Court allows co-op society deductions on full interest under Section 80P(2)(d) for assessment years.

THE SURAT VANKAR SAHAKARI SANGH LTD. Versus ASST. COMMISSIONER OF INCOME TAX, CIRCLE-5.

THE SURAT VANKAR SAHAKARI SANGH LTD. Versus ASST. COMMISSIONER OF INCOME TAX, CIRCLE-5. - [2020] 421 ITR 134 (Guj) Issues Involved:

1. Entitlement of the assessee co-operative society to deduction under Section 80P(2)(d) for interest received from the co-operative bank.

Issue-wise Detailed Analysis:

1. Entitlement of the assessee co-operative society to deduction under Section 80P(2)(d) for interest received from the co-operative bank:

The primary issue in all four appeals (Tax Appeal Nos. 93, 94, 95, and 96 of 2008) was whether the assessee co-operative society was entitled to the entire interest received from the co-operative bank under Section 80P(2)(d) of the Income Tax Act. The amounts in question were Rs. 10,17,976/-, Rs. 9,97,298/-, Rs. 12,19,538/-, and Rs. 9,01,062/- for the assessment years 1991-92, 1992-93, 1993-94, and 1994-95 respectively.

The Assessing Officer had allowed deductions under Section 80P(2)(d) to the extent of net interest instead of gross interest, leading to a disallowance of the excess claimed deductions. The deductions granted and amounts disallowed were tabulated for clarity.

The assessee's counsel argued that similar deductions were allowed in previous years and cited several judgments, including the Apex Court decision in Excel Industries, which emphasized consistency in tax assessments. The counsel also referenced decisions from various High Courts that supported the claim for gross interest deductions under Section 80P(2)(d).

The revenue's counsel contended that the deductions should be limited to net interest, as the funds were borrowed for business purposes, and allowing gross interest deductions would be improper. The counsel cited several judgments to support this view.

Upon hearing both sides, the Court noted that the Tribunal had not challenged the decision in the case of Petlad Taluka Purchase & Sales Union Ltd., which favored the assessee. The Court also referenced the Apex Court's decision in Kaumudini Narayan Dalal, which held that the revenue could not accept a judgment in one case and challenge it in another without just cause.

The Court concluded that the assessee, having been granted the benefit of deduction in earlier years, should be granted the same for the relevant assessment years. The Court accepted the assessee's contention that the entire interest received from the co-operative bank should be deductible under Section 80P(2)(d).

The Court referenced several judgments, including those from the Kerala High Court and Punjab & Haryana High Court, which supported the view that deductions under Section 80P(2)(d) should be based on gross interest and not net interest. The Court also noted that the purpose of borrowing funds (for business purposes) did not affect the entitlement to deductions under Section 80P(2)(d).

Conclusion:

The questions raised in the appeals were answered in favor of the assessee and against the revenue. The Court quashed and set aside the order passed by the Tribunal, thereby allowing the assessee to claim deductions on the entire interest received from the co-operative bank under Section 80P(2)(d) for the relevant assessment years.