The Mahalaxmi Credit Co. Op. Society Ltd., Kheda V. The ITO, Ward- 3, Nadiad

ITA 153/AHD/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6286 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 05-02-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Question of law
• Section: 56; 28; 14A; 80P; 274; 143(2); 64; 194A; 72; 153; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH BEFORE: SHR I AMARJIT SINGH , ACCOUNTANT MEMBER AND SHRI MADHUMITA ROY , JUDICIAL MEMBER THE MAHALAXMI CR. CO. OP. SOCIETY LTD., NEAR GAYATRI TEMPLE, AT. WANAKBORI TPS, TAL. THASRA, DIST. KHEKA - 388250 PAN: AAAAT4311Q (APPELLANT) VS THE IT O , WARD - 3 , NADIAD (RESPONDENT) REVENUE BY : S H RI N.K. GOYAL , SR . D . R. ASSESSEE BY: SHRI PARTH SHAH , A.R. DATE OF HEARING : 21 - 01 - 2 020 DATE OF PRONOUNCEMENT : 31 - 01 - 2 020 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMB ER : - THIS ASSESSEE S APPEAL FOR A.Y. 2015 - 16 , ARI SES FROM ORDER OF THE CIT(A) - 2, VADODARA DATED 23 - 10 - 2 018 , IN PROCEEDINGS UNDER SECTION 1 4 3(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - I T A NO . 153 / A HD/20 19 A SS ESSMENT YEAR 2015 - 16 I.T.A NO. 15 3 /AHD/20 19 A.Y. 2015 - 16 PAGE NO MAHALAXMI CREDIT CO - OP. SOCIETY LTD. VS. IT O 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DISALLOWING THE CLAIM OF RS.8,12,108/ - ON ACCOUNT OF DISALLOWANCE U/S 80P(2)(A)(I) OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E LD. CIT(A) ERRED IN DISALLOWING THE CLAIM OF RS.1,90,077/ - ON ACCOUNT OF DISALLOWANCE U/S 80P(2)(D) OF THE ACT. 3. THE FACT IN BRIEF IS THAT ASSESSEE HAS FILED RETURN OF INCOME DECLARING INCOME OF RS. NIL ON 17 TH SEP, 2015 AFTER CLAIMING DEDUCTION U/S. 80P AT RS. 19,49,051/ - . THE CASE WAS SUBJECT TO SCRUTINY ASSESSMENT AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 27 TH JULY, 2016. DURING THE COURSE OF ASSESSMENT ON EXAMINATION OF THE DETAILS, THE ASSESSING OFFICER NOTICED THAT T HE SHARE CAPITAL AND RESERVE AND SURPLUS OF THE ASSESSEE EXCEEDED RS. 1 , 00 , 000/ - AND IT IS NOT A P RIMARY A GRICULTURAL CREDIT SOCIETY OR P RIMARY C O - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT B ANK AND HENCE IT HAS TO BE T REATED AS CO - OPERATIVE B ANK IN VIEW OF THE PROVISION OF SECTION 80P(4). IN RESPONSE TO THE SHOW CAUSE NOTICE , THE ASSESSE HAS SUBMITTED THE DETAIL S OF INTEREST INCOME AS UNDER: - I) DENA BANK - RS. 57,31,498/ - II) BANK OF BARODA - RS. 2,91,520/ - III) KDCC BANK - RS. 14,09, 709/ - IV) INTEREST ON ADVANCES - RS. 70,19,387/ - TOTAL - - RS.1,44,52,114/ - THE ASSESSEE HAS STATED THAT INTEREST INCOME OF RS. 14 , 09 ,709/ - FROM KD CC BANK IS ELIGIBLE FOR DEDUCTION U/S. 80P(2)( D) OF THE ACT. REGARDING INTEREST INCOME OF RS . 57,31 , 498/ - FROM DENA BANK , IT WAS STATED THAT OVERDRAFT FACILITY WAS OBTAINED THEREFORE THE SAME WAS ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE ON THE FOLLOWING REASONS: - A ) THE ASSESSEE IS A CO - OPERATIVE SOCIETY REGISTERED UNDER THE GUJARAT CO - OPERATIVE SOCIETIES ACT AND HENCE DOES NOT COME UNDER THE CATEGORY OF PRIMARY AGRI. CREDIT SOCIETY OR PRIMARY AGRI. & RURAL DEVELOPMENT BANK. FURTHER, IT IS NOTED THAT AS ON 31.03.201 5 THE ASSESSEE HAS PAID UP SHARE CAPITAL OF RS.12,79,650/ - AND RESERVES OF RS.1,66,15,803/ - AND THEREFORE THE ACTIVITY OF THE ASSESSEE WHICH HAS A SHARE I.T.A NO. 15 3 /AHD/20 19 A.Y. 2015 - 16 PAGE NO MAHALAXMI CREDIT CO - OP. SOCIETY LTD. VS. IT O 3 CAPITAL OF MORE THAN RUPEES ONE LAC CAN BE CONSIDERED TO BE THAT OF PRIMARY CO - OPERATIVE BANK AND HENCE IT IS NOT ELIGIBLE FOR DEDUCTION U/S. 80P R.W.S. 80P(4) OF THE ACT. B) AS PER DEFINITIONS MENTIONED IN SECTION 56 OF THE BANKING REGULATION ACT, THE DIFFERENCE BETWEEN THE 'CO - OPERATIVE BANK' AND 'CO - OPERATIVE CREDIT SOCIETY' IS ONLY THE AMOUNT OF PAID - UP SHARE CAPITAL AND RESERVES OF THE CO - OPERATIVE CREDIT SOCIETY. THE THRESHOLD LIMIT IS ONE LAKH RUPEES, SO CO OPERATIVE CREDIT SOCIETY HAVING PAID UP SHARE CAPITAL AND RESERVE AS PER BALANCE SHEET IS ONE LAKH RUPEE OR MORE THEN SUCH CO - OPERATIVE CREDIT SOC IETY MAY BE CONSIDERED AS CO OPERATIVE BANK, AS PER BANKING REGULATION ACT, 1949. C) SINCE, THE THRESHOLD LIMIT IS VERY MUCH CLEAR AND THERE IS NO ROOM FOR AMBIGUITY IN INTERPRETATION, THE BENEFIT OF SECTION SOP IS CONTROLLED BY EXCEPTION OF SECTION 80P(4) OF THE ACT. D) THE PROVISIONS OF INCOME TAX ACT HAVE NOTHING TO DO WITH COMPLIANCE OF OTHER LEGAL REQUIREMENTS MANDATED BY THE RESERVE BANK OF INDIA FOR BANKING BUSINESS. HENCE, SO FAR - DEDUCTION U/S. SOP IS CONCERNED THE SECTION 80P(4) HAS TO BE APPLIED F OR DECIDING THE ALLOWABILITY OF DEDUCTION U/S. SOP OF T THE ACT. IF THE .ASSESSEE PROVES THAT THERE IS .NQ, BANKING ACTIVITY DONE BY THE ASSESSEE THEN APPLICATION OF SECTION 80P(4) IS ATTRACTED AUTOMATICALLY. E) THE SECTION 80P(2)(A)(I) GRANTING DEDUCTION OF PROFIT FROM BANKING BUSINESS HAS LIMITED APPLICATIONS FOR GRANTING BENEFIT OF DEDUCTION FROM PROFIT FROM BANKING ACTIVITIES ONLY TO SMALL CO - OP CREDIT SOCIETY HAVING PAID UP SHARE CAPITAL AND RESERVES LESS THAN RUPEES ONE LAKH ONLY AFTER INTRODUCTION O F SECTION 80P(4) OF THE IT ACT, 1961. . - . 6.4 IN VIEW OF THE ABOVE DISCUSSION, ASSESSEE IS NOT ENTITLED FOR CLAIMING ANY DEDUCTION U/S. SOP OF THE ACT. ACCORDINGLY, DEDUCTION OF RS. 19,49,051/ - CLAIMED U/S. SOP OF THE ACT IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S. 271(L)(C) RWS 274 OF THE ACT INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME. [DISALLOWANCE RS.19,49,051]' 4. THE ASSESS EE PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER: - 4.1.1. SINCE THE FACTS ARE IDENTICAL IN THE CASE OF APPELLANT ALSO, 1 HOLD THAT MERELY BECAUSE SHARE CAPITAL A ND RESERVE EXCEEDED RS.1,00,000/ - , THE APPELLANT CANNOT BE TREATED AS CO - OPERATIVE BANK U/S. 80P(4) UNLESS THE APPELLANT IS ENGAGED IN PROVIDING CREDIT FACILITY TO THE PERSONS OTHER THAN MEMBERS AND HAS ALSO OBTAINED A BANK LICENCE FROM RESERVE BANK OF IND IA. SINCE THE APPELLANT W AS PROVIDING CREDIT FACILITY TO ITS MEMBERS ONLY, IT IS ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. HOWEVER, DEDUCTION U/S. 80P(2)(A)(I) IS NOT ADMISSIBLE ON THE INTEREST INCOME EARNED FROM SCHEDULED/NATIO NALIZED BANKS. T HE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO COMPUTE THE DISALLOWANCE AND ALLOW CONSEQUENTIAL RELIEF. THUS, APPELLANT SUCCEEDS PARTLY IN RESPECT OF GROUND NO. 1 . 4.2. VIDE GROUND NO. 2 THE APPELLANT HAS REQUESTED T HAT THE INTEREST INCOME EARNED FROM OTHER CO - O PERATIVE SOCIETIES ON FIXED DEPOSITS SHOULD BE ALLOWED DEDUCTION U/S. 80P(2)(D) OF THE - ACT. AS PER THE DETAILS AVAILABLE ON RECORD, THE APPELLANT HAS RECEIVED INTEREST INCOME OF RS.14,09,709/ - ON FIXED DEPOSITS WITH KDCC BANK WHICH IS .A .CO - OPERATIVE BANK. IN THE L ATEST DECISION, THE HON'BLE KARNATAKA HIGH - COURT. IN THE CASE OF PCIT VS. TOTAGARS CO - OPERATIVE SALES SOCIETY LTD. (2017) 395 ITR 611 (KAR.) HAS HELD THAT THE SECTION 80P(2)(D) ONLY REFERS TO INTEREST INCOME FROM CO - OPERATIVE SOCIETY AND NOT FROM CO - OPERATIVE BANK. MOREOVER, THE CO OPERATIVE BANK, ALTHOUGH MAY HAVE SKELETON OF A CO - OPERATIVE SOCIETY, BUT ITS BUSINESS IS ENTIRELY DIFFERENT WHICH IS GOVERNED AND REGULATED BY THE BANKING REGULATION ACT, 1 949. FURTHER, EXCLUSION OF CO - OPERATIVE BANK U/S. 80P(4) WITHOUT ANY AMENDMENT U/S. 80P(2)(D) IS SUFFICIENT TO DENY DEDUCTION U/S. 80P(2)(D) IN RESPECT OF INTEREST INCOME EARNED FROM CO OPERATIVE BANK. IN VIEW OF THE ABOVE FACTUAL AND IEGAL POSITION, THUS I HOLD THAT THE APPELLANT IS NOT ENTITLED TO CLAIM DEDUCTION U/S. 80P(2)(D) ON THE INCOME EARNED FROM KDCC BANK. THUS, GROUND NO. 2 IS DISMISSED. I.T.A NO. 15 3 /AHD/20 19 A.Y. 2015 - 16 PAGE NO MAHALAXMI CREDIT CO - OP. SOCIETY LTD. VS. IT O 4 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE RESPONDED TO THE SHOW CAUS E THAT THE DETAIL OF INTEREST INCOME EARNED BY IT IS AS UNDER: - I) DENA BANK - RS. 57,31,498/ - II) BANK OF BARODA - RS. 2,91,520/ - III) KDCC BANK - RS. 14,09,709/ - IV) INTEREST ON ADVANCES - RS. 70,19,387/ - TOTAL - - RS.1,44,52,114/ - THE ASSESSEE HAS CLAIMED THAT ABOVE INCOME IS ELIGIBLE FOR DEDUC TION U/S. 80P(2)(D) OF THE ACT. THE LD. CIT(A) HAS ALREADY ALLOWED THE CLAIM OF DEDUCTION U/S. 80P(2)(A)(I) IN RESPECT OF INTEREST INCOME THE ASSESSEE CO - OPERA TIVE SOCIETY HAS DERI VED FROM ITS BUSINESS OF A D V ANC ING LOAN TO ITS MEMBERS . THE LD. CIT(A) HAS HELD THAT ASSESSEE IS NOT ENTITLED FOR DEDUCTION ON T H E INTEREST INCOME EARNED FROM S CHEDULED/NATIONAL BANK. IN THIS REGARD, WE OBSERVE THAT INTEREST EARNED O N FUND INVESTED WITH T HE BANK IS NOT OPERATIONAL INCOME OF T HE ASSESSEE EARNED FROM PROVIDING CREDIT FACILITIES TO ITS MEMBERS AFTER PLACING RELIANCE ON THE DECISION OF THE HON BLE HIGH COURT OF GUJARAT IN THE C A SE OF SBI VS. CIT (2016) 72 TAXMAN. COM 64 W HEREIN IT I S HELD THAT INTEREST INCOME ON DEPOSIT PLACED WIT H THE COMMERCIAL BANK I S NOT EXEMPT U/S. 80P(2)(A)(I ) OF THE ACT. IN RESPECT OF INTEREST INCOME FROM COOPERATIVE BANK , THE LD. CIT(A) HAS HELD THAT THE ASSESSEE IS NOT ENTI T L E D FOR DEDUCTION U/S . 80P(2)(A) HOLDING THAT T H E CO - OPERATIVE B ANK ARE GOVERNED BY T H E BANKING REGULATION ACT, 1949 AFTER PLACING RELIANCE ON THE DECISION OF HON BLE HIGH C OURT OF KARNATAKA IN THE CASE OF PCIT VS. TOTAGARS CO - OPERATIVE SOCIETY LTD. 92017) 395 ITR 611 (KAR). ON THIS ISSUE, WE OBSERVE THAT INTEREST EARNED BY DEPOSIT OR INVESTMENT OF IDLE OR SURPLUS FUNDS DOES NOT I.T.A NO. 15 3 /AHD/20 19 A.Y. 2015 - 16 PAGE NO MAHALAXMI CREDIT CO - OP. SOCIETY LTD. VS. IT O 5 CHANGE ITS CHARACTER IRRESPECTIVE OF THE FACT WHETHER SUCH INCOME OF INTEREST IS EARNED FROM A SCHEDULED BANK OR A CO - OPERATIVE BANK. THE SIMILAR FAC TS AND ISSUES ARE DECIDED BY T H E CO - ORDINATE BENCHES IN THE FOLLOWING CASES: - (I) ITA NOS. 1992/AHD/2017, 1313/AHD/2018, 1314/ AHD/2018, 1295/AHD/2018 & 1296/A HD/2018 DATED 29/08/2018 IN THE CASES OF THE NARSANDA MERCANTILE CO.OP. CREDIT SOCIETY LTD., THE S ANT TALUKA TEACHERS CO - OP. CREDIT SOCIETY LTD., THE SATYAPRAKASH CO - OP. CREDIT SOCIETY LTD., SHRI FRIENDS CO - OP. CREDIT SOCIETY LTD. AND SHRI SHRAMJIVI NAGRIK SAHAKARI MANDLI LTD. (II) ITA NO. 98/AHD/2017 DATED 30 - 01 - 2020 (SHREE RAM CO - OP. CREDIT SOCIETY L TD. VS. ITO) THE RELEVANT PART OF THE DECISION IN THE CASE OF SHREE RAM CO - OP. CREDIT SOCIETY LTD. SUPRA IS REPRODUCED AS UNDER: - 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE U S, THE LD. COUNSEL HAS PLACED RELIANCE UPON THE DECISION OF HON BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT - II VS. SABARKANTHA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. VIDE TAX APPEAL NO. 473 OF 2014. WE HAVE PERUSED THE ABOVE REFERRED DECISION OF THE HON BLE HIGH COURT OF GUJARAT WHERE THE ORDER OF THE ITAT VIDE ITA NO. 2613/AHD/2012 DATED 27 - 09 - 2013 OF UPHOLDING THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCE OF RS. 1,42,19,515/ - UNDER SECTION 80P(2)(D) WAS SUSTAINED. WE HAVE PERUSED THE ORDER OF ITAT AHMEDABAD VIDE ITA NO. 2613/AHD/2012 FOR ASSESSMENT YEAR 2009 - 10 AGAINST WHICH THE REVENUE HAS PREFERRED APPEAL BEFORE THE HON BLE HIGH COURT OF GUJARAT WITH SUBSTANTIAL QUESTION OF LAW WHETHER THE APPELLATE TRIBUNAL HAS SUBSTANTIALLY ERRE D IN UPHOLDING THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF RS. 1,42,19,515/ - U/S. 80P(2)(D) OF THE ACT. THE CASE LAWS RELIED UPON BY THE ASSSESSARE DISTINGUISHABLE ON FACTS AND ARE OF NO HELP TO THE ASSESSEE IN THE PRESENT CASE. IN THE CASE O F SABARKANTHA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION RELIED UPON THE BY THE ASSESSEE AS REFERRED ABOVE THE ISSUE INVOLVED WAS PERTAINING TO DISALLOWANCE OF EXPENDITURE U/S. 14A OF THE ACT. IN THAT CASE, THE ASSESSING OFFICER HAS DISALLOWED 50% OF THE EXPENDITURE CLAIMED BY THE ASSESSEE ON THE REASON THAT INTEREST EXPENSES INCURRED BY THE ASSSESSEE ON BORROWED FUNDS MIGHT HAVE BEEN USED FOR THE PURPOSE OF MAKING INVESTMENT FOR EARNING EXEMPT INCOME U/S. 80P(2)(D) OF THE ACT. IN THAT CASE, BEFORE THE LD. CIT(A) THE ASSESSEE S SUBMISSION WAS THAT THEY ARE HAVING SUFFICIENT FUNDS OF RS. 50.19 CRORES AS ON 31 - 03 - 2009 IN THE FORM OF CAPITAL OF RS. 10.19 CRORE AND RESERVES AND SURPLUS OF RS. 40 CRORE AGAINST THE DEPOSIT MADE WITH THE CO - OP SOCIETIES OF RS. 36.28 CRORE ONLY. THEREFORE, LD. CIT(A) HAS DELETED THE DISALLOWANCE. CONSIDERING THE ABOVE FACT ON THE ISSUE OF DISALLOWANCE OF EXPENSES U/S. 14A OF THE ACT THE ITAT HAS HELD THAT ASSESSEE WAS HAVING MIXED FUNDS AND THE INTEREST FUNDS WERE MORE THAN I.T.A NO. 15 3 /AHD/20 19 A.Y. 2015 - 16 PAGE NO MAHALAXMI CREDIT CO - OP. SOCIETY LTD. VS. IT O 6 INVE STMENT IN CO - OPERATIVE BANK AND COOPERATIVE SOCIETIES NO DISALLOWANCE WAS CALLED FOR FROM ELIGIBLE DEDUCTION U/S. 80P(2)(D) OF THE ACT. IT IS CLEAR FROM THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE LAWS CITED BY THE ASSESSEE VIDE ITA NO. 473 OF 2014 IS PERTAINED TO THE THE FACT AND ISSUE OF DISALLOWANCE OF CLAIM OF DEDUCTION U/S. 80P(2)(D) ON THE BASIS OF ATTRACTING PROVISION OF SECTION 14A OF THE ACT AS NARRATED ABOVE AS PER THE ORDER OF ITAT VIDE ITA NO.2613/AHD/2012 DATED 27.09.201 3 IN THE CASE OF ACIT VS. SABARKANTHA DISTRICT CO - OPERATIVE MILK PRODUCERS UNION LTD. ON THE OTHER HAND, THE ISSUE INVOLVED IN THIS CASE OF THE ASSESSEE IS CLAIM OF DEDUCTION OF INTEREST INCOME U/S. 80P(2)(D) OF THE ACT EARNED ON IDLE FUNDS PLACED WITH C O - OPERATIVE BANK. HOWEVER, ON THE ISSUE OF EARNING SIMILAR NATURE OF INTEREST FROM THE COMMERCIAL BANK THE JURISDICTIONAL HON BLE HIGH COURT IN THE CASE OF SBI VS. CIT (2016) 72 TAXMAN.COM 64 HAS HELD THAT INTEREST INCOME ON DEPOSIT PLACED WITH THE COMMER CIAL BANK IS NOT ENTITLED FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. IN THE LIGHT OF THE ABOVE, WE ARE OF THE VIEW THAT THE INCOME BY WAY OF INTEREST EARNED BY DEPOSIT OF IDLE FUND DOES NOT CHANGE ITS CHARACTER IRRESPECTIVE OF THE FACT WHETHER SUCH INCOM E OF INTEREST IS EARNED FROM A SCHEDULE BANK OR A CO - OPERATIVE BANK. THE IDENTICAL ISSUE ON THE SIMILAR FACTS HAS BEEN ADJUDICATED BY THE CO - ORDINATE BENCH OF THE ITAT AFTER CONSIDERING THE DECISION OF HON BLE HIGH COURT OF KARNATKA IN THE CASE OF PR. CIT S. TATAGARS CO - OPERATIVE SALE SOCIETY (2017) 83 TAXMAN.COM 140 (KARNATAKA) DATED 16 TH JUNE, 2017. ON THE SAME PROPOSITION THE CO - ORDINATE BENCH OF THE ITAT VIDE ITA NOS. 1992/AHD/2017, 1313/AHD/2018, 1314/AHD/2018, 1295/AHD/2018 & 1296/AHD/2018 DATED 29/ 08/2018 IN THE CASES OF THE NARSANDA MERCANTILE CO.OP. CREDIT SOCIETY LTD., THE SANT TALUKA TEACHERS CO - OP. CREDIT SOCIETY LTD., THE SATYAPRAKASH CO - OP. CREDIT SOCIETY LTD., SHRI FRIENDS CO - OP. CREDIT SOCIETY LTD. AND SHRI SHRAMJIVI NAGRIK SAHAKARI MANDLI LTD. HAS ADJUDICATED THE IDENTICAL ISSUE ON SIMILAR FACT AND HELD THAT EARNING OF INTEREST INCOME EITHER FROM NATIONALIZED OR CO - OPERATIVE BANK IS NOT ENTITLED FOR DEDUCTION U/S. 80P(2)(D) OF THE ACT. THE RELEVANT PART OF DECISION OF CO - ORDINATE BENCH IS REPRODUCED AS UNDER: - 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE ASSESSING OFFICER HAS NOTICED THAT IN ADDITION TO THE INTEREST INCOME EARNED ON LOAN AND ADVANCES TO ITS MEMBERS, THE ASSESSE HAS CLAIMED DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT ON INTEREST INCOME EARNED FROM FIXED DEPOSIT MAINTAINED WITH THE COMMERCIAL BANK AND COOPERATIVE BANKS. AS PER SECTION 80P(2)(A)(I) OF THE A CT THE INTEREST INCOME EARNED ON PROVIDING CREDIT FACILITY TO ITS MEMBERS IS DEDUCTIBLE U/S. 80P(2)(A)(I) OF THE ACT. AFTER PERUSAL OF THE AFORESAID PROVISION OF THE ACT WE OBSERVE THAT DEDUCTION U/S 80P(2)(A)(I) IS NOT AVAILABLE ON THE INTEREST EARNED ON DEPOSIT MAINTAINED WITH THE COMMERCIAL BANK. WE FIND THAT THE HON BLE JURISDICTIONAL HIGH COURT HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE REVENUE VIDE STATE BANK OF INDIA VS. CIT (2016) 72 TAXMANN.COM 64 (GUJARAT) WHEREIN IT IS HELD THAT INTEREST I NCOME ON DEPOSIT PLACED WITH THE COMMERCIAL BANKS IS NOT EXEMPT U/S. 80P(2)(A)(I) OF THE ACT. 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 BL E 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 ITS LIMITED WORK OF PROVIDING CRED IT FACILITIES TO ITS MEMBER WHICH IS GOVERNED BY AMBIT AND SCOPE OF DEDUCTION U/S. 80P AND FURTHER STATED THAT INTEREST INCOME EARNED FROM SURPLUS DEPOSIT WITH CO - OPERATIVE BANK IS NOT ENTITLED FOR DEDUCTION 80P(2)(D). THE RELEVANT PART OF THE DECISION OF 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 IS REPRODUCED AS UNDER: - ADMITTEDLY AND UNDOUBTEDLY, THE ASSESSEE IS A CO - OPERATIVE SOCIETY ENGAGED MAINLY IN THE ACTIVITY OF MARKETING OF AGRICULTURAL PRODUCES GROWN BY ITS MEMBERS. THE ASSESSEE CO - OPERATIVE SOCIETY ALSO ACCEPTS DEPOSITS FROM ITS MEMBERS AND PROVIDES CREDIT FACILITY TO ITS MEMBERS, RUNS I.T.A NO. 15 3 /AHD/20 19 A.Y. 2015 - 16 PAGE NO MAHALAXMI CREDIT CO - OP. SOCIETY LTD. VS. IT O 7 KIRANA STORES, RICE MILLS, LIVE ST OCKS, VAN SECTION, MEDICAL SHOPS, LODGING, PLYING AND HIRING OF GOODS CARRIAGE, ETC. [PARA 10] THE ASSESSMENT YEARS INVOLVED IN THE INSTANT APPEALS ARE ASSESSMENT YEARS 2007 - 08 TO 2011 - 12. THE BONE OF CONTENTION IS THAT THE DEDUCTION UNDER SECTION 80P(2) IS NOW CLAIMED BY THE ASSESSEE UNDER SECTION 80P(2)(D) AND NOT UNDER SECTION 80P(2)(A) OF THE ACT. THE REASON IS THAT NOW THE INVESTMENTS AND DEPOSITS AFTER THE SUPREME COURT'S DECISION AGAINST THE ASSESSEE IN TOTGAR'S CO - OPERATIVE SALE SOCIETY LTD. V. ITO [2010] 322 ITR 283/188 TAXMAN 282 (SC) , THE ASSESSEE HEREIN HAS SHIFTED THE DEPOSITS AND INVESTMENTS FROM SCHEDULE BANKS TO CO - OPERATIVE BANK AND SUCH CO - OPERATIVE BAN K IS ESSENTIALLY A CO - OPERATIVE SOCIETY ALSO AND CLAUSE (D) ALLOWS DEDUCTION OF INCOME BY WAY OF INTEREST OR DIVIDENDS DERIVED BY THE ASSESSEE CO - OPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER CO - OPERATIVE SOCIETY. [PARA 11] THE SHEET ANCHOR OF THE CONTENTION OF THE ASSESSEE MISSES TWO ESSENTIAL POINTS REQUIRED FOR CLAIMING THE DEDUCTION FROM GROSS TOTAL INCOME FOR A CO - OPERATIVE SOCIETY; (I) THAT THE CHARACTER OR NATURE OF INCOME, NAMELY INTEREST ON INVESTMENTS OR DEPOSITS, DOES NOT CHANGE IRRESPEC TIVE OF THE FACT WHETHER IT IS EARNED OR RECEIVED FROM A SCHEDULE BANK OR CO - OPERATIVE BANK, (II) THAT WHAT THE SUPREME COURT HELD IN THE CASE OF THE ASSESSEE ITSELF, AGAINST ASSESSEE, WAS THAT SUCH INTEREST INCOME ON ITS SURPLUS AND IDLE FUNDS NOT IMMEDIA TELY REQUIRED FOR ITS BUSINESS, IS NOT INCOME FROM BUSINESS TAXABLE UNDER SECTION 28 OF THE ACT, BUT WAS TAXABLE AS 'INCOME FROM OTHER SOURCES' 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 CO - OPERATIVE 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 EXEMPTION OR DEDUCTION UNDER SECTION 80P OF THE ACT. THE PURPOSE OF BRINGING ON THE STATUTE BOOK SUB - SECTION (4) IN SECTION 80P WAS TO EXCLUDE THE APPLICABILITY OF SECTION 80P ALTOGETHER TO ANY CO - OPERATIVE BANK AND TO EXCLUDE THE NORMAL BANKING BUSINESS INCOME FROM SUCH EXEMPTION/DEDUCTION CATEGORY. THE WORDS USED IN SECTION 80P(4) ARE SIGNIFICANT. THEY ARE: 'THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO - OPERATIVE BANK OTHER THAN A PR IMARY AGRICULTURAL CREDIT SOCIETY .' THE WORDS 'IN RELATION TO' CAN INCLUDE WITHIN ITS AMBIT AND SCOPE EVEN THE INTEREST INCOME EARNED BY THE ASSESSEE, A CO - OPERATIVE SOCIETY FROM A CO - OPERATIVE BANK. THIS EXCLUSION BY SECTION 80P(4) EVEN THOUGH WITHOU T ANY AMENDMENT IN SECTION 80P(2)(D) IS SUFFICIENT TO DENY THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80P(2)(D). THE ONLY EXCEPTION IS THAT OF A PRIMARY AGRICULTURAL CREDIT SOCIETY. THE DEPOSITORY KANARA DISTRICT CENTRAL BANK LIMITED IN THE PRES ENT CASE IS ADMITTEDLY NOT SUCH A PRIMARY AGRICULTURAL CREDIT SOCIETY. [PARA 14] THE AMENDMENT OF SECTION 194A(3)(V) EXCLUDING THE CO - OPERATIVE BANKS FROM THE DEFINITION OF 'CO - OPERATIVE SOCIETY' BY FINANCE ACT, 2015 AND REQUIRING THEM TO DEDUCT TAX AT SO URCE UNDER SECTION 194A ALSO MAKES THE LEGISLATIVE INTENT CLEAR THAT THE CO - OPERATIVE BANKS ARE NOT THAT SPECIE OF GENUS CO - OPERATIVE SOCIETY, WHICH WOULD BE ENTITLED TO EXEMPTION OR DEDUCTION UNDER THE SPECIAL PROVISIONS OF CHAPTER VIA IN THE FORM OF SECT ION 80P OF THE ACT. [PARA 15] I.T.A NO. 15 3 /AHD/20 19 A.Y. 2015 - 16 PAGE NO MAHALAXMI CREDIT CO - OP. SOCIETY LTD. VS. IT O 8 IF THE LEGISLATIVE INTENT IS SO CLEAR, THEN IT CANNOT BE CONTENDED THAT THE OMISSION TO AMEND CLAUSE (D) OF SECTION 80P(2) OF THE ACT AT THE SAME TIME IS FATAL TO THE CONTENTION RAISED BY THE REVENUE BEFORE THIS COURT AND SUB SILENTIO, THE DEDUCTION SHOULD CONTINUE IN RESPECT OF INTEREST INCOME EARNED FROM THE CO - OPERATVE BANK, EVEN THOUGH THE SUPREME COURT'S DECISION IN THE CASE OF ASSESSEE ITSELF IS OTHERWISE. [PARA 16] AS STATED ABOVE, IT IS THE CHARACTER AND NATURE OF INC OME WHICH DETERMINES ITS TAXABILITY OR EXEMPTION FROM TAXABILITY. IT IS NEEDLESS TO SAY THAT THE PROVISIONS RELATING TO EXEMPTION AND DEDUCTION NEED TO BE STRICTLY CONSTRUED AND NO LIBERAL INTERPRETATION OR INTENDMENT CAN BE INFERRED IN SUCH PROVISIONS. WH AT WAS CLEARLY HELD TO BE NOT EXEMPT AND NOT DEDUCTIBLE UNDER SECTION 80P(2)(A) BY THE SUPREME COURT IN THE CASE OF ASSESSEE, CANNOT BE CONTRARILY HELD AS EXEMPTED AND DEDUCTIBLE NOW FOR THESE YEARS, MERELY BECAUSE THE DEPOSITORY BANK, WITH WHOM THE INVEST MENTS 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 WER E 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 EA RNED FROM A SCHEDULED BANK OR A CO - OPERATIVE BANK AND, THUS, CLAUSE (D) OF SECTION 80P(2) OF THE ACT WOULD NOT APPLY IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE PERSON OR BODY CORPORATE FROM WHICH SUCH INTEREST INCOME IS RECEIVED WILL NOT CHANG E ITS CHARACTER, VIZ. INTEREST INCOME NOT ARISING FROM ITS BUSINESS OPERATIONS, WHICH MADE IT INELIGIBLE FOR DEDUCTION UNDER SECTION 80P OF THE ACT. [PARA 23] IN VIEW OF THE AFORESAID, THE APPEAL FILED BY THE REVENUE DESERVES TO BE ALLOWED.: [PARA 24] IN THE LIGHT OF THE ABOVE FACTS AND LEGAL FINDINGS WE CONSIDER THAT THE INCOME BY WAY OF INTEREST EARNED BY DEPOSIT OR INVESTMENT OF IDLE OR SURPLUS DOES NOT CHANGE ITS CHARACTER IRRESPECTIVE OF THE FACT WHETHER SUCH INCOME OF INTEREST IS EARNED FROM A SCH EDULE BANK OR A CO - OPERATIVE BANK AND THUS CLAUSE (D) OF SECTION 80P(2) OF THE ACT WOULD NOT APPLY IN THE FACTS AND THE CIRCUMSTANCES OF THE PRESENT CASE. THE ASSESSEE HAS EARNED INTEREST INCOME ON SURPLUS FUNDS DEPOSITED WITH NATIONALIZED BANK AND THE CO OPERATIVE BANK AND THE SAME IS NOT ATTRIBUTABLE TO BUSINESS OPERATION OF THE ASSESSEE CO - OPERATIVE SOCIETY AS INTEREST EARNED ON THE FUND INVESTED WITH THE COMMERCIAL BANK IS NOT OPERATIONAL INCOME FROM PROVIDING CREDIT FACILITIES TO ITS MEMBERS. WE CON SIDER THAT EARNING OF SUCH INTEREST INCOME EITHER FROM NATIONALIZED OR COOPERATIVE BANK WILL NOT CHANGE NATURE AND CHARACTER OF THE INCOME. ON PERUSAL OF THE PROVISION OF SECTION WE OBSERVE SUCH DEDUCTION IS PERTINENT TO THE OPERATIONAL INCOME EARNED BY THE CO - OPERATIVE SOCIETY FROM THE ACTIVITIES IN WHICH IT IS ENGAGED AND NOT THE OTHER INCOME WHICH ACCRUES TO THE SOCIETY IN THE FORM OF INTEREST FROM INVESTMENT OF SURPLUS FUNDS WITH THE COOPERATIVE BANK. AFTER CONSIDERING THE FACTS AND LEGAL FINDING, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE ASSESSEE, THEREFORE, THE SAME IS DISMISSED. HOWEVER AS DECIDED IN THE VARIOUS DECISION OF THE CO - ORDINATE BENCHES OF ITAT AHMEDABAD WE DIRECT THE ASSESSING OFFICER TO ALLOW PRO RATA EXPENSES IN RESPECT OF INTE REST EARNED FROM DEPOSIT HELD WITH NATIONALIZED BANK TO THE ASSESSEE FOR COMPUTING THE DEDUCTION U/S. 80P AFTER EXAMINING/VERIFICATION AND AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. THEREFORE, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTIC AL PURPOSES. IN THE LIGHT OF THE FACTS/FINDINGS NARRATED IN PARA NO. 8 OF THIS ORDER AFTER TAKING INTO CONSIDERATION THE DECISION OF THE CO - ORDINATE BENCH ON THE SIMILAR ISSUE ON IDENTICAL FACTS AS I.T.A NO. 15 3 /AHD/20 19 A.Y. 2015 - 16 PAGE NO MAHALAXMI CREDIT CO - OP. SOCIETY LTD. VS. IT O 9 REPORTED SUPRA , WE DO NOT FIND ANY MERIT IN T HE APPEAL OF THE ASSESSEE, THEREFORE, THE SAME IS DISMISSED. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE B ENCH AS CITED ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD. CIT(A). THEREFORE, THE APPEAL OF THE ASSESSEE IS DISMISSED. 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 31 - 01 - 20 20 SD/ - SD/ - ( MADHUMITA ROY ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 31 /01/2020 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,