AI Insights
The case involves the BSNL Emp C.C.S Ltd., a cooperative society, which appealed against the orders of the Commissioner of Income Tax (Appeals) regarding the disallowance of a deduction claimed under section 80P of the Income Tax Act for interest income earned from GDCC Bank and Indian Bank. The Assessing Officer had disallowed the deduction, which was upheld by the CIT(A). The Tribunal, however, found that the interest income was eligible for deduction under section 80P(2)(a)(i), referencing decisions from the Karnataka High Court and the Supreme Court, and distinguishing the facts from those in the cited cases.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 135959 (ITAT-VISAKHAPATNAM)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-10-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
SMC
Next Hearing Date
05-09-2023
Assessment Year
2017-2018
Appeal Filed On
28-05-2023
Judgement Text
आयकरअपीलीयअधिकरण, धिशाखापटणम “एसएमसी”पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM “SMC” BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER आयकर अपील सं./I.T.A.No.165-167/Viz/2023 (ननधधारण वर्ा / Assessment Year :2017-18, 2018-19 & 2020-21) The B.S.N.L.Emp. C.C.S.Ltd. No.Z 613, Chilakaluripet Guntur [PAN : AAEAT2982P] Vs. Income Tax Officer Ward-2(1) Guntur (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) अपीलधथी की ओर से/ Appellant by : Shri G.V.N.Hari, AR प्रत्यधथी की ओर से / Respondent by : Shri Madhukar Aves, DR सुनवधई की तधरीख / Date of Hearing : 06.09.2023 घोर्णध की तधरीख/Date of Pronouncement : 18.10.2023 आदेश /O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : These appeals are filed by the assessee against the orders of Commissioner of Income Tax (Appeal) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi vide orders dated 29.03.2023 and 30.03.2023 for the Assessment Year (A.Y.)2017-18, 2018-19 and 2020-21. Since the grounds raised in these appeals are common, these appeals are clubbed, heard together and a common order is being passed for the sake of convenience as under. Facts are extracted from I.T.A.165/Viz/2023. 2. Brief facts of the case are that the assessee society, the B.S.N.L.Emp C.C.S Ltd registered with Cooperative Society No.Z.613, Chilakaluripet, 2 I.T.A. No.165-167/Viz/2023,A.Y.2017-18, 2018-19 & 2020-21 The BSNL Emp C.C.S Ltd., Chilakaluripet deriving interest income both from it’s members and banks, filed it’s return of income for the A.Y.2017-18 on 31.03.2018, declaring total income of Rs.Nil after claiming deduction under Chapter VI-A u/s 80P of the Income Tax Act, 1961 (in short “Act”) to the tune of Rs.21,28,318/-. The return of income was processed u/s 143(1) of the Act on 15.06.2018. Subsequently, the case was selected for limited scrutiny for examination of issue of claim of deduction u/s 80P of the Act. The Assessing Officer (AO) after issuing statutory notices completed the assessment u/s 143(3) of the Act, by disallowing the interest received from the investments made in GDCC bank and Indian Bank of Rs.13,57,722/-. The AO after allowing proportionate expenses of Rs.10,09,160/-, disallowed an amount of Rs.3,48,572/-. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) dismissed the appeal of the assessee. 4. Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before the Tribunal by raising the following grounds of appeal : 1. The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner of Income Tax(Appeals) is not justified in sustaining the addition of Rs.3,48,572 made by the assessing officer towards disallowance of deduction claimed u/s 80P of the Act. 3 I.T.A. No.165-167/Viz/2023,A.Y.2017-18, 2018-19 & 2020-21 The BSNL Emp C.C.S Ltd., Chilakaluripet 3. Any other grounds may be urged at the time of hearing. 5. Ground No.1 and 3 are general in nature which does not require specific adjudication. 