TaxTMI 
TaxTMI 
2018 (2) TMI 499
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.... Society and was running a sugar mill, however the sugar mill stood closed since the year 2003, and is under liquidation. The assessee filed its return of income on 30/10/2013 declaring nil income, after claiming the deduction u/s 80P(2) and u/s 80(P)(2)(b) of Rs. 2,65,43,871/-. The AO denied the claim of the assessee on the ground that the assessee is not carrying out banking business or the income is derived from providing credit facilities to its members as per section 80P(2)(a)(1) of the Act . The assessee challenged the action of the AO before the Ld. CIT(A). The Ld. CIT(A) has allowed the claim of deduction u/s 80P in respect of the entire amount of Rs. 2,65,43,871/-. Aggrieved by the order of the Ld. CIT(A), the Revenue has filed the present appeal. 4. Ld. D/R has submitted that the assessee has earned the income on account of interest on FDRs with Co-operative Bank and not an amount deposited with other Co-operative societies and therefore the deduction u/s 8P(2)(d) is not available on such interest income. He has further contended that a part of the income has been derived from the deposits made with banks and not even with co-operative banks. Therefore, the deduction u/s....
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.... out of which interest earned on the deposits in saving bank with SBBJ of Rs. 34,779/-. The balance interest received by the assessee is from the deposits made with cooperative banks except the small amount of Rs. 3,221/- as interest on mollasses fund. After reducing the interest paid on FDR loans from Bundi Central Co-operative Bank of Rs. 20,03,200/-, the net interest income was declared by the assessee at Rs. 2,65,43,871/-. The assessee claimed deduction u/s 80P(2)(c)(ii) in respect of the interest deposit in saving bank with SBBJ of Rs. 34,779/- and deduction u/s 80P(2)(d) in respect of the interest from cooperative banks of Rs. 2,65,09,092/-. The AO disallowed the claim of the assessee in toto, on the ground that the assessee is not in the business of banking or not providing credit facilities to its members. The Ld. CIT(A) allowed the claim of the assessee by following the various decisions of the Hon'ble High Court as well as this Tribunal as under:- "The brief facts of the case are that the assessee had claimed deduction u/ s 80P (2)(d) of the Act in respect of interest of Rs. 2,65,43,870/ - on fixed deposits with Coop. Banks. The AO disallowed the said deduction as claim....
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....nking or providing credit facilities to its members and consequently no deduction is allowable u/s 80P(2)(a)(i) of the Act. Thus, from a perusal of the provisions of u/s 80P(2)(a)(i) and 80P(2)(d) it is clear that the former deals with deduction in respect of profits and gain of business in case of the co-operative society carrying on business of banking or providing credit facilities to its members if the said income is assessable as income from business whereas latter provides for deduction in respect of income by way interest and dividend derived by assessee from its investments with other cooperative society. Thus it is amply clear that a cooperative society can only avail deduction u/s 80P(2)(a)(i) in respect of its income assessable as business income and not as income from other sources if it carries on business of the banking or providing credit facilities to its members and has income assessable under the head business whereas for claiming u/s 80P(2)(d) it must have income of interest and dividend on investments with other Co-operative society may or may not be engaged in the banking for providing credit facilities to its members and the head under which the income is a....
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....d. vs. ITO (Supra), after considering the decision of the Hon'ble Supreme Court in case of Totagar's Co-operative Sale Society Ltd. Vs. ITO (Supra) has considered and decided this issue in para 8.3 as under:- "8.3 We have heard the rival submissions and perused the material on record. We find that the CIT(A) enhanced the income of the assessee by rejecting the deduction u/s 80P(2)(d) of the Act of Rs. 14,88,107/- being interest on investment with other Coop. banks by following the decision in the case of Bandra Samruddihi Co-operative Housing Society Ltd.(Supra) which was passed on the basis of the decision passed by the Hon'ble Supreme Court in the case of Totagar's Co-operative Sale Society Ltd. In the case of Totagar's Co-operative Sale Society Ltd v/s ITAT (supra) the Hon'ble Supreme Court while interpreting the section 80P(2)(a)(i) of the Act held that surplus funds not immediately required in the business and invested in the short term deposit would be assessable under the head "income from other sources" where the Co-operative society is engaged in carrying on business of banking or providing credit facilities to its members and consequently no deduction is....
