TaxTMI 
TaxTMI 
2019 (10) TMI 759
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.... the amount of interest income from JCCB at Rs. 1,46,40,834/- instead of Rs. 1,49,40,834/-. 2.1 The ld. CIT(A) has erred on facts and in law in not considering that investment in FDRs is made out of own funds and borrowed funds has been utilized for business purpose and therefore, no interest expenditure can be attributed for earning the interest income." ITA. No. 633/JP/2019 (For A.Y 2011-12) "Whether in the facts and circumstances of the case and in law, the CIT(A) is correct in holding that the income received from investments made with Jaipur Central Co-operative Bank is eligible for deduction u/s 80-P(2)(d) of the I.T. Act, 1961 and thereby justified in allowing relief of Rs. 1,49,40,834/-." ITA. No. 513/JP/2019 (For A.Y 2012-13) "1. The Ld. CIT(A) has erred on facts and in law in upholding the validity of the order passed by AO u/s 147 of IT Act, 1961. 2. The Ld. CIT(A) has erred on facts and in law in holding that interest expenditure to the extent of Rs. 95,12,659/- is attributable to the interest income of Rs. 1,59,92,544/- earned on FDRs maintained with Jaipur Central Cooperative Bank Ltd., thereby disallowing deduction u/s 80P to this extent....
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....ade in co-operative society and not available if interest is received from investment made in co-operative bank drawing support from the provisions of section 80P(4) of the Act. Accordingly, the AO disallowed the claim of deduction u/s 80P at Rs. 1,49,40,834/-. 5. On appeal, the Ld. CIT(A) held that Jaipur Central Cooperative Bank is a cooperative society. The assessee is also a cooperative society. Thus, deduction u/s 80P(2)(d) is admissible to the assessee in respect of income by way of interest or dividend derived by the assessee (cooperative society) from its investment with any other cooperative society (Jaipur Central Cooperative Bank). However, she held that the total interest income of the assessee is Rs. 5,86,88,487/- against which total interest expenditure is Rs. 3,52,41,527/-. Therefore, the interest expenditure attributable to the interest income of Rs. 1,46,40,834/- from JCCB would be Rs. 87,91,593/- (Rs. 3,52,41,527*Rs. 1,46,40,834/ Rs. 5,86,88,487). Thus, the net interest income from JCCB would be Rs. 58,49,241/- (Rs. 1,46,40,834- Rs. 87,91,593). Accordingly, the AO was directed to allow deduction of Rs. 58,49,241/- u/s 80P(2)(d). 6. During the course of h....
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.... u/s 80P(2)(d) to that extent. 8. In this regard, it was submitted that assessee has earned interest of Rs. 1,49,40,834/- on FDRs in Jaipur Central Cooperative Bank and not Rs. 1,46,40,834/- as stated by Ld. CIT(A). Further, the assessee has not incurred any interest expenditure in earning the interest income on FDR with Jaipur Central Co-operative Bank. This is because assessee has invested its own funds for making investment in FDR which is evident from the fact that assessee has interest free funds of Rs. 49,97,82,216/- as on 31.03.2011 against investment in FDR of Rs. 97.48 cr., out of which investment in FDR with JCCB is Rs. 20 cr. as per the following details:- Share Capital Rs. 36,92,54,756/- Accumulated Profits Rs. 7,95,17,731/- Profits for the year Rs. 5,10,09,729/- -------------------- Rs. 49,97,82,216/- Thus, interest free fund is much more than the investment in FDR with JCCB. It is a settled law that if both interest free funds and interest bearing funds are available, then presumption would arise that investments would be out of the interest free funds....
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.... 104,13,19,000/- Investment in Stock and debtors -Sundry Debtors -Stock in trade 59,44,28,770/- 68,52,81,030/- Total investment in stock and debtors 127,97,09,800/- 127,97,09,800/- Thus, the entire borrowed funds are utilised for the purpose for which it is taken and therefore, no part of interest expenditure can be attributed to earning of the interest income. In view of above, it was submitted that the AO be directed to allow deduction u/s 80P(2)(d) as claimed by the assessee by dismissing the ground of the department and allowing the ground of the assessee. 11. The ld DR was heard who has vehemently argued the matter and supported the findings of the lower authorities. He took us through the findings of the AO and the ld CIT(A) which we have already taken note of and hence, not repeated for sake of brevity. 12. We have heard the rival contentions and perused the material available on record. The issue under consideration is whether the interest income on FDRs placed by the assessee cooperative society with Jaipur Central Cooperative Bank Ltd i....
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....in the case of Totagar's Co-operative Sale Society Ltd. In the case of Totagar's Cooperative Sale Society Ltd v/s ITAT (supra) the Hon'ble Supreme Court while interpreting the section 80P(2)(a)(0 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 Cooperative society is engaged in carrying on business of banking or providing credit facilities to its members and consequently no deduction is allowable u/s 80P(2)(a)(i) of the Act. Whereas in the case before us the issue is whether a cooperative society which has derived income on investment with cooperative banks is entitled to deduction u/s 80P(2)(d). The provisions of Section 80P(2)(d) of the Act provide deduction in respect of income by way of interest or dividend on investments made with other Cooperative society. For the purposes of better proper understanding of these two provisions the relevant extract of the section are reproduced below: 80P: Deduction in respect of income of co-operative Societies. 1. Where, in the case of an assesssee being a co-operative society, the g....
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....come from other sources and deduction u/s 80(P)(2)(a)(0 would not be available meaning thereby that deduction u/s 80(P)(2)(a)(0 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 these facts and circumstances we are of the considered view that the assessee is entitled to the deduction of Rs. 14,88,107/-in respect of interest received/derived by it on deposits with coop. banks and therefore the appeal of the assessee is allowed by reversing the order of the CIT(A). The AO is directly accordingly." 6.2 We further note that the Hon'ble Jurisdictional High Court in the case of CIT vs. Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd. (supra) by following the decision of Hon'ble Gujarat High Court in the case of Surat Vankar Sahakari Sangh Ltd. Vs. ACIT, 72 taxmann.com 169 has held in as under:- "8. We have considere....
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.... 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 aggregate paid interest to the bank and, therefore, no deduction under Section 80P(2)(d) can be allowed. To appreciate this argument, we have to look to the provisions of Section 80P(2)(d) of the Act, For facility of reference, it is reproduced as under : "80P. (2)(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society, the whole of such income." 6. So far as the principle of interpretation applicable to a taxing statute is concerned, we can do no better than to quote the by-now classic words of Rowlatt J., in Cape Brandy Syndicate v. IR....
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....ur 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, the loan was taken for business purpose more particularly purchase of yarn and not for fixed deposits. 9. In view of the above, the questions raised in the present appeals are answered in favour of the assessee and against the revenue. The order passed by the Tribunal is accordingly quashed and set aside." 6. Further the Hon'ble Karnataka High Court in case of PCIT and Another vs. Totagars Co-operative Sale Society 392 ITR 0074 as relied upon by the Ld. AR of the assessee as held in para 7 to 11 as under:- "7. However, the contention being taken by the learned counsel is untenable. For the issue that was before the ITAT, was a....
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....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." 14. Therefore, in light of the aforesaid decision, in the instant case, for the purposes of section 80P(2)(d) of the Act, Jaipur Central Cooperative Bank Ltd shall be treated as a co-operative society. Therefore, 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. 15. Now, coming to a related issue as to whether by virtue of provisions of Section 80P(4) of the Act, the claim of the assessee under section 80(P)(2)(d) can be denied to the assessee society. The relevant provisions of section 80P(4) reads as under: "(4) The provisions of this section shall not apply in r....
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....ere neither Primary Agricultural Credit Society nor a Primary Cooperative Agricultural and Rural Development Bank, therefore, the interest income earned on such investments would not be entitled for claim of deduction under Sec. 80P(2)(d) of the Act. 7. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to be in agreement with the view taken by the lower authorities. Before proceeding further, we may herein reproduce the relevant extract of the said statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. "80P(2)(d) (1) Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a) to (c)** ** ** (d) in respect of any income by way of interest or dividends derived by the co-operative society from its....
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....e for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank, would be entitled for claim of deduction under Sec.80P(2)(d) of the Act. 8. We shall now advert to the judicial pronouncements that had been relied upon by the authorized representatives for both the parties and the lower authorities. We find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) for the interest income derived from its investments held with a cooperative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. (supra) (ii) Sea Green Cooperative Housing and Society Ltd. (supra) (iii) Marwanjee Cama Park Cooperative Housing Society Ltd. (supra). We further find that the Hon'ble High Court of Karnataka in the case of Totagars Cooperative Sale Society(supra) and Hon'ble High Court of Gujarat in the case of State Bank Of India (supra), had also held that the interest income earned by the assessee on its investments held with a co-operative bank would be eligible for claim o....
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....t as held by the Hon'ble High Court of Bombay in the case of K. Subramanian v. Siemens India Ltd. [1983] 15 Taxman 594/[1985] 156 ITR 11 (Bom), where there is a conflict between the decisions of non-jurisdictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Thus, taking support from the aforesaid judicial pronouncement of the Hon'ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Totagars Cooperative Sale Society(supra) and Hon'ble High Court of Gujarat in the case of State Bank Of India (supra), wherein it was observed that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9. We thus in the backdrop of our aforesaid observations are unable to persuade ourselves to be in agreement with the view taken by the lower authorities that the assessee would not be entitled for claim of deduction under Sec. 80P(2)(d), in respect of the interest income on the investments made with the cooperative ban....
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.... the learned advocate for the assessee shall be applicable on the facts of the present case. In the case of K. Nandakumar v. ITO [1993] 204 ITR 856/[1994] 72 Taxman 223 (Ker.), the Kerala High Court has held as under: '4. The effect of Section 80AB is that, for the purpose of computing the deduction under Section 80L, the amount of income of that nature as computed in accordance with the provisions of the Act shall alone be deemed to be the amount of income of that nature. What the section means is that the net income by way of interest computed in the manner provided by the provisions of the Act shall alone be taken into account for computing the benefit. But it must be noted that payment of interest under a loan transaction incurred for the purpose of deriving income from business is not an item which arises in the computation of interest income "in accordance with the provisions" of the Act. The said amount has to be paid irrespective of whether any interest income is otherwise received or not. Though the interest is payable to the same bank, the fact remains that the amount of income by-way of interest is not calculated under the provisions of the Act with reference to s....
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....ntendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used," 7. The principle laid down by Rowlatt J., has also been time and again approved and applied by the Supreme Court in different cases including the one, Hansraj Gordhandas v. H. H. Dave, Assistant Collector of Central Excise and Customs, AIR 1970 SC 755, 759. 8. Section 80P(2)(d) of the Act 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. This provision does not make any distinction in regard to source of the investment because this Section envisages deduction in respect of any income derived by the co-operative society from any investment with a 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 the 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 learned c....