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TaxTMI 
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2020 (3) TMI 631
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....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 assessee received interest of Rs. 6,21,99,978/- on FDRs placed with Jaipur Central Coopera....
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..... 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 FDR with co-operative bank and not on the amount deposited with other co-operative societies a....
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....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 is Rs. 40,63,525/-. Thus, when expenditure on interest is lower than the interest income earned on FDRs, no part of interest expenditure can be attributed to the earning of in....
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....st 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 treated as cooperative societies for the purpose of the interest income on investment in such cooperative bank u/s 80P(2)(d) the Mumbai Bench of this Tribunal in case of Lands End Co-operative Housing Society Ltd. Vs. ITO(supra), after considering the decision of the Hon'ble Supreme Court....
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....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 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 wh....
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....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 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 ....
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....terest 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 regard to interest derived from the co-operative 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....
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....us, 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 would be included in the words 'Co-operative Society'. 10. Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said amount of interest earned from a Cooperative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent. 11.....
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....ny 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 material available on record. We find that our indulgence in the present appeal has been sought to adjudicate as to whether the claim of the assessee for deduction under section 80P(2)(d), in respect of interest income earned from the investments made with the co-operative banks is in order or not. We find that the issue involved in the present appeal hinges around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P, as had been made available on the statute by the legislature vide the Finance Act 2006, with effect from 01.04.2007. We find that the lower authorities had taken a vie....
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....) 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 thoughtful consideration to the issue before us and are of the considered view that as long as it is proved that the interest income is being derived by a cooperative society from its investments made with any other cooperative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We may herein observe that the term 'co-operative society' had been defined under Sec. 2(19) of the Act, as under:- '(19) "Co-operative society" means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in an....
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....oresaid 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 the entitlement of the assessee co-operative bank towards claim of deduction under Sec.80P(2)(a)(i) of the Act. We find that it was in the backdrop of the aforesaid facts that the Tribunal after carrying out a conjoint reading of Sec. 80P(2)(a)(i) r.w. Sec. 80P(4) had adjudicated the issue before them. We are afraid that the reliance placed by the ld. D.R on the aforesaid order of the Tribunal being distinguishable on facts, thus, would be of no assistance for adjudication of the issue before us. Still further, the reliance placed by the Ld. D.R on the order of the ITAT 'SMC' Bench, Mumbai in the case of Shri Sai Datta Co-operative Credit Society Ltd. (supra), would also not be of any assist....
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.... 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 net deduction u/s 80P(2)(d) of the Act, in respect of interest and dividend received by the assessee from co-operative societies i.e. bank in this case. The Assessing Officer allowed deduction u/s 80P(2)(d) to the extent of net interest instead of gross interest as claimed by the assessee and disallowed the excess claim of deduction in this regard for all the years under consideration. The amount disallowed by the Assessing Officer and deduction granted by the Assessing Officer is tabularized and recorded as under: Particular Assessment Years 1991-92 1992-93 1993-94 1994-95 Dividend - From co- op societies 9743 48000 3491 42674 Interest (As shown in the return of income) 1022699 1214259 1220756....
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....h 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 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 socie....
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....r 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, 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." 19. In light of above discussion and respectfully f....
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....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 assessee and a separate account with regard to expenditure and income on both types of income has not been maintained. It was in these circumstances that the ITO has determined the total income after apportioning the expenses to both sources of income. The words 'total income' have been defined under section 2(45) of the Act which means the total amount of income referred to in section 5 of the Act, computed in the manner laid down in the Act. Subsection (1) of section 80P allows the deduction from the gross total income. An assessee may have income from different sources and that income so computed would form the total income. As per section 80B(5) the gross total income means the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. When an assessee has income from different sources, the total income fr....
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....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. The legal proposition thus laid down by the Hon'ble High Court is that the income exempted under section 80P(2) has to be arrived at separately in order to determine the income under section 80P(2) and it can never be envisaged that the total income which has been so received could be allowed without deducting the expenditure incurred in earning the income. In light of the same, the deduction u/s 80P(2)(d) can be allowed only on the net receipt after deducting the expenditure incurred for earning exempt income. Therefore, in the instant case, it needs to be determined whether the assessee has incurred any interest expenditure in earning the interest income. 15. In this regard, the ld CIT(A) has allocated the whole of the interest expenditure over the interest on FDRs and to the extent of interest attributable to FDRs placed with JCCB, the same has been reduced while wo....
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....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 decision of Hon'ble Rajasthan High Court in assessee's own case for the earlier years. 17. In this regard, we refer to the decision of the Hon'ble Rajasthan High Court dated 11.09.2017 wherein in D.B Appeal No. 122/2006, the question of law admitted by the Hon'ble Rajasthan High Court reads as under:- "Whether in the facts and circumstances of the case the ITAT was justified in law in deleting the additions made by the Assessing Officer by way of disallowance of Rs. 11407817/- paid as contribution to 'sparsh trust' registered u/s 12AA of the income tax act, 1961 treating the same is business expenditure in place of donation allowable u/s 80G of the I.T. 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 in income." 18. The Hon'ble High Court referred to the decisio....
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....3(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, therefore, deduction under section 80G is allowable whereas the facts are otherwise. The assessee has not made any donation but has contributed to the trust for a specific purpose i.e. to incur the expenditure to get better milk from milk animal. Various case laws relied upon by assessee are in support of the case of the (16 of 27) [ITA-234/2012] assessee. We are not going into detail in respect to those cases as they have already been mentioned in the written submissions which are reproduced herein above. In view of these facts and circumstances, we hold that the expenditure/contribution made by assessee is allowable as business expenditure