THE AJMER COOPERATIVE THRIFT AND SAVING SOCIETY LIMITED AJMER, AJMER V. CIT(A), NFAC, AJMER

ITA 76/JPR/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0839 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Appeal Filed On: 27-02-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Tax effect
• Section: 56; 263; 28; 80P; 250; 72

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH ‘A’ JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa MkW- ehBk yky ehuk] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & DR. MITHA LAL MEENA, AM vk;dj vihy la-@ITA No. 76/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2017-18. The Ajmer Cooperative Thrift and Saving Society Ltd., GLO Campus, DRM Office, Traffic Accounts, W. Rly., Ajmer. cuke Vs. The Commissioner of Income Tax (Appeals), NFAC, Delhi. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAEAT 2065 K vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by : Shri Sunil Porwal, (CA) jktLo dh vksj ls@ Revenue by : Shri A.S. Nehra, (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 02.06.2022. ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 30/08/2022. vkns'k@ ORDER PER SANDEEP GOSAIN, J.M. This is an appeal by the assessee against the order of ld. CIT (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 30.07.2021 passed under section 250 of the Income Tax Act, 1961, for the assessment year 2017-18. The grounds raised by the assessee are as under :- 1. That CIT (A), NFAC has not granted natural justice for granting personal hearing / video conferencing. 2 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. 2. Disallowances of deduction claimed u/s 80P(2)(a)(i) of Rs. 66,53,226/- is bad in law. 3. Any other matter with the permission of the Chair. 2. The brief facts of the case are that the assessee is a credit and thrift society of Railway Employees of Ajmer, DRM Office campus and is carrying on business of providing credit facility to its members. It provides credit facilities to the members and deposits the surplus funds in the banks in the form of FDR. The assessee has filed return of income for the assessment year 2017-18 on 11.10.2017 declaring NIL income after claiming deduction under section 80P(2)(a)(i) of the IT Act of Rs. 66,53,226/-. While completing the assessment, the A.O. disallowed the claim of deduction under section 80P(2)(a)(i) by observing that it can be inferred that whatever activities carried out by the assessee society, the interest earned on Surplus funds invested in bank deposits, is to be treated as Income from Other Sources which is to be assessed under section 56 of the I.T. Act, 1961. Thus it is not eligible for deduction under section 80P(2)(a)(i) of the Act as the interest earned is not related to the business of providing credit facility to its members rather than it is interest on surplus parked in FDRs. On appeal before the ld. CIT (A), the ld. CIT (A) confirmed the order of the A.O. holding that the AO was right in taxing the interest income and holding that interest income other than from cooperative society or cooperative bank is not eligible for deduction under section 80P of the Act. 3 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. Now the assessee is in appeal before the Tribunal. 3. Before us, the ld. A/R of the assessee has submitted that the issue is covered by the decision of Hon’ble Karnataka High Court in the case of Guttigedarara Credit Co-operative Society Ltd. vs. ITO, 377 ITR 464 (Kar.) and submitted that the Hon’ble High Court has held that the interest earned from deposits and from savings bank account by the Co-operative Society providing credit facilities to its members is eligible for deduction under section 80P(2)(a)(i). The ld. A/R has further submitted that the Hon’ble High Court has decided this issue after considering the decision of Hon’ble Supreme Court in case of M/s. Totgars Co-operative Sale Society Ltd. vs. ITO, 322 ITR 283 (SC). Thus the ld. A/R has submitted that when the assessee has earned the interest in the normal course of its activity providing credit facilities to its members, then the said interest from the savings bank account is eligible for deduction under section 80P(2)(a)(i). 3.1. The ld. A/R also placed reliance upon the decision of the Hon’ble Patna High Court in the case of Bihar State Housing Co-Operative Federation Ltd. v. CIT [2009] 315 ITR 286 (Patna), wherein the court was dealing with the question as to whether on the facts and in the circumstances of that case, the Tribunal was correct in holding that the Sum of Rs. 15,98,590.00 received by way of interest on bank deposit is not ancillary and incidental to carrying on the business of providing credit facilities to its members and as such, exempt under Sec 80P(2)(a)(i) of the Income-Tax Act, 1961. The court held that the interest earned on the deposits does not arise out of one or more of the activities specified in Sec 80P(2)(a)(i) of the Act, but the interest received by the assesse on the 4 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. bank deposit is ancillary and incidental to carrying on the business of providing credit facilities to its members and as such, exempt under the provisions of Sec 80P(2)(a)(i) of the Act. The Hon’ble High Court observed that the assessee deposited surplus funds available with it and earned interest thereon. The nature of activity in which the assessee is involved clearly creates a situation where surplus fund is available to it which it deposits in the bank and earns interest thereon. The placement of such funds being incidental and ancillary for carrying on business of providing credit facilities to its members by reason of Sec, 80P(2)(a)(i) of the Act, the same is exempt under the said provision. 3.2 Thus the ld. A/R submitted that such "Interest Income" is incidental to the main activity of the appellant of providing credit facility and that in the decision of Totgars Society (Supra) the word "Incidental" had not come up for consideration and thus such mutual Society's are entitled for deduction U/Sec 80P(2)(a)(i) on its Gross Income. The ld. A/R relied on the following decisions and submitted that these decisions be considered :- (1) ITAT Jaipur Bench decision in case of Shiksha Co-operative Thrift & Credit Society Alwar vs. DCIT Circle — 1, Alwar (ITA No. 957 & 958/JP/2017 dates 21.05.2018) (2) Honourable Karnataka High Court decision in case of Guttigadarara Credit Co-Operative Society Ltd. v/s ITO, 377 ITR 464 wherein the identical issue has analyzed the provisions of section 80P(2) and particularly the term "ATTRIBUTABLE" is certainly wider in import than the expression "DERIVED FROM" and thus the Honourable Supreme Court decision of M/s Totgars (Supra) is not applicable. ALTERNATIVELY, the ld. A/R further submitted that during the year assesse society has received total interest of Rs. 5,07,97,324.00 as detailed below:- 5 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. (a) Rs. 2,99,31,120.00 FDRs S.B. Interest (b) Rs. 2,05,61,558.00 Interest of Railway Employees Co- operative bank Jaipur (c) Rs. 3,04,646.00 Interest of members Total Rs. 5,07,97,324.00 Interest paid to members on various types of deposits Rs. 4,37,80,209.00. Thus as per CIT(A)'s NFAC'S own decision cited as SBI v/s CIT (GUJARAT) 389 ITR 578, it has been held and accepted that therefore it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India not being attributable to the business carried on by the appellant, cannot be deducted under section 80P(2)(a)(i) of the Act. If the appellant wants to avail of the benefits of deduction of such interest income, it is always open for it to deposit the surplus funds with a Co-operative bank and avail of deduction under section 80P(2)(d) of the Act. Thus as per the same citation relied upon by CIT(A) NAFC, the assessee, if denied the claim of sec. 80P(2)(a)(i) for these reasons, then at least deduction u/sec 80P(2)(d) “Being interest received from other Co-operative society” should be granted. The assessee during the year has received interest of Rs. 2,05,61,558.00 from Railway Employees of Co-operative Bank, Jaipur. Thus deduction to the extent of surplus of assessee Society of Rs. 66,53,226.00 under section 80P(2)(d) should be allowed. 6 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. 4. On the other hand, the ld. D/R has relied upon the orders of the authorities below and submitted that as per the provisions of section 80P(2)(d) the interest from other co-operative banks is eligible for deduction and not from other banks. 5. We have heard the rival contentions, perused the material available on record and gone through the orders of the lower authorities. Before we decide the merits of the case, it is necessary and imperative to evaluate the order passed by the ld. CIT (A) while dealing with the issue. The ld. CIT (A) has dealt with this issue in its order and the operative portion is contained in para 5 (5.1 to 5.4.11) and the same are reproduced below :- “ 5.1 The appellant society carries on business of providing credit facility to its . members. It provides credit facilities to the members. But it is noticed that it deposits the surplus funds in the banks in the form of FDR. During the impugned assessment year the assessee declared NIL income of after claiming deduction u/s. 80P(2)(a)(i). It amounts to Rs.66,53,226/-. 5.2 The Assessing Officer disallowed the deduction claimed u/s. 80P(2)(a)(i). The assessee claimed that the business of the appellant society is providing credit facilities to its members and accepts the deposits from its members only to develop the habit of savings amongst themselves. The assessee argued that the surplus deposits from the members have to be kept by the society and has to be invested, so that interest earned on such investments could be paid to members as interest on their deposits. The assessee also argued that without interest income from investments, interest on deposits to the members could not be paid. Interest paid to the members on deposits depends upon the interest earned on investments of such deposits whether as a loan to the members or in the bank. Thus, the 7 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. main argument of the appellant is that the interest earned on investments of surplus funds are in the course of business and is income from Business and not 'Income from Other Sources' and thus is eligible for deduction w/s 80P(2) (a) (i). On the basis of such reasoning the appellant had claimed deduction u/s.80P. 5.3 The appellant relied on the following judgments: (a) ITAT Jaipur Bench Jaipur Shiksha Co.-operative Thrift & Credit Society Alwar V/s DCIT Circle - 1, Alwar (ITA No. 957 & 958/JP/2017 dated 21.05.2018). (b) Hon'ble Karnataka High Court in case of Guttigadarara Credit Co.- operative Society Ltd. V/s ITO 377 ITR 464] 5.4.1 I have carefully considered the submissions of the assessee and decisions on which the appellant relied upon. In the present case deposits are made with nationalised bank, are out of surplus funds. Income derived out of such surplus funds are to be treated as income from other sources. The appellant invested surplus funds with Railway Employees Cooperative Bank, Jaipur in order to maintain liquidity and provide ready availability of funds for repayment. These investments are made on short term basis and not for business purposes. Hence the interest income generated out of such short term investments would come in the category of "income from other sources", hence, such interest income would be taxable under s. 56 as rightly held by the AO. 5.5.2 An income, which is attributable to any of the spec Fed activities in s. 80P(2) would be eligible for deduction. Assessee-society invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". Such interest income cannot be said also to Qe attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members. When the assessee-society provides credit facilities to its members, it earns interest income. Interest held as ineligible 8 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. for deduction under s. 80P(2)(a)(i), is not in respect of interest received from members. The amount, which was retained by the assessee-society (and then invested in short term deposits), was a liability. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in s. 80P(2)(a)(i). Therefore, looking to the facts and circumstances of this case, the AO was right in taxing the interest income. 5.4.3 The source of income is relevant for deciding the applicability of s. 80P because weightage has to be given to the words "the whole of the amount of profits and gains of business" attributable to one of the activities specified in s. 80P(2)(a). The words "the whole of the amount of profits and gains of business" emphasise 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 this particular case, the evidence shows that the assessee-society earns interest on funds which are not required for business purposes at the given point of time and invested in bank. Therefore, on the facts and circumstances of this case, such interest income falls in the category of "other income" which has been rightly taxed by the AO under s. 56. While drawing this conclusion, I rely on the decision of Supreme Court in The Totgars Co-operative Sale Society Ltd. vs. ITO [(2010) 229 CTR 0209 (2010) 35 DTR 0025: (2010) 322 ITR 0283: (2010) 188 TAXMAN 0282] 5.4.4 In the case of Totgars Co-operative Sale Society Ltd., the Hon'ble Supreme Court had categorically held that in the case of co-operative society providing credit facilities to its member or marketing the agricultural produce of its members, interest income from other sources is taxable under section 56 and would not be eligible for deduction under section 80P(2)(a)(i) of the Act. It was held: "10. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under s. 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under s. 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were 9 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is—whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under s. 28 of the Act ? In our view, such interest income would come in the category of "income from other sources", hence, such interest income would be taxable under s. 56 of the Act, as rightly held by the AO. In this connection, we may analyze s. 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions in respect of certain incomes". The head note to s. 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Sec. 80P(1), inter alia, states that where the gross total income of a co-operative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee- society. An income, which is attributable to any of the specified activities in s. 80P(2) of the Act, would be eligible for deduction. The word "income" has been defined under s. 2(24)(i) of the Act to include profits and gains. This sub- section is an inclusive provision. The Parliament has included specifically "business profits" into the definition of the word "income". Therefore, we are required to give a precise meaning to the words "profits and gains of business" mentioned in s. 80P(2) of the Act. In the present case, as stated above, assessee-society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under s. 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. it is this "retained amount" which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. 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 that extent, such interest income cannot be said to be attributable either to the activity mentioned in s. 80P(2)(a)(i) of the Act or in s. 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the AO was right in taxing the interest income, indicated above, under s. 56 of the Act. (emphasis supplied). The ratio decidendi of the Supreme Court decision in the case of Totagar's Cooperative Sale Society Limited was that such interest income earned by the assessee was not the income from the business as a Co- operative Society, but was income from other sources taxable under Section 56 of the Act, whereas Section 80P(2)(a) of the Act included and permitted 10 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. such 100% deduction if such income is earned by the co-operative society by carrying on the business of banking or providing credit facilities to its members or a cottage industry or the marketing of the agricultural produces grown by its members, etc. 5.4.5 It is the character and nature of income which determines its taxability or exemption from taxability. It is pertinent to mention here 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) of the Act by the Hon'ble Supreme Court cannot be contrarily held as exempted and deductible, merely because interest on deposits to the members depends upon the interest earned on investments of such deposits whether as a loan to the members or in the bank. It is difficult to make this distinction so as not to apply the binding precedent of the Hon'ble Supreme Court. 5.4.5 We may analyze Section 80P of the Act. This section comes in Chapter VI- A, which, in turn, deals with "Deductions in respect of certain Incomes". The heading of Section 80P indicates that the said section deals with deductions in respect of income of cooperative Societies. Section 80P(1), inter aria, states that where the gross total income of a Co- operative Society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-Society. An income, which is attributable to any of the specified activities in Section 80P(2) of the Act, would be eligible for deduction. The word "income" has been defined under Section 2(24)(1) of the Act to include profits and gains. This sub- section is an inclusive provision. The Parliament has included specifically "business profits" into the definition of the word "income". Therefore, we are required to give a precise meaning to the words "profits and gains of business" mentioned in Section 80P(2) of the Act. 5.4.6 In the present case, as stated above, assessee-Society invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of 11 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. business". Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members. When the assessee-Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under Section 80P(2)(a)(i) is not in respect of interest received from members. In this case, interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in FDP, as "investment". 5.4.7 In a latest decision in PCIT vs The Totagars Co-Operative Sale ITA No. 100066/2016, which my predecessor has not examined, oh which I am relying upon, the Hon'ble Karnataka High Court held that for claiming the exemption or 100% deduction from gross total income for a co-operative society: interest income on its surplus 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 of the Act, whereas for availing the exemption or 100% deduction under Section 80P of the Act the income is specified in clauses (a) to (f) of Subsection (2) of Section 80P of the Act should be its business or operational income. 5.4.8 The aforesaid decision of the Hon'ble Supreme Court in the case of Totgar was followed by a Division Bench of the Gujarat High Court in the case of State Bank of India Vs. Commissioner of Income-Tax, reported in [2016] 389 ITR 578 (Guj.) and the Division Bench of the Gujarat High Court has held as under: "(ii) That the assessee did not carry on any banking business and its objects did not contemplate investment of surplus funds received from its members. The business of a credit society like that of the assessee was limited to providing credit to its members and the income that was earned by providing such credit facilities to its members was deductible under section 80P(2)(a)(i). The character of interest was different from the income attributable to the business of the assessee-society providing credit facilities to its members. The interest income derived from investing surplus funds with the bank must be closely linked with the business of providing credit facilities for it to be held attributable to the business of the assessee. Therefore, the profits and gains could be said to be directly attributable to the business of providing credit facilities to its members if there was a direct and proximate 12 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. connection between the profits and gains and the business of the assessee. There was no obligation on the assessee to invest its surplus funds with the bank. Investing surplus funds in a bank was no part of the business of the assessee providing credit facilities to its members and hence it could not be said that the interest derived from depositing its surplus funds with the bank was profits and gains of business attributable to the activities of the assessee. It was only the interest income derived from the credit provided to its members which was deductible under section 80P(2)(a)(i) and the interest income derived by depositing the surplus funds with the bank not being attributable to the business carried on by the assessee could not be deducted under section 80P(2)(a)(i) . There was no infirmity in the orders of the Appellate Tribunal warranting interference. 5.4.9 Again, the Hon'ble Punjab and Haryana High Court in a later decision in Punjab State Co-operative Agricultural Development Bank Limited, [2016] 389 ITR 607 (P&H) concurred with the aforesaid view of the Gujarat High Court, distinguishing the view taken by the Andhra Pradesh High Court and Karnataka High Court, held in the following terms: 26. The judgment cannot be restricted to cases where the amount invested was the sale proceeds of the produce of an assessee's members marketed by the assessee. The judgment applies to funds not immediately required for business purposes. Funds not immediately required for business purpose include the amounts received towards the sale price of the produce. However, it is not such funds alone that can be said to be not immediately required for business purposes. An assessee such as the respondent may have funds from other sources which are not immediately required for business purpose as well. They would include advances from other entities for the purpose of the assessee in turn using the same for its business of providing credit facilities to its members. If such funds instead of being advanced to the assessee's members are invested with banks the income from such investments equally cannot be said to be attributable to the assessee's business of providing credit facilities to its members. Thus, the income in the present case is not from providing credit facilities to the assessee's members but from the investment with non-members including commercial banks. 6.4.10 Thus, these judgments supports the view taken by the AO that 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 surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a 13 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. 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. Thus, respectfully following the judgment of hon'ble Supreme Court, I hold that the AO was right in taxing the interest income and holding that interest income other than from cooperative society or cooperative bank is not eligible for deduction under section 80P of the Act, 5.4.11 Further, the assessee submitted that the department has withdrawn the appeal filed against the order of CIT(A) and in AY 2016-17 vide appeal No.598/JPR/19 in assessee's own case. In this regard, in the assessment order, the Assessing Officer stated that the Hon'ble ITAT did not decide the issue on merits and, dismissed the appeal of the department on account of low tax effect as prescribed in circular No.17/2019, dated 08.08.2019. Hence, the assessee's contention in this regard is not acceptable. Hence, this ground of appeal is dismissed. After analyzing the orders passed by the ld. CIT (A) and after hearing the parties at length, we find from the record that the assessee society carries on the business of providing credit facilities to its members. But it is also noticed that it deposits surplus funds in the bank in the form of FDR. During the impugned assessment year, assessee declared Nil income after claiming deduction under section 80P(2)(a)(i) amounting to Rs. 66,53,226/-. The AO disallowed the deduction claimed under section 80P(2)(a)(i) whereas on the contrary the assessee claimed that the business of the appellant society is to provide credit facility to its members and accepts the deposits from its members only to develop the habits of saving amongst themselves. The ld. A/R of the assessee has also argued that the surplus funds/deposits from the members have to be kept by the society and has to be invested, so that interest earned on such investments could 14 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. be paid to members as interest on their deposits. It was also submitted that without interest income from investments, interest on deposits to the members could not be paid. From the entire arguments as put-forth before us, we could conclude that the main arguments of the assessee appellant is that the interest earned on investments of surplus funds are in the course of business and is ‘Income from Business’ and not ‘Income from Other Sources’ and thus according to ld. A/R, the assessee appellant is eligible for deduction under section 80P(2)(a)(i) of the Act. In this regard, the ld. A/R has also relied upon certain decisions which are mentioned in the written submission, which we have reproduced above. 5.1. After scrutinizing the facts, we find that the assessee appellant invested surplus funds with Railway Employees Co-operative Bank, Jaipur in order to maintain liquidity and provide ready availability of funds for repayment and these investments are made on short term basis and not for business purposes. In this particular case the entire circumstances and the evidences placed before us shows that the assessee appellant society earned interest on funds which are not required for business purposes at the given point of time and invested in bank. Therefore, under these peculiar facts and circumstances of the case, such interest income falls in the category of ‘Other Income’ which has been rightly taxed by the AO under section 56 of the Act. It is important to note that the source of income is relevant for deciding the applicability of section 80P because in our view weightage has to be given to the words “the whole of the amount of profits and gains of business” attributable to one of the activities specified in section 15 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. 80P(2)(a). The words “ whole of the 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. Therefore, in our view the AO has rightly taxed the interest income earned by the assessee under section 56 of the Act. While drawing this conclusion, we also rely on the decision of Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 229 CTR 0209. In the said case the Hon’ble Supreme Court has categorically held that in the case of cooperative society providing credit facilities to its member or marketing the agricultural produce of its members, interest income from other sources is taxable under section 56 and would not be eligible for deduction under section 80P(2)(a)(i) of the Act. It was held as under :- “ 10. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under s. 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under s. 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is—whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under s. 28 of the Act ? In our view, such interest income would come in the category of "income from other sources", hence, such interest income would be taxable under s. 56 of the Act, as rightly held by the AO. In this connection, we may analyze s. 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions in respect of certain incomes". The head note to s. 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Sec. 80P(1), inter alia, states that where the gross total income of a co-operative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee- society. An income, which is attributable to any of the specified activities in s. 80P(2) of the Act, would be eligible for deduction. The word "income" has been defined under s. 2(24)(i) of the Act to include profits and gains. This sub- 16 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. section is an inclusive provision. The Parliament has included specifically "business profits" into the definition of the word "income". Therefore, we are required to give a precise meaning to the words "profits and gains of business" mentioned in s. 80P(2) of the Act. In the present case, as stated above, assessee-society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under s. 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. it is this "retained amount" which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. 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 that extent, such interest income cannot be said to be attributable either to the activity mentioned in s. 80P(2)(a)(i) of the Act or in s. 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the AO was right in taxing the interest income, indicated above, under s. 56 of the Act. (emphasis supplied). The ratio decidendi of the Supreme Court decision in the case of Totagar's Cooperative Sale Society Limited was that such interest income earned by the assessee was not the income from the business as a Co- operative Society, but was income from other sources taxable under Section 56 of the Act, whereas Section 80P(2)(a) of the Act included and permitted such 100% deduction if such income is earned by the co-operative society by carrying on the business of banking or providing credit facilities to its members or a cottage industry or the marketing of the agricultural produces grown by its members, etc.” Since in the present case the assessee society invested funds not immediately required for business purposes, therefore, interest on such investments cannot fall within the meaning of the expression “profits and gains of business”. Such 17 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members. Even the Hon’ble Supreme Court while taking this view has reached to the conclusion that 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. Therefore, we are of the considered view that the grounds taken by the assessee society have no merits and thus the same are dismissed. 6. We have also noticed that the assessee appellant in its written submission have also taken an alternative ground that in case the assessee society is denied claim of deduction under section 80P(2)(a)(i) for any reason, then in that eventuality the deduction under section 80P(2)(d) may please be granted to the assessee. 6.1 We have heard both the parties on this alternative ground as well and we noticed that Hon’ble Gujarat High Court in the case of Surat Vankar Sahakari Sangh Ltd. vs. ACIT, (2016) 72 taxmann.com 169 (Gujarat) has held that assessee cooperative society was eligible for deduction under section 80P(2)(d) in respect of gross interest received from cooperative bank without adjusting interest paid to said bank. Apart from this, Hon’ble Punjab & Haryana High Court in the case of CIT vs. Doaba Co-operative Sugar Mills Ltd., 230 ITR 774 (P&H) has also held as under :- 18 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. “ Deduction under section 80P(2)(d) – Income from investment with other societies – Computation – Gross or net interest income – Section 80P(2)(d) allows whole deduction of an income by way of interest or dividends derived by the cooperative society from its investment with any other co-operative society – It is immaterial whether any interest paid to the co-operative society exceeds the interest received from the bank on investments – The Revenue is not required to look to the nature of investment whether it was from its surplus funds or otherwise – The Act does not speak of any adjustment as sought to be made out by the counsel for the Revenue – Tribunal was right in law in allowing deduction under section 80P(2)(d) in respect of interest of Rs. 4,90,919/- on account of interest received from N. Central Co-operative Bank without adjusting interest paid to the bank.” The coordinate Bench of ITAT Pune in the case of Rena Sahakari Sakhar Karkhana Ltd. vs. PCIT, 138 taxmann.com 532 (Pune Trib) has held as under :- “Section 80P, read with section 263, of the Income-tax Act, 1961 – Deductions – Income of co-operative societies (Interest income) – Assessment year 2013-14 – Assessee was a co-operative society – During year, it claimed deduction under section 80P(2)(d) in respect of an interest income earned on FDs kept by it with a co-operative bank – Assessing Officer allowed same – However, Pr. CIT invoked revision jurisdiction on ground that for claiming deduction under section 80P(2)(d), interest income should be received from co-operative society and not from co-operative bank which was commercial in nature – Accordingly, he passed a revision order denying benefits of deduction to assessee – Whether since co-operative bank from which assessee received interest income was registered as co-operative society under Co-operative Societies Act, 1912, interest income received from it was eligible for deductions under section 80P(2)(d) – Held, yes – Whether further, since Assessing Officer while framing assessment had taken a possible view and allowed assessee’s claim for deduction under section 80P(2)(d) on interest income earned on its deposits with a co-operative bank, Pr. CIT was in error in exercising his revisional jurisdiction under section 263 for dislodging same – Held, yes (Paras 8 to 10)(In favour of assessee)” 19 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. The Surat Bench of the Tribunal in the case of Bardoli Vibhag Gram Vikas Co- operative Credit Society Ltd. vs. PCIT, 127 taxmann.com 334 (Surat-Trib.) has held as under :- “ Section 80P, read with section 263, of the Income-tax Act, 1961 – Deductions – Income of co-operative societies (interest from co- operative banks)- Assessment year 2014-15 – Assessee was a co- operative society engaged in business of providing credit facility its members by accepting deposits from members and lending money them too – It claimed deduction under section 80P – Assessing Officer noted that assessee derived interest income from savings bank account with HDFC Bank and UTI Bank and held that since as per section 80P(2)(a)(d), interest earned out of investment/deposits with Co-op Societies or Co-operative Banks are only eligible for deduction, interest income earned from other banks was not eligible for deduction under section 80P – Commissioner opined that interest income did not fall within meaning of exemption under section 80P(2)(d) and, thus, it revised said order as being erroneous – Whether since assessee co- operative society was eligible for deduction under section 80P(2)(d) in respect of gross interest received from co-operative bank and Assessing Officer had made enquiries on allowability of deduction under section 80P(2)(d) and passed assessment order and, thus had taken a reasonable and possible view, order passed by Assessing Officer was not erroneous and thus, revision was unjustified – Held, yes (Para 28)(In favour of assessee).” The Coordinate Bench of the ITAT Jaipur in the case of Rajasthan Cooperative Dairy Federation Ltd. vs. PCIT in ITA No. 23/JP/2021 decided on 09.11.2021 has held as under :- “12. We have heard the rival contentions and perused the material available on record. The issue under consideration is whether interest of Rs 3,69,19,911/- on FDRs placed with Jaipur Central Co-operative Bank Ltd is eligible for deduction u/s 80P(2)(d) and where the answer to the same is not in affirmative, whether the order passed by the Assessing officer allowing such deduction can be held as erroneous in so far as prejudicial to the interest of Revenue. During the course of revisionary proceedings, the assessee cooperative society has submitted before the ld PCIT that the Jaipur Central Cooperative Bank Ltd. is constituted under the provision of Jaipur 20 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. Cooperative Societies Act, 1943 and is a cooperative society and Jaipur Benches of the Tribunal in case of M/s Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. has held that for the purpose of section 80P(2)(d), Jaipur Central Cooperative Bank shall be treated as cooperative society and therefore, interest received by the assessee cooperative society from Jaipur Central Cooperative Bank Ltd. is eligible for deduction u/s 80P(2)(d) of the Act. The ld PCIT however referred to the Banking Regulation Act of 1949 and held that as per Part V of the Banking Regulation Act, a co-operative bank is different from the cooperative society and the deduction has been wrongly allowed by the Assessing officer. In case of M/s Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd, we find that the Coordinate Bench has considered the meaning of cooperative society and cooperative bank and has referred to the decision of the Hon’ble Karnataka High Court in case of Totagars Cooperative sale society 392 ITR 74 wherein it was held as under: “8. The issue whether a Co-operative Bank is considered to be a Cooperative Society is no longer res integra. For the said issue has been decided by the ITAT itself in different cases. Moreover the word "Co-operative Society" are the words of a large extent, and denotes a genus, whereas the word "Co-operative Bank" is a word of limited extent, which merely demarcates and identifies a particular species of the genus Co-operative Societies. Co-Operative Society can be of different nature, and can be involved in different activities; the Co- operative Society Bank is merely a variety of the Co-operative Societies. Thus the Co-operative Bank which is a species of the genus would necessarily be covered by the word "Cooperative Society". 9. Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primary Co-Operative Society bank as the meaning of Co-Operative Society. Therefore, a Co-operative Society Bank would be included in the words 'Co-operative Society'. 10. Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said amount of interest earned from a Co-operative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent.” 13. The Coordinate Bench thereafter held that for the purposes of section 80P(2)(d) of the Act, Jaipur Central Cooperative Bank Ltd shall be treated as co-operative society and interest on FDRs placed by the assessee society with such cooperative society shall be eligible for deduction u/s 80P(2)(d) of the Act. The ld PCIT has however not considered the aforesaid decision and gone ahead and has concluded that the deduction has been wrongly allowed by 21 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd. the Assessing officer without verifying the said claim of the assessee cooperative society.” Therefore, considering the facts and circumstances of the case and also keeping in view the judgments as discussed by us supra, we hold that the assessee is entitled for deduction under section 80P(2)(d) of the Act in respect of gross interest received from cooperative bank. 6. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 30/08/2022. Sd/- Sd/- ¼ MkW- ehBk yky ehuk ½ ¼lanhi xkslkbZ½ ( DR. MITHA LAL MEENA ) (SANDEEP GOSAIN) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 30/08/2022. das/ vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- The Ajmer Cooperative Thrift and Saving Society Ltd., Ajmer. 2. izR;FkhZ@ The Respondent- CIT (A) NFAC, Delhi. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File {ITA No. 76/JP/2022} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 22 ITA No. 76/JP/2022 The Ajmer Cooperative Thrift and Saving Society Ltd.