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....d in the banking for providing credit facilities to its members and the head under which the income is assessable is not material for the claim of deduction under this section. Now will evaluate the assessee's case in the light of the decision of the Hon'ble Supreme court. The Honble Supreme Court in the case of Totagar's Co-operative Sale Society Ltd.(Supra) held that a society has surplus funds which are invested in short term deposits where the society is engaged in the business of banking or providing credit facilities to its members in that case the said income from short term deposits shall be treated and assessed as income from other sources and deduction u/s 80(P)(2)(a)(i) would not be available meaning thereby that deduction u/s 80(P)(2)(a)(i) is available only in respect of income which is assessable as business income and not as income from other sources. Whereas in distinction to this , the provisions of section 80(P)(2)(d) of the Act provides for deduction in respect of income of a coop society by way of interest or dividend from its investments with other coop. society if such income is included in the gross total income of the such coop society. In view t....
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....isions of the Act as explained above. That is not the case here. Therefore, Section 80AB has no application to the facts of these cases. The interest paid on the loan transactions has to be deducted from the business income, and not from the interest received from the bank on the fixed deposits. The assessees were therefore right in the submissions which they made before the Commissioner of Income-tax in the revision petitions which they filed. This aspect of the matter has been overlooked by the Commissioner in passing the order, exhibit P-5.' 8.1 Similarly, in the case of Doaba Co-operative Sugar Mills Ltd (supra), the Punjab & Haryana High Court has held as under: '5. The contention of Mr. Gupta, learned counsel appearing for the Revenue, is that the Tribunal was wrong in allowing deduction under Section 80P(2) (d) of the Act because it is not established that the assessee had derived the interest by investing all the amount of surplus funds. It is further contended by Mr. Gupta that the assessee has paid interest to Jalandhar Central Co-operative Bank and has also received interest from the said co- operative bank, thereby showing that the assessee has on the aggr....
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....of RS. 4,00,919 on account of interest received from Nawanshaln Central Co-operative Bank without adjusting the interest paid to the hank. Therefore, the reference is answered against the Revenue in the affirmative and in favour of the assessee.' 8.2 Moreover, the Bombay High Court in the case of Bai Bhuriben Lallubhai (supra) has held that the purpose for which the assessee borrowed money had no connection whether direct or indirect with the income which she earned from the fixed deposit and that she was not entitled to the deduction claimed under Section 12(2). The High Court held that if an assessee had no option except to incur an expenditure in order to make the earning of an income possible, then undoubtedly the exercise of that option is compulsory and any expenditure incurred by reason of the exercise of that option would come within the ambit of section 12(2) of the Indian Income-Tax Act but where the option has no connection with the carrying on of the business or the earning of the income and the option depends upon personal considerations or upon motives of the assessee, that expenditure cannot possibly come within the ambit of Section 12(2). In the present case,....
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....Officer was not justified in denying the said deduction to the assessee respondent. 11. The learned counsel has relied on the case of The Totgars Co-operative Sale Society Ltd. Vs. Income Tax. Officer,(supra). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case." 6.4 Thus, the Hon'ble High Court has held that the Co-operative Bank is considered to a cooperative society for the purpose of section 80P(2)(d). Accordingly, in view of the decisions as cited (supra), we do not find any error or illegality in the orders of the Ld. CIT(A) to the extent of the allowing the claim of the assessee u/s 80P(2)(d) in respect of interest income from deposits/FDRs with the Co-operative Banks. 6.5 So far as the issue of deduction u/s 80P(2)(c)(ii) in respect of th....