The Gujarat State Co. Op. Agriculture & Rural Development Bank Ltd., Ahmedabad V. ITO, Ward-5(2)(2), Ahmedabad

ITA 462/AHD/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3940 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 25-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income
• Section: 56; 80P; 64

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Th e Gujarat State Co. Op . Agricu ltu re & Rural Develop ment Ban k Ltd., C/o. Ketan H. Sh ah, Adv ocate 903 , Sapph ire Co mplex , C. G. Road, Navrangp ura, Ah medabad PAN: AAAA G0 281E (Appellant) Vs ITO, Ward-5(2)(2), Nehru Brid ge Ashram Ro ad, Ah med abad (Resp ondent) Asses see b y : None Revenue by : Shri Vijay Kumar J aisw al, CIT-D. R. Date of hearing : 19-05 -2 022 Date of pronouncement : 24-06 -2 022 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals), Ahmedabad-5 in Appeal no. ITA No. 462/Ahd/2018 Assessment Year 2014-15 I.T.A No. 462/Ahd/2018 A.Y. 2014-15 Page No. The Gujarat State Co. Op. Agriculture & Rural Development Bank Ltd. vs. ITO 2 CIT(A)-5/ITO. Wd. 5(2)(3)/226/2016-17 vide order dated 17/02/2018 passed for the assessment year 2014-15. 2. The assessee has taken the following grounds of appeal:- “The following grounds are without prejudice to each other. In view of the facts and circumstances of the case – 1. Learned Assessing Officer has erred in not allowing the claim u/s 80P(2)(d) amounting to Rs. 11,28,91,418/-, in view of the facts and circumstances of the case, as well as based on the argument placed before CIT(A), as per para 3.2 and onwards, there is no justification for not allowing the claim and therefore, the claim may please be allowed. 2. The Learned Assessing Officer has erred in not appreciating the facts that, the appellant is entitled to claim exemption in reference to the amount of Rs. 32,61,00/ as per the argument placed before CIT(A), order page 7 and therefore necessary direction may please be given to delete this addition. The appellant craves leave to add/delete/alter and/or amend any of grounds as aforesaid as and when necessary.” 3. The brief facts of the case are that the assessee is a cooperative Society and engaged in providing credit facility to members for agriculture and allied activities and rural development. During the year, the assessing officer noted that the assessee has earned interest income of 11,28,91,418/- from nationalised banks i.e. other than cooperative banks and claimed deduction under section 80P(2)(d) of the Act. The AO held that as per provisions of section 80P(2)(d) of the Act, the assessee is only eligible for deduction in respect of interest earned from cooperative banks and I.T.A No. 462/Ahd/2018 A.Y. 2014-15 Page No. The Gujarat State Co. Op. Agriculture & Rural Development Bank Ltd. vs. ITO 3 therefore is not eligible for deduction under this section in respect of interest earned from nationalised banks. Accordingly, the Ld. Assessing Officer disallowed the amount of 11,28,91,418/-and added the same to the total income of the assessee being the amount claimed but not eligible for deduction under section 80P(2)(d) of the Act. Further, the Ld. Assessing Officer noted that the assessee had earned rental income and miscellaneous income which was not eligible for deduction under section 80P of the Act. The assessee submitted that the miscellaneous income and rental income is incidental to the assessee’s activities and therefore should be allowed as a deduction. However, the Ld. Assessing Officer held that as per Form 3CD report, the assessee is “providing credit facility members for agriculture and allied activities and rural development” and therefore miscellaneous income and rental income cannot be considered as incidental as the assessee is engaged regularly in these activities and earns as income on regular basis. Accordingly, the Ld. Assessing Officer disallowed an amount of 32,61,007/-and added the same to the income of the assessee. 4. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee with the following observations: “3.3.3. From the definition of Co-operative bank, it is apparent that Co-operative bank means State Co-Operative Bank, a Central Co- Operative Bank and a primary Cooperative bank. The appellant is a co-operative society and the provisions of Section 80P of the Act are applicable to it. The contention of the appellant that it is not a Co- operative bank as defined under the Act is not tenable as the appellant has failed to establish the same. Nothing was furnished in support of this claim. From the above discussion, it is clear that the provisions of Section 80P(4) are not applicable to the appellant. In such a situation I.T.A No. 462/Ahd/2018 A.Y. 2014-15 Page No. The Gujarat State Co. Op. Agriculture & Rural Development Bank Ltd. vs. ITO 4 as per the provisions of Section 80P(2)(d) of the Act, the appellant is eligible for deduction of any income by way of interest or dividends derived by it from its investments with any other Co-operative societies only. In the instant case, the assessee has earned interest income from nationalized banks not from other co-operative societies. Further deposits with banks are not the core activity of the society, therefore, interest received on it has to be taxed. Therefore, the interest income earned by the appellant is a taxable income and no deduction can be allowed. 3.4. The AO has disallowed an amount of Rs.32,61,007/- on the ground that these income cannot be considered as incidental as it is engaged regularly in these activities and earns this income on regular basis. The disallowance of deduction made by the AO is comprises of rent income and miscellaneous income. 3.4.1. During the course of appellate proceedings, the appellant has contended that the other income and miscellaneous income is nothing but charges collected from members other than interest relating to carrying on financial related activities with them. It is contended that rent income is pertaining to our premises at different places given on rent to ATM or other bank for ease of operation to members and even for us also. This income is only incidental and part of our business of financing and in view of above deduction u/s.80P may be fully allowed. 3.4.2. Facts of the case and the submissions are considered. The appellant's main activity is providing credit facility to members for agriculture and allied activities and rural development. The appellant has earned rental income by providing different places on rent to ATM and other banks providing place on rent and this cannot be incidental to the activity of the appellant's society as the activities of the appellant society is providing credit facilities to members. The appellant has also earning other income which was credited to miscellaneous income which is mainly on account of bank charges etc. recovered from members. The appellant has failed to establish that how this income is incidental to the activities of the appellant. Therefore, the AO has rightly disallowed the same and added to the total income of the appellant. I.T.A No. 462/Ahd/2018 A.Y. 2014-15 Page No. The Gujarat State Co. Op. Agriculture & Rural Development Bank Ltd. vs. ITO 5 4. Accordingly, the appeal stands dismissed.” 5. Before us, none appeared on behalf of the assessee. The Ld. DR relied upon the observations of the Ld. Assessing Officer and the Ld. CIT(Appeals) in their respective of orders. On the issue whether the interest earned on deposits kept with nationalised bank is eligible for deduction under section 80 P of the Act, in our view, the issue is directly covered in favour of the Revenue in view of the Supreme Court decision the case of Totgars, Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282 (SC), held that interest earned by assessee would come in category of 'Income from other sources' taxable under section 56 and would not qualify for deduction as business income under section 80P(2)(a)(i) of the Act. The Gujarat High Court in the case of State Bank of India (SBI) v. CIT [2016] 72 taxmann.com 64 (Gujarat) held that where assessee, a co-operative society, having accepted deposits from its members, kept idle funds with bank, since there was no nexus between interest earned on said deposits and business of assessee providing credit facilities to its members, it could not claim deduction under section 80P(2) of the Act in respect of interest income in question. On the same proposition the Co-ordinate Bench of the Ahmedabad 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 Narsanda Mercantile Co. Op. Credit Society Ltd., The Sant Taluka Teachers Co-op. Credi t Society Ltd. , The Satyaprakash Co-op. Credit Society Ltd. , Shri Friends Co-op. Credit Society Ltd. and Shri ShramjiviNagrikSahakariMandli Ltd. has adjudicated the identical issue on similar fact and held that earning of interest income either from I.T.A No. 462/Ahd/2018 A.Y. 2014-15 Page No. The Gujarat State Co. Op. Agriculture & Rural Development Bank Ltd. vs. ITO 6 nationalized is not entitled for deduction u/s. 80P(2)(d) of the Act. In another judgement, the Ahmedabad ITAT in the case of ShreeModhpatniCo- opCreditSociety Ltd. v. DCIT in ITA No. 2710/Ahd/2015 vide order dated 10/04/2017 has held as under— "... In the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co- operative society, a co- operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act. 5.1 In the case of Baroda Citizen Community Co-op. Credit Society Ltd. v. ITO [2022] 134 taxmann.com 290 (Ahmedabad - Trib.), the Ahmedabad ITAT held that in case of a society engaged in providing credit facilities to its members, income from investments made in banks is not deductible under section 80P of the Act. 5.2 Respectfully following the decisions cited above, we do not find any infirmity in the decision of Ld. CIT(A). Therefore, the appeal of the assessee is dismissed on this issue in respect of Ground Number 1. I.T.A No. 462/Ahd/2018 A.Y. 2014-15 Page No. The Gujarat State Co. Op. Agriculture & Rural Development Bank Ltd. vs. ITO 7 6. With respect to Ground Number 2 with respect to disallowance of deduction under section 80P of the Act in respect of “rental income” and “other miscellaneous income” amounting to 32,61,007/-, we are of the considered view that there is no infirmity in the order of the Ld. CIT(Appeals) who held that the assessee has not been able to establish how this income is incidental to the activities of the assessee and hence eligible for deduction under section 80P of the Act. It is well-settled law that rental income or any other income not incidental to the primary activity of the co- operative societies is not eligible for deduction under section 80P of the Act. In the case of Kottayam Co-operative Land Mortgage Bank Ltd. v. Commissioner of Income-tax[1988] 40 Taxman 259 (Kerala), the High Court held that rental income earned from surplus space in its building housing the bank was not entitled to benefit of deduction under section 80P(2)(c) of the Act. The Ahmedabad ITAT in case of Baroda Citizen Community Co-op. Credit Society Ltd. v. ITO [2022] 134 taxmann.com 290 (Ahmedabad - Trib.) held that benefit of section 80P(2)(a)(i) is not allowable on rental income and interest income from surplus funds kept in FD with nationalised bank. The ITAT Cochin bench in the case of ITO v. Kerala State cooperative bank [2012] 27 taxmann.com 96 (Coch.) held that rental income by letting out property is not eligible for deduction under section 80P(2)(a)(i) of the Act. In the case of Hassan Co-operative Milk Producers Societies Union Ltd. v. ACIT [2022] 137 taxmann.com 489 (Bangalore - Trib.), the ITAT held that milk parlours cannot be considered as godowns or warehouses as contemplated under section 80P(2) and hence, rental income derived from letting of milk parlours will not be eligible for deduction under section 80P(2) of the Act. The Bihar High Court in the case I.T.A No. 462/Ahd/2018 A.Y. 2014-15 Page No. The Gujarat State Co. Op. Agriculture & Rural Development Bank Ltd. vs. ITO 8 of Bihar Rajya Sahkari Bhoomi Vikas Co-operative Bank Ltd. v. Ld. CIT(Appeals) [2010] 186 Taxman 54 (Patna)/[2009] 313 ITR 247 (Patna) held that income earned by assessee, a co-operative bank, by way of interest on provident fund amount of employees and rent from house property could not be treated as income attributable to banking business and would not qualify for deduction under section 80P(2) of the Act. In the case of CIT v. Nainital District Co-Operative Bank[2009] 318 ITR 62 (UTTARANCHAL), the High Court held that where the assessee-bank derived the income in question from the house property and not from the banking business, the assessee could not be allowed deduction under section 80P of the Act in respect of the income derived by house property. In view of the consistent view taken by the various High Court/Tribunals, we are of the considered view that the Ld. CIT(Appeals) has not erred in facts and law in confirming the addition made by the Ld. Assessing Officer by denying deduction under section 80P of the Act in respect of rental income/miscellaneous income. In the result, Ground number 2 of the assessee’s appeal is dismissed. 7. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 24-06-2022 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 24/06/2022 I.T.A No. 462/Ahd/2018 A.Y. 2014-15 Page No. The Gujarat State Co. Op. Agriculture & Rural Development Bank Ltd. vs. ITO 9 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद