SAINI CO OPRATIVE THRIFT & CREDIT SOCIETY,DELHI V. INCOME TAX OFFICER WARD 48(1), DELHI

ITA 5135/DEL/2024

AI Insights

The case involves the Saini Co-operative Thrift & Credit Society, which appealed against the Income Tax Officer's decision disallowing deductions under Section 80P for interest income earned from FDRs with banks. The society argued that the interest income was part of its business activities, which include providing credit facilities to its members. However, the Income Tax Officer and the Commissioner of Income Tax (Appeals) rejected this claim, leading to the society's appeal to the Income Tax Appellate Tribunal. The Tribunal, referencing the Supreme Court's decision in the case of Totagars Co-operative Sales Society Ltd. vs. ITO, upheld the lower authorities' decisions, stating that the interest income from bank deposits does not qualify as income from the business of providing credit facilities to members.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312957 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2021-2022
• Other Referred Cases: Bharat Co-operative Thrift and Credit Society vs. ITO, Totagars Co-operative Sales Society Ltd. Vs. income Tax Officer, Karnataka, State Bank of India Vs. Commissioner of Income-Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAHIL KUMAR BANSAL
• Assessee Lawyers: K SAMPATH; V RAJ KUMAR
• Keywords: Business income
• Section: 148; 142(1); 56

Judgement Text

" 1 ITA No. 5135 & 5136/Del/2024 Saini Co operative Thrift & Credit Society Vs. ITO IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘G’ NEW DELHI) BEFORE SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No. 5136/DEL/2024 (A.Y. 2014-15) ITA No. 5135/DEL/2024 (A.Y. 2021-22) Saini Co-operative Thrift & Credit Society Ltd. 2420-2421, Bazar KamraBangash, Darya Ganj, Delhi-110002 PAN: AABAS8396K Vs. Income Tax Officer, Ward 48(1) Delhi Appellant Respondent Assessee by Shri K Sampath, Adv& Shri V Raj Kumar, Adv Revenue by Sh. Sahil Kumar Bansal, Sr. DR Date of Hearing 27/03/2025 Date of Pronouncement 30/04/2025 ORDER PER YOGESH KUMAR, U.S. JM: Both the present appeals are filed by the Assessee against the order of the Commissioner of Income Tax (Appeal)/National Faceless Appeal Centre-Delhi [‘NFAC)’ for short] dated 10/09/2024 for Assessment Year 2014-15 and 2021-22. 2. The grounds of appeal are as under:- “1. The order passed by Ld. A.O is bad illegal and against facts of the case. 2 ITA No. 5135 & 5136/Del/2024 Saini Co operative Thrift & Credit Society Vs. ITO 2. The Ld. A.O. has erred in charging interest u/s 234.” ITA No. 5136/DEL/2024 (A.Y. 2014-15) 3. Brief facts of the case are that, the Assessee being a Credit Co-operative Society, engaged in the business of providing credit facilities to its members. In the return of income filed for the year under consideration, gross total income of Rs. 1,66,52,914/- has been disclosed by claiming deduction of Rs. 1,66,52,914/- u/Section 80P of Income Tax Act, 1961 (‘Act’ for short). On perusal of the data, the A.O. noticed that the Assessee has earned interest income/dividend income of Rs. 1,00,12,059/- and dividend income of Rs. 2,577/- in total Rs. 1,00,12,059/-. As per the A.O., the Assessee is not eligible for deduction u/s 80P (2)(d) of the Act and interest received on FDR and dividend are not allowable deduction u/s 80P of the Act. Accordingly, a notice u/s 148 of the Act has been issued on 30/03/2021. In response to the notice the Assessee field its return of incomedisclosing the same income as per original return. However, the return was invalid, a notice u/s 142(1) of the Act has been issued. During the assessment proceedings, the A.O. observed that the Assessee had claimed exemption of Rs. 1,00,12,059/- u/s 80(P)(2) (a)(i)/80P(2)(d) of the Act and further observed that the Assessee is engaged in the business of providing credit facilities only to is members and accepting deposit only from its member and the surplus fund deposited with the co- operative banks and the interest received thereon amounting to Rs. 1,00,12,059/- is required to be disallowed which is claimed under u/s 3 ITA No. 5135 & 5136/Del/2024 Saini Co operative Thrift & Credit Society Vs. ITO 80(P)(2)(a)(i), accordingly, added to the income of the Assessee vide assessment order dated 29/03/2022. Aggrieved by the assessment order dated 29/03/2022, the Assessee preferred Appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 29/03/2022 dismissed the Appeal filed by the Assessee. 4. Aggrieved by the order of the Ld. CIT(A) dated 29/03/2022, the Assessee preferred the present Appeal on the grounds mentioned above. The Assessee has also suffered with a similar disallowance in its hands for A.O. for the Assessment Year 2021-22, which has been sustained by the Ld. CIT(A) vide order dated 10/09/2024 and the Assessee filed an Appeal in ITA No. 5135/Del/2024 for Assessment Year 2021-22 challenging the order of the Ld. CIT(A). 5. The Ld. Counsel for the Assessee submitted that the Assessee being Credit Co-operative Society engaged in the business of providing credit facilities to its members and the Assessee also collects subscription from members periodically and it invests to earn income and all those activities are part of common kitty which is the repository of the entirety of funds of the Assessee and the Assessee provides credit facilities to the members out of the whole i.e collection from members and income earned on deposit and the Assessee earns interest on the credit facilities provided by its members, thus, submitted that the Assessee earns two streams of income, one by way of deploying funds collected from members by way of investments earning interest and 4 ITA No. 5135 & 5136/Del/2024 Saini Co operative Thrift & Credit Society Vs. ITO consequently in the form of interest on loans extended to needy members. The Ld. Counsel further submitted that there is no concept of surplus or un- required funds in the present case. The Ld. Counsel also submitted that provision of Section 80P provides for exemptionfrom tax of whole amount of profit and gains of business and Thrift and Credit Society attributable to activities of providing credit facilities to the members. Further, the Section also provides for exemption of interest derived by the Co-operative Thrift and Credit Society from its investments and another co-operative society. The Ld. Counsel further submitted that the Assessee has no grievance in so far as dividend income of Rs. 2,577/- and the only grievance of the Assessee is regarding interest received on FDR with DSE Bank amounting to Rs. 1,00,09,482/-. The ld. Counsel relying on the order of the Co-ordinate Bench of the Tribunal in the case of Bharat Co-operative Thrift and Credit Society vs. ITO in ITA No. 4104/Del/2014 r.w. M.A No. 412/Del/2023 sought for allowing the Appeal. 6. Per contra, the Ld. Departmental Representative vehemently submitted that the Assessee being a Co-operative Thrift and Credit Society Ltd. registered with Co-operative Societies NCT of New Delhi, engaged in the business of ‘providing credit facilities to its members’ and the Ld. Departmental Representative further submitted that any interest income arising fromdeposit /investment of funds in banks and from other sources not related to‘business activities of the Assessee’and the same is in the nature of income from ‘other sources’ taxable u/s 56 of the Act. Any interest income arising from deposit 5 ITA No. 5135 & 5136/Del/2024 Saini Co operative Thrift & Credit Society Vs. ITO /investment of funds in bankscannot be categorized as income from profit and gains of business of the Assessee. Since, the deduction under Section 80P of the Act is available only for the ‘profit and gain of the business’ of the Assessee providing credit facilities to the members, the said deduction is not available to the interest income which is in the nature of other income or income from other sources. The Ld. Department's Representative relying on the Judgment of the Hon'ble Supreme Court in the case of Totagars Co-operative Sales Society Ltd. Vs. income Tax Officer, Karnataka 2010 (188) Taxman 282 (S.C) submitted that the interest income earned by the Assessee cannot be said to be attributable to the activities of the Society i.e. carrying on the business of providing credit facilities to its members. Thus, sought for dismissal of the Appeal. 7.We have heard both the parties and perused the material available on record. The Assessee is a Co-operative Thrift and Credit Society having a registration of Co-operative Societies NCT of Delhi. The main object of the Assessee is ‘providing credit facilities to its members’. The activities of the society does not include depositing/investing funds in a Co-operative Bank/commercial bank and ‘other income’ such as interest earned from the deposits made with the bank are not a part of the business of the providing credit facilities to its members. The intention of the legislature to provide the exemption is to make sure that the funds collected by the Society from its Members properly utilized 6 ITA No. 5135 & 5136/Del/2024 Saini Co operative Thrift & Credit Society Vs. ITO to the purpose for which the society is formed and not to deposit the amount in a bank and earn interest. 8. Even otherwise as stated earlier, depositing /investing funds in a bank and the interest of earned thereupon cannot be the operational income of the Assessee Society. It is the contention of the Ld. Assessee's Representative that, ‘it is not the case of surplus or un-requiredfunds involved in the subject case’, however, it is the contention of the Ld. Assessee's Representative that the Assessee collects subscriptions from members periodically. It invests funds to earnincome and the Assessee having a common kitty which including the entire funds of the appellant and the Assessee provides the credit facilities to its members out of the whole i.e. collection from members and income earned on deposits, therefore, the same deserves to be treated as income from business and entitle for the exemption. We find difficult to appreciate the said contention of the Ld. Assessee's Representative. The main object of the Assessee Company is providing ‘creditfacilities to its members’out of the deposits made by the other members as investment for earning the interest. However, depositing the funds which was collected from the members of the society and making investment /deposits in a bank cannot be held to be business of the Assessee and the interest earned thereupon cannot be treated as operational income of the society ‘for providing credit facilities to its members’. 9. The Hon'ble Supreme Court in the case of Pr. Commissioner of Income Tax Vs. Totagar Co-operative (supra) held as under:- 7 ITA No. 5135 & 5136/Del/2024 Saini Co operative Thrift & Credit Society Vs. ITO “13. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative 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 Societies 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. 14. 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 of the Act was to exclude the applicability of Section 80P of the Act 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 respondent-assessee, a co-operative Society from a Co-operative Bank. This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act. 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. 15. The amendment of Section 194A(3)(v) of the Act excluding the Co-operative Banks from the definition of \"Co- operative Society\" by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co-operative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special Date of Judgment: 16.06.2017 ITA No.100066/2016 & Connected cases The Pr. Commissioner of Income Tax, C R Building, Navanagar, Hubballi. &Anr. Vs. The Totagars Co-Operative Sale Society, Sirsi. provisions of Chapter VIA in the form of Section 80P of the Act. 8 ITA No. 5135 & 5136/Del/2024 Saini Co operative Thrift & Credit Society Vs. ITO 21. 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 Date of Judgment: 16.06.2017 ITA No.100066/2016 & Connected cases The Pr. Commissioner of Income Tax, C R Building, Navanagar, Hubballi. &Anr. Vs. The Totagars Co-Operative Sale Society, Sirsi. 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 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. Thus, in the light of the principles enunciated by the Supreme Court in Totgar's 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 9 ITA No. 5135 & 5136/Del/2024 Saini Co operative Thrift & Credit Society Vs. ITO 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. \" 10. In view of the above facts and circumstances, for the above reasoning and also by following the ratio laid down by the Hon’ble High Court of Karnataka, wherein it is held that the interest income earned by the Co- operative Society with the investment in the Co-operative Bank is not eligible for deduction u/s 80P(2)(d) of the Act, we find no error or infirmity in the order of the Ld. CIT(A) in dismissing the Appeal. Finding no merits in the Grounds of Appeal of the Assessee, the Grounds of Appeal of the Assessee are dismissed. 11. In the result, Appeal of the Assessee in ITA No. 5136/Del/2024 is dismissed. ITA No. 5135/Del/2024 (Assessment Year 2021-22) 12. With regard to appeal being ITA No. 5135/Del/2024 for Assessment Year 2021-22, since the facts and the issue involved are exactly similar to ITA No. 5136/Del/2024 (A.Y 2014-15) by applying the findings and the conclusion of the order for Assessment Year 2014-15 mutatis mutandis, theAppeal of the Assessee in ITA No. 5135/Del/2024 is dismissed. Order pronounced in the open court on 30th April, 2025 Sd/- Sd/- (BRAJESH KUMAR SINGH) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Date: 30 .04.2025 R.N, Sr.P.S* 10 ITA No. 5135 & 5136/Del/2024 Saini Co operative Thrift & Credit Society Vs. ITO Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "