TaxTMI 
TaxTMI 
2020 (3) TMI 631
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....fore, no interest expenditure can be attributed for earning the interest income." Grounds of Revenue's Appeal: "1. Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance made by the AO on account of payment made to 'sparsh trust' of Rs. 1,43,57,553/- registered u/s 12A of the IT Act 1961, treating the same as business expenditure in place of donation allowable u/s 80G of the IT Act 1961 despite the fact that the said receipt of donation was declared by the trust as donation income and corresponding expenditure was claimed as application of income." 2. Whether in the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of Rs. 2,15,18,255/- made by the AO on account of deduction claimed u/s 80P(2)(d) of the I.T Act, 1961 as the same was earned by way of investment made with the co-operative banks and not eligible for deduction u/s 80P(2)(d)." 2. Firstly, we take up Ground No. 1 and 1.1 of the assessee's appeal and the Ground No. 2 of the Revenue's appeal. Briefly stated, the facts of the case are that during the year under consideration, the ass....
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....rest income on FDR's amounting to Rs. 6,21,99,978/- from Jaipur Central Co-operative Bank Ltd. It is a bank registered under 'The Rajasthan Co-operative Society Act, 2001.' Thus, interest income claimed as deduction u/s 80P of the Act is available to the assessee as the Jaipur Central Co-operative Bank Ltd. is a cooperative society. The Ld. CIT(A) has therefore, rightly held that deduction u/s 80P(2)(d) is available to the assessee in respect of interest received from another cooperative society. Reliance in this connection is placed on the decision of ITAT, Jaipur Bench in case of ITO Vs. Shree Keshorai Patan Sahakari Sugar Mill (ITA No. 418 & 419/JP/2017 order dated 31.01.2018). In this case, assessee is a co-operative sugar mill. It claimed deduction u/s 80P(2) & 80P(2)(d) in respect of interest of Rs. 2,65,43,870/- on fixed deposits with co-operative banks. AO disallowed the deduction holding that assessee is not carrying out banking business nor the income is derived from providing any credit facilities to its members. The Ld. CIT(A) allowed claim of deduction u/s 80P in respect of entire amount. The Ld. D/R submitted that assessee has earned income on account of interest on F....
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.... to funds given to subsidiaries is allowable as deduction under sec. 36(1)(iii)". Hence, the observation of Ld. CIT(A) that assessee has incurred interest expenditure of Rs. 4,06,81,723/- to earn the interest income of Rs. 6,21,99,978/- from JCCB in incorrect. 8. It may be noted that the position of interest expenditure incurred and interest income earned are reflected in the profit & loss account are as under:- Interest Income - Interest on FDR - Interest on Others 17,33,56,089/ - 1,81,83,070/- Total interest income 19,15,39,159/- 19,15,39,159/- Interest Expenditure - Interest on OD - Interest on DCS - Interest on TL - Interest on WC 5,53,54,110/- 2,83,95,324/- 4,93,322/- 4,10,22,900/- Total interest expenditure 12,52,75,656/- 12,52,75,656/- Net interest income 6,62,63,503/- Less: Interest received on FDR with JCCB 6,21,99,978/- Net interest income other than interest from JCCB 40,63,525/- From the above table it can be noted that even if interest from JCCB is excluded, the net interest income declared by the assessee i....
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....), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a) .............. (b) .............. (c) .............. (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." 13. The aforesaid provisions have been examined at length by this Bench in case of ITO Vs. Shree Keshorai Patan Sahakari Sugar Mill (Supra) and the relevant findings are reproduced as under: "6.1 As regards the claim u/s 80P(2)(d), we find that the only condition for availing the deduction under this provision is any income by way of interest or dividend derived by the Cooperative Society from its investment with any other cooperative society, the whole of such income is allowable for deduction u/s 80P(1). Therefore, there is no condition for the assessee society to engaged in the activity of provide credits to the Members or banking business for availing the deduction u/s 80P(2)(d) read with section 80P(1) of the Act. As regards the cooperative bank shall be ....
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....following, namely:- (a) In the case of a co-operative society engaged in- (i) Carrying on the business of banking or providing credit facilities to its members. The whole of the amount of profits and gains of business attributable to any one or more of much attributes. (d) In respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income." From the close 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)(d)(i) in respect of its income assessable as business income and not as income from other sources if it carries on busi....
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....axman 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 such outgoings which fall under different heads. The assessee is entitled to deduction under Section 37 of all expenditure incurred for the purpo....
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.... 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 co-operative 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 counsel for the Revenue. The provision does not indicate any such adjustment in r....
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.... For, if a Co-operative Bank is considered to be a Co-operative Society, then any interest earned by the Co-operative Society from a Cooperative Bank would necessarily be deductable under Section 80P(1) of the Act. 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 "Cooperative 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 Cooperative 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 "Co-operative 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 woul....
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....-operative agricultural and rural development bank." 16. The Coordinate Bench in case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd. vs Income-tax Officer-21(2)(1), Mumbai [2018] 94 Taxmann.com 15 had an occasion to examine similar contention and it was held that though the co-operative bank pursuant to the insertion of Sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, however, as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state 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. We see no reason to deviate from the same and agree with the aforesaid view taken by the Co-ordinate Bench and. The relevant findings of the Co-ordinate Bench read as under: "6. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the mat....
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.... Thus, from a perusal of the aforesaid Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee co-operative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of Sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of the interest income on their investments parked with a co-operative bank. We have given a thoug....
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.... Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, as had been relied upon by the ld. A.R, also makes it clear beyond any scope of doubt, that the purpose behind enactment of sub-section (4) of Sec. 80P was to provide that the cooperative banks which are functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. We are of the considered view that the reliance placed by the CIT (A) on the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. (supra) being distinguishable on facts, thus, had wrongly been relied upon by him. The adjudication by the Hon'ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a co-operative society towards deduction under Sec. 80P(2)(d) on the interest income on the investments parked with a co-operative bank. We further find that the reliance place by the ld. D.R on the order of the ITAT "F" bench, Mumbai in the case of Vaibhav Cooperative Credit Society (supra) is also distinguishable on facts. We find that the said order was passed by the Tribunal in context of adjudication of....
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....ower authorities and conclude that the interest income of Rs. 27,48,553/-earned by the assessee on the investments held with the co-operative bank would be entitled for claim of deduction under Sec. 80P(2)(d). 17. In light of above, by virtue of provisions of Section 80P(4) of the Act, the claim of the assessee under section 80(P)(2)(d) cannot be denied to the assessee society. 18. Another issue that arise for consideration is whether deduction u/s 80P(2)(d) shall be allowed on the gross interest income on FDRs or it should be allowed on the net interest income calculated after deducting the interest expenditure allocable to funds placed in form of FDR. Though the assessee has challenged the findings of the ld CIT(A) to the effect that it has not incurred any interest expenditure, we find that there is no necessity to examine the same as conceptually, the deduction under section 80P(2)(d) has to be allowed on gross and not on net interest income as held by the Hon'ble Gujarat High Court in case of Surat Vankar Sahakari Sangh Ltd vs ACIT [2016] 72 Taxmann.com 169 (Guj) wherein it was held as under: "3. In all the four appeals, the common issue is grant of ....
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....h outgoings which fall under different heads. The assessee is entitled to deduction under Section 37 of all expenditure incurred for the purpose of deriving the business income, and it is under that head that the interest paid on the loan taken from the bank is deducted. The net amount of interest contemplated by Section 80AB should take in the net amount arrived at after meeting the expenses deductible from that item under the provisions 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....
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....ny adjustment as sought to be made out by learned counsel for the Revenue. The provision does not indicate any such adjustment in regard to interest derived from the cooperative society from its investment in any other co-operative society. Therefore, we do not agree with the argument advanced by learned counsel for the Revenue. In our opinion, the learned Tribunal was right in law in allowing deduction under Section 80P(2)(d) of the Income- tax Act, 1961. in respect of interest 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 possib....
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....ibunal and therefore, to this extent the decision rendered by the Co-ordinate Bench for earlier years stand distinguishable. In the case of Rajasthan Rajya Sahkari Upbhokta Sangh Ltd (supra), the Hon'ble Rajasthan High Court has held as under:- "3. We have considered the arguments of the learned counsel for the revenue. The provisions of section 80P contemplate the deduction of income of co-operative societies. It is provided under sub-section (1) that 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 that section, the sums specified in sub-section (2) in computing the total income of the assessee. Sub-section (2)(d) refers to the sum in respect of income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income. So far as determining the eligibility for exemption is concerned, it is not in dispute that the expenses pertain to income which is taxable and non-taxable. A composite account has been maintained by the assess....
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....nt of profits and gains of business attributable to any one or more of such activities' appearing at the end of sub-section (2) of section 80P could be only for such income which is attributable to the activities which are exempted. In order to ascertain the real profit, the expenses incurred in earning the said income has to be deducted. In the present case, the Tribunal has found that allowing the deduction for commission at 50 per cent of the receipts is justified. The Tribunal has relied upon the decision in the case of Cloth Traders (P.) Ltd. v. Addl CIT [1979] 118 ITR 243 (SC), which was overruled by the Apex Court in the case of Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120. Following the decision of this Court in the case of CIT v. Loonkar Tools (P.) Ltd. [1995] 213 ITR 721, DBITR Application No. 1 of 1987, decided at Jodhpur on 21-7-1994, we are of the view that the Tribunal was not justified in holding that the assessee is entitled to deduction under section 80P(2)(d) of the entire interest and not the net receipts. We are also of the opinion that the Tribunal was not justified in granting the exemption of Rs. 2,49,948 to the assessee." 14. T....
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....he same reflect the position subsequent to deployment of funds in FDRs which were placed sometime during the year and not at the end of the year. Further, whether such interest free funds at the yearend are liquid funds or are represented by fixed assets and other currents. In case, there are no liquid funds and all the funds are deployed in fixed and current assets, then the said theory of interest free funds doesn't support the case of the assessee. Though the ld AR has submitted some figures, however, we find that the matter require further information and verification and in absence of findings of the lower authorities, for the limited purposes of verification of the aforesaid contention, the matter is set-aside to the file of the ld CIT(A) to examine the same afresh. In the result, the respective grounds of appeal are disposed off. 16. Now coming to the Ground No. 1 of the Revenue's appeal wherein the Revenue has challenged the action of ld CIT(A) in deletion of disallowance made by the AO of payment made by the assessee to Sparsh Trust and claimed as an business expenditure. In this regard, both the parties fairly submitted that the matter is squarely covered by the decisi....
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....providing vaternity care, regular treatment, emergency care, preventive care, breed improvement through A.I. uninterrupted supply of nutritional supplements etc. Therefore, in our considered view, contribution made by assessee to this trust is an expenditure incurred wholly and exclusively for the purpose of business which is allowable under section 37(1). From the Income and Expenditure account of the Trust, it can be noted that it has incurred an expenditure of Rs. 80,35,447/- in pursuance of its objective and after considering the receipts, there is a deficit of Rs. 23,48,303/- to the trust in the year under consideration. Such deficit is met out of the contribution made by the assessee to the trust. It is further seen that before creating this Trust, the assessee was incurring all these expenses itself and all theses expenses were allowed by the department while completing assessment under section 143(3). Therefore, this is not a case that assessee has made any donation to any Trust and, therefore, the same cannot be allowed as business expenditure. The ld. CIT (A) has disallowed the claim of the assessee by observing that since assessee has made donation under section 80G and,....