6. Ground No.2 is related to disallowance of deduction claimed u/s 80P of the Act. At the outset, the Ld.AR submitted that the assessee society earned interest income from GDCC Bank and Indian Bank. Relying on the decisions of M/s Veer Cooperative Group Housing Society Ltd. Vs. ITO, Ward-39(4), New Delhi and M/s Guntur District Cooperative Marketing Society Ltd. Vs. ACIT, Circle1(3), Guntur, the Ld.AR submitted that assessee can claim deduction u/s 80P. He, therefore, pleaded to quash the order passed by the Ld.CIT(A) and allow the deduction claimed u/s 80P. 7. Per contra, the Ld.DR submitted that the AO has rightly held that the assessee is not eligible to claim deduction u/s 80P as the facts of the cases relied upon by the assessee are distinguishable to the facts of the assessee’s case. He, therefore, pleaded to uphold the orders passed by the revenue authorities and dismiss the appeal of the assessee. 8. I have heard both the parties and perused the material available on record. In the instant case, it is an admitted fact that the assessee has claimed deduction u/s 80P of the Act. The contention of the AO is that the 4 I.T.A. No.165-167/Viz/2023,A.Y.2017-18, 2018-19 & 2020-21 The BSNL Emp C.C.S Ltd., Chilakaluripet interest earned from GDCCB and Indian Bank to the tune of Rs.13,57,732/- is not eligible for deduction u/s 80P, since it is connected to banking activities and GDCCB is no more a society. The Ld.CIT(A) upheld the addition made by the AO holding that deduction is not extended to the interest income received from investments made with any cooperative bank or scheduled bank. The Ld.CIT(A) relied on the decision of Hon’ble Karnataka High Court in the case of Totgars Cooperative Sale Society Ltd. (322 ITR 283) and held that interest earned from the cooperative bank is not eligible for deduction u/s 80P(2)(d). I have perused the ratio laid down in the case of M/s Totgars Cooperative Sale Society Ltd.(supra) and find that the society is engaged in marketing of the agricultural produce by it’s members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members u/s 80P(2)(a)(i) of the Act. In that case, the society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits / securities and shown as liability on the balance sheet. Therefore, the Hon’ble Apex Court held that interest earned from retaining the amount payable to its members shall not be considered as income from other sources. However, in the instant case, the facts are 5 I.T.A. No.165-167/Viz/2023,A.Y.2017-18, 2018-19 & 2020-21 The BSNL Emp C.C.S Ltd., Chilakaluripet distinguishable and hence in my view the ratio laid down in the case of M/s Totgars Cooperative Sale Soceity Ltd.(supra) shall not be applied to the assessee’s case. It is pertinent to mention that the coordinate bench of the Tribunal, on similar facts and circumstances, in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society Ltd. in I.T.A.No.107/Viz/2022 and CO No.07/Viz/2022 dated 30.08.2023, dismissed the appeal filed by the revenue. For the sake of clarity and convenience, relevant part of the order of the coordinate bench of the Tribunal is extracted as under. “8. We have heard bo th the si des and perused the materi al available on record and the orders of th e Ld. Revenue Autho rities. It is an adm itted fa ct that the asses see has claime d dedu cti on U/s. 80P(2)(a )(i ) of the Act on the interest accrued and re ceive d b y the asses see U/s. 80P(2) (a)(i ) o f the A ct. Th e contention of the L d. A O is that as per se ction 80P(2) (d), the a ss essee i s eli gible to clai m dedu ction U/ s. 80P( 2)(a) (i) of the Act only when it i s invest ed with any other cooperative society. The L d. A O also placed heav y reliance in the case o f M/s . Totgars Cooperative S ale Society Ltd (supr a) while disallowin g the clai m made by the asse ssee U/ s. 80P(2 )(a) ( i) of the Act. We have perused the ratio laid down by the Hon’ble Apex Court in the case of M/s. To tgars Cooperative S ale Soc iety Ltd ( supra) an d found that in that c ase the soc iety is e ngaged in marketing o f the agricultural produce by its me mbers a s per section 80P(2 ) (a)(i ii ) while carryin g on the business o f banking or providin g cre dit f acilitie s to its members U/s. 80P(2)(a )(i ) o f the A ct. In that ca se, the Society retained the sale proceeds w hi ch wa s otherwise payabl e to its members from w hom the produce was bo ught whic h was inve sted in short term depos its / securitie s. It i s also found that the amount payable to its membe rs realize d from sale proceeds of the a gri c ultural produce o f its memb ers was retained by t he so ciety and was s hown as liability on the balance sheet. Therefore, the Hon’ble Apex Court has held that interest earned from retainin g the amount payable to its members shall not be cons idere d a s i ncome from other sources. 6 I.T.A. No.165-167/Viz/2023,A.Y.2017-18, 2018-19 & 2020-21 The BSNL Emp C.C.S Ltd., Chilakaluripet However, in the insta nt case the facts are dist inguis hable an d hence in our view the ratio la id down in the case of M/s. Tot gars Coop erative Sale Soc iety Lt d ( supra) shall not be appli ed. Se ction 80P(1 ) of the Act entitles the Cooperative So cietie s to de du ct the sum s spe ci fie d in sub- section (2) from its gros s total income while computing t he total income. Sub-se ction (2) o f se ction 80P, in the sub-clause (a ) allows dedu ction to cooper ative soc iety whi ch is engage d in the fo llowing activitie s: “(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) a cottage industry, or [(iii) the marketing of agricultural produce grown by its members, or] (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, [or] [(vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,] the whole of the amount of profits and gains of business attributable to any one or more of such activities:” 9. Further, we also e xtract below the provi si ons of se ction 80P2( d) and (e) of the Act for reference: “(d) in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income; (e) in respect of 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;” 10. From the plain reading of section 80P(2 )(a)( i) o f the Act, th e whole of amount of profits and gain s of the busines s attribut able to one or more of such activ ities shall be allowed as a de duction. Further, se ction 80P( 2)( d) and 80P(2) (e) of the A ct also allows si milar dedu ctions. It is clea r that the de duct ions available under clau ses (a) to (e) of se ction 80P( 2) are activity based whereas clauses (d) and (e) are investment based. The distinct ion between clauses (a) and clauses (d) & (e) on the ot her hand is that the benefit under claus e (a) is restricted to only into those activ ities o f a cooperative so ciety enlisted 7 I.T.A. No.165-167/Viz/2023,A.Y.2017-18, 2018-19 & 2020-21 The BSNL Emp C.C.S Ltd., Chilakaluripet in sub-clause (a) w he reas the benefit o f clauses ( d) & (e) are available to all cooperative societies w ithout any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be lim ited only to th e profits & gain s o f the busine ss attributable to any one or more of such a ctivitie s. But in case, if the coo perative society ha s an inco me not attributable to any one or more of such activitie s li sted in su b-clauses ( i) to (vi i) of clause-(a), the same may go out of the purvie w of clause (a ) but still the cooperative soc iety may claim the benef it of clause (d) or (e ) as per the conditio ns laid down therein. In th e instant case, the o riginal source o f inv estments made by t he asse sse e in Nationalized Ba nks is a dmittedl y the income of the asses see der ived from the act ivitie s listed in sub-clause s (i ) to (vii ) of clause (a ). The character of such income must be last, especially when the statute uses the expression “attributable to” and not any one of the expressions viz., “derived from” or “directly attributable to”. The Hon’ble jurisdictional High Court of Andhra Pradesh and Telanga na in the case of Vavveru Cooperative Rural Bank Ltd v s. Ch ief Com mis sioner of In come Tax and Another [2017] 396 ITR 0371 (AP) in para 3 4 has dis cusse d abou t the de ci sion o f the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd (supra) and di stingu ishe d the facts w hile dec iding the case. For the sake of brev ity, we ex tract the relevant pa ra 34 o f the judgmen t of the Hon’ble Andhra Pradesh and Telangana H igh Court herein belo w: “34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee 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 Totgar's struck a different note.” 8 I.T.A. No.165-167/Viz/2023,A.Y.2017-18, 2018-19 & 2020-21 The BSNL Emp C.C.S Ltd., Chilakaluripet 11. Further, the Hon’ble jurisdictional High Court of Andhra Pradesh and Telanga na in the case of Vavveru Cooperative Rural Bank Ltd vs. Ch ief Commi ssioner o f Income Tax and Another (sup ra) hel d that the cooperative society is eli gi ble for dedu ction U/s . 80P( 2)(a) (i) of the Act on the int erest income rece ive d from investment in banks. The Hon’ble High Court in paras 35 to 37 of its judgment held as under: 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 of the two expressions, namely, "derived from" or "directly attributable to". 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” 12. Further, the Coor di nate Bench o f H yderabad in Tirumal a Tirupati Deva sthanams Employee s Coop. Credit So ciety v s. I TO also affirme d the same view by following the decision of the Hon’ble AP High Court in the cas e of Vavveru Cooperative Rural Bank Ltd ( supra) . In the instant case also, the asses see has i nvested surplus funds out of the activitie s carrie d out as per the provisions of section 80P( 2)(a) o f the Act. We therefor e by respe ctfully foll owing the juris di ctio nal High Court are of the v i ew that interest in come s hould be allowed as dedu ction U/s . 80P( 2)(a) (i) o f the A ct and thereby the L d. CIT(A)- NFAC has r ig htly hel d by deleting the addition made b y the L d. AO and hence we find no inf i rmity in the or der o f the Ld. CI T( A)-NFA C. 13. In the result, appeal of the Revenue is di s misse d.” 9 I.T.A. No.165-167/Viz/2023,A.Y.2017-18, 2018-19 & 2020-21 The BSNL Emp C.C.S Ltd., Chilakaluripet Respectfully following the ratio laid down by the Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society Ltd., I hold that interest income should be allowed as deduction u/s 80P. Therefore, I am inclined to quash the orders passed by the lower authorities and direct the AO to delete the addition of Rs.3,48,572/-. 9. Since the appeal of the assessee for the A.Y.2017-18 is allowed, the same ratio applies to the appeals of the assessee for the A.Y.2018-19 and 2020-21 also mutatis mutandis. 10. In the result, appeals of the assessee are allowed. Order pronounced in the open court on 18 th October, 2023. Sd/- (द ु व्वूरु आर.एल रेड्डी) (DUVVURU RL REDDY) न्याधयक सदस्य/JUDICIAL MEMBER Dated : 18.10.2023 L.Rama, SPS 10 I.T.A. No.165-167/Viz/2023,A.Y.2017-18, 2018-19 & 2020-21 The BSNL Emp C.C.S Ltd., Chilakaluripet आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee – M/s B.S.N.L.Emp. C.C.S.Ltd.No.Z 613, Chilakaluripet, Guntur 2. रधजस्व/The Revenue – The Income Tax Officer, Ward-2(3), Guntur 3. The Principal Commissioner of Income Tax, Visakhapatnam 4. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम / DR,ITAT, Visakhapatnam 5..गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam
Other Referred Cases
M/s Veer Cooperative Group Housing Society Ltd. Vs. ITO, Ward-39(4), New Delhi, M/s Guntur District Cooperative Marketing Society Ltd. Vs. ACIT, Circle1(3), Guntur, M/s Totgars Cooperative Sale Society Ltd., Kakateeya Mutually Aided Thrift and Credit Co-op Society Ltd. in I.T.A.No.107/Viz/2022 and CO No.07/Viz/2022, Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax, Tirumala Tirupati Devasthanams Employees Coop. Credit Society vs. ITO
Laws Referred To
Income Tax Act, 1961
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