The Deesa Mercantile Co.Operative Society Ltd., Deesa V. The ACIT.,B.K.Circle, Palanpur

ITA 2100/AHD/2014

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6363 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 10-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL K. PATEL
• Keywords: Business income; Co-operative Credit Society; Set aside
• Section: 28; 143(3); 80P; 251; 194A

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ B’’ BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT And SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No. 2100/AHD/2014 िनधाᭅरण वषᭅ/Asstt. Year: 2011-12 The Deesa Mercantile Co-operative Society Ltd., Rajiv Gandhi Complex, Basement, Opp. Fuvara At.Deesa-385535 Dist. Banaskanth. PAN: AAABT2083Q Vs. A.C.I.T., B.K. Circle, Palanpur. (Applicant) (Respondent) Assessee by : Shri Mehul K. Patel, A.R Revenue by : Shri R.R. Makwana, Sr.D.R सुनवाई कᳱ तारीख/Date of Hearing : 10/11/2021 घोषणा कᳱ तारीख /Date of Pronouncement: 14/12/2021 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-XX, Ahmedabad, dated 16/05/2014 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2011-12. ITA no.2100/AHD/2014 A.Y. 2011-12 2 2. The assessee has raised the following grounds of appeal: 1. The Id. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in directing the AO to verify whether any interest was received by the appellant on short term deposits and Government Securities which is not permitted u/s. 251(1) of the I.T.Act, 1961. 2. The Id. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in not allowing the deduction directly u/s. 80P(2)(a)(i) of the I.T.Act, 1961 amounting of Rs. 24,99,916=00 and erred in not properly appreciating the explanation and submission of the appellant. 3. The Id. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in not allowing the deduction u/s. 80P(2)(d) of the I.T.Act, 1961 amounting to Rs. 72,39,179=00 and erred in not properly appreciating the all explanation and submission of the appellant. 4. The Id. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in not appreciating the fact, that the provisions of section 80P(4) being not applicable, considering the facts of the case of the appellant, and as such erred in not granting the deduction u/s. 80P(2)(a)(i) and u/s. 8QP(2)(d) as claimed and also in not properly appreciating the judgement of Hon'ble Guj. High Court given in the case of CIT Gandhinagar v. Jafri Momin Vikas Co-operative Credit Society Ltd passed vide order dated 15/01/2014. 5. The Id. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in holding that Cso-operative Banks are not at par with cooperative societies without bringing any corroborative evidence on record and failed to appreciate the fact that status of co-operative bank is still co-operative society and as such deduction u/s. 80P(2)(d) is admissible in the case of the appellant. 6. It is therefore, prayed that the order of the Id. Commissioner of Income-Tax (Appeals)-XX, Ahmedabad may be set-aside and the return of income of the appellant be accepted. 7. The Appellant Crave leave to add, amend, alter, vary or withdraw any or all the grounds of appeal before or at the time of hearing of appeal. 2. The issues raised by the assessee are interconnected with each other and therefore we have clubbed all of them together for the purpose of adjudication and convenience. 3. The interconnected issue raised by the assessee is that the learned CIT (A) erred in directing the AO to allow the claim of the assessee after verification for the deduction with respect to the interest income whether it includes from non- members though there is no power under the provisions of section 251(1) of the Act. Likewise, the deduction claimed under section 80P(2)(d) of the Act amounting ITA no.2100/AHD/2014 A.Y. 2011-12 3 to ₹ 72,39,179/- was rejected by the learned CIT (A) under the provisions of section 80P(4) of the Act. 4. The facts in brief are that the assessee in the present case is a co-operative society and engaged in the business of accepting deposits from members and providing credit facilities to its members. The assessee in the year under consideration filed its return of income declaring total income at Rs. nil after claiming deduction under section 80P(2) of the Act for ₹ 95,65,459/- only. 4.1 However the AO during the assessment proceedings found that i. The definition of income under section 2(24) was amended by inserting the clause (viia) of the Act with effect from 1 st April 2007 which provides that income shall include the profits and gains of any business of banking including providing credit facility carried on by a co-operative society with its members. ii. Likewise subsection 4 of section 80P of the Act was inserted with effect from 1 st April 2007 which provides that the provisions of section 80P shall not apply to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. 4.2 The AO based on the above amendments under the statute was of the view that the assessee is engaged in the activity of banking business and therefore the assessee is not eligible for deduction by virtue of the amended provisions of section 2(24) clause (viia) and 80P(4) of the Act. Thus the deduction claimed by the assessee for ₹ 95,65,459/- was disallowed and added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to the learned CIT (A) who found that the total deduction claimed by the assessee for ₹ 95,65,459/- comprises of the following elements of income: ITA no.2100/AHD/2014 A.Y. 2011-12 4 i. Interest income of Rs. 24,99,916/- ii. Interest and dividend income from the co-operative banks of ₹ 72,39,179./- 6. The learned CIT (A) observed that the provisions of section 80P(4) of the Act does not deny to extend the benefit of the deduction to co-operative society. Accordingly, the learned CIT (A) concluded that the deduction claimed by the assessee cannot be denied under section 80P(4) of the Act. 6.1 However, the learned CIT (A) was of the view that interest income of Rs. 24,99,916/- shown by the assessee if it includes the interest on the deposits made with the nationalized bank will not be eligible for deduction under section 80P(2)(a)(i) of the Act. As per the learned CIT (A), the benefit of deduction under the provisions of section 80P(2)(a)(i) of the Act is limited to the interest income derived by the assessee from financing activities with the members. Accordingly the learned CIT (A) direct the AO to verify the interest income shown by the assessee whether it includes interest income from the deposits made with the nationalized banks. Thus, the ground of appeal of the assessee was allowed by the learned CIT (A) subject to the verification. 6.2 With respect to interest and dividend income of ₹ 72,39,179/- received from the co-operative banks, the learned CIT (A) denied the benefit of the deduction provided under section 80P(2)(d) of the Act on the reasoning that the deposits and investments made in these co-operative banks do not represent the deposits and investment in the cooperative societies as mandated under the provisions of section 80P(2)(d) of the Act. 7. Being aggrieved by the order of learned CIT (A), the assessee is in appeal before us. ITA no.2100/AHD/2014 A.Y. 2011-12 5 8. The learned AR before us contended that the interest/dividend income received by the assessee on the deposits made with the co-operative bank are eligible for deduction under section 80P(2)(d) of the Act. 9. On the contrary the learned DR vehemently supported the order of the authorities below. 10. We have heard the rival contentions of both the parties and perused the materials available on record. The 1 st issue that arises for adjudication whether the learned CIT (A) has power to set aside the issue to the file of the AO for verification. On reference to the provisions of section 251 of the Act, we note that powers given to the learned CIT (A) are that he may confirm, reduce, enhance or annul the assessment. Thus it appears that the learned CIT (A) has no power to remit the issue back to the AO for fresh adjudication. In fact, if the learned CIT (A) requires some clarification, then the option available to the learned CIT (A) is to call for the remand report from the AO and decide the issue thereafter. However the facts of the case on hand are different in the sense that the learned CIT (A) has given very specific direction to verify whether interest income includes the income from the nationalized bank which is not eligible for deduction under the provisions of section 80P(2)(a)(i) of the Act. If such interest income is included in the interest income shown by the assessee, then to that extent the assessee will not be eligible for the deduction under the provisions of section 80P(2)(a)(i) of the Act. The direction of the learned CIT(A) was unambiguous and clear. Therefore we do not find any merit in the ground of appeal raised by the assessee. At the time of hearing the learned AR also did not advance any argument qua the direction of the learned CIT (A) by pointing out any infirmity. 10.1 However, before parting, is pertinent to note that the provisions of section 57 of the Act provides for the deduction of the expenses which have been incurred in generating the income i.e. income from other sources. In the present case if there ITA no.2100/AHD/2014 A.Y. 2011-12 6 is income on the deposits made with the nationalized bank, then the corresponding expenses in the nature of interest which has been incurred by the assessee in generating such income shall be allowed. In other words, the only net of interest income from the deposits made with the banks will only be excluded while calculating the amount eligible for deduction under section 80P(2)(a)(i) of the Act. With this observation, we modify the order of the learned CIT (A) to this limited extent i.e. by allowing the interest expenses incurred against such income of the other sources. 10.2 Coming to the next issue whether the assessee was eligible for deduction of the interest/dividend income received from the co-operative banks, in this connection we note that this tribunal in combined order of various assessee being cooperative society bearing ITA Nos. 1992/Ahd/2017, 1313, 1314, 1295, 1296/Ahd/2018 has decided the issue against the assessee vide order dated 29 th August 2018 by observing as under: 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’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 has held that it is only primary agricultural credit society with its limited work of providing credit 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 cooperative 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 Kirana Stores, rice mills, live stocks, 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 Cooperative Bank is essentially a Co-operative Society also and clause (d) allows deduction of income by way of interest or dividends derived by the assessee ITA no.2100/AHD/2014 A.Y. 2011-12 7 cooperative 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 irrespective 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 immediately 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 cooperative 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 primary 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 without 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 present 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 source under section 194A also makes the legislative intent clear that the cooperative 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 section 80P of the Act. [Para 15] 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 income 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. What 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 ITA no.2100/AHD/2014 A.Y. 2011-12 8 depository bank, with whom the investments 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 were 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 earned 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 change 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 schedule 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 cooperative 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 consider 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 cooperative 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 interest 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 statistical purposes. 10.3 The facts of the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the same, we do not find any merit in the argument advanced by the learned counsel for the assessee. However, the assessee is eligible to claim the deduction for the expenditures incurred by it against ITA no.2100/AHD/2014 A.Y. 2011-12 9 the earning of interest/dividend income from the co-operative banks. Hence, ground of appeal of the assessee is partly allowed. 11. In the result the appeal filed by the assessee is partly allowed. Order pronounced in the Court on 14/12/2021 at Ahmedabad. Sd/- Sd/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 14/12/2021 Manish