2)(a)(i) of the Act. At this stage, we may herein observe, that it is the claim of the assessee, that as depositing of its surplus funds, i.e, the funds for which there were no takers at the relevant point of time, in the course of its business of providing credit facilities to its members, is inextricably interlinked; or in fact interwoven with its said stream of its business activity, therefore, the interest income received on such short-term deposits was duly eligible for deduction under the aforesaid statutory provision, i.e., Sec. 80P(2)(a)(i) of the Act. We may herein observe, that though the assessee- society in addition to its business of providing credit facilities to its members was also engaged in other multiple activities for its members, viz. business of paddy procurement, sale of fertilizers, seeds, manures and pesticides and sale of controlled items under Public Distribution System (PDS), however, it is neither the case of the revenue nor a fact 8 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 discernible from the record that the funds deposited by the assessee- society with the bank, viz. Jila Sahakari Kendriya Bank (supra) were the amounts that were payable by the society to its members, and the same having being retained were for the time being invested as a short- term deposit/security with the bank. If that would have been so, then, the interest income earned on such short-term deposit/security with the bank would not have been eligible for deduction u/s.80P(2)(a)(i) of the Act. But then, as the amount deposited by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) was in the nature of simpliciter surplus or idle funds of the assessee society, for which there were no takers for the time being in course of its business of providing credit facilities to its members, therefore, depositing of the same by way of short-term deposits with the aforesaid bank, as stated by the ld. A.R, and rightly so, would clearly be inextricably interlinked, or in fact interwoven with its aforesaid primary business activity, i.e., providing of credit facilities to its members. At this stage, we may herein observe, that the Hon’ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. Vs. ITO, Karnataka, 322 ITR 283 (SC), had held, that in a case where the assessee-cooperative society apart from providing credit facilities to its members was also in the business of marketing of agricultural produce grown by its members, and the sale consideration of the agricultural produce due towards its members was thereafter retained and invested as a short-term deposit/security with the bank, then, the interest income therein earned to the said extent could not be said to be attributable to its activity of providing credit facilities to its members. As is discernible from the aforesaid judicial pronouncement of the Hon’ble Supreme Court, we find the Hon’ble Apex Court had clarified beyond doubt that they have confined the judgment to the facts of the case before them, and the same was not to be considered as laying down of any law. Be that as it may, the aforesaid judgment of the Hon’ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. (supra) had thereafter been considered by the Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. (supra) in ITA No.307/2014, dated 28.10.2014, wherein the Hon’ble High Court had after exhaustive deliberations held as under : “6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs.1,77,305/- represents the interest earned from short term deposits and from savings bank account. The assessee is a cooperative society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e. section 80P(2)(a)(i): 9 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 “Deduction in respect of income of cooperative societies: 80P. (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) in the case of a co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) xxx (iii) xxx (iv) xxx (v) xxx (vi) xxx (vii) xxx the whole of the amount of profits and gains of business attributable to any one or more of such activities.” 7. The word ‘attributable used in the said section is of great importance. The Apex Court had an occasion to consider the meaning of the word ‘attributable’ as supposed to derive from its use in various other provisions of the statute in the case of CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME TAX, GUJARAT-II reported in ITR Vol.113 (1978) Page 842 at Page 93 as under: As regards the aspect emerging from the expression \"attributable to\" occurring in the phrase \"profits and gains attributable to the business of\" the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the Legislature has deliberately used the expression \"attributable to\" and not the expression \"derived from\". It cannot be disputed that the expression \"attributable to\" is certainly wider in import than the expression \"derived from\". Had the expression \"derived from\" been used it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and 10 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 gains derived from the conduct of the business of generation and distribution of electricity. In this connection it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression \"derived from\", as for instance in s. 80J. In our view since the expression of wider import, namely, \"attributable to” has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. 8. Therefore, the word “attributable to” is certainly wider in import than the expression “derived from”. Whenever the legislature wanted to give a restricted meaning, they have used the expression “derived from”. The expression “attributable to” being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A cooperative society which is carrying on the business providing credit facilities to its members, earns profit and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co- operative society and is liable to be deducted from the gross total income under section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd, on which reliance is placed, the Supreme Court was dealing with a case where the assessee co-operative society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-society was a liability and it was shown in the balance sheet on the liability side. Therefore, to 11 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 that extent, such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or under section 80P(2)(a)(iii) of the Act. Therefore, in the facts of the said case, the Apex Court held the assessing Officer was right in taxing the interest income indicated above under section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore, it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore, they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore, it is liable to be deducted in terms of section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME TAX III HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD. Reported in (2011) 200 TAXMAN 220/12. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly, it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order: Appeal is allowed. The impugned order is hereby set aside. Parties to bear their own cost.” In the backdrop of the aforesaid observations of the Hon’ble High Court, we are of a considered view, that as in the case of the assessee before us the surplus funds parked by way of short-term deposit with the co-operative bank, viz. Jila Sahakari Kendriya Bank are inextricably interlinked, or in fact interwoven with its business of providing credit facilities to its members, therefore, the same as claimed by the Ld. AR, and rightly so, would duly be eligible for deduction u/s. 80P(2)(a)(i) of the Act. We, thus, in terms of our aforesaid observations, direct the Assessing Officer to allow deduction of Rs. 7,98,705/- u/s. 80P(2)(a)(i) of the Act on the interest income 12 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 earned by the assessee society on its deposits with the co- operative bank. Thus, the Ground of appeal No.1 raised before us is allowed in terms of our aforesaid observations.” 13. As the facts and the issue involved in the present appeal remain the same as were there in the aforesaid case before the Tribunal, therefore, we respectfully follow the same and set-aside the disallowance made by the A.O of the assessee’s claim for deduction u/s. 80P(2)(a)(i) of the Act. Accordingly, the Ground of appeal No.1 raised by the assessee society is allowed in terms of our aforesaid observations. 14. Ground of appeal No.2 being general in nature is dismissed as not pressed. 15. In the result, the appeal of the assessee society is allowed in terms of our aforesaid observations. Order pronounced in open court on 24th day of October, 2024. Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; Ǒदनांक / Dated : 24th October, 2024. **#SB, Sr. PS आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant. 2. Ĥ×यथȸ / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G.) 4. The Pr. CIT, Raipur-1 (C.G) 13 Gramin Sewa Sahakari Samiti Maryadit, Amdi Vs. ITO, Dhamtari ITA No. 367/RPR/2024 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, रायपुर बɅच, रायपुर / DR, ITAT, Raipur Bench, Raipur. 6. गाड[ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलȣय अͬधकरण, रायपुर / ITAT, Raipur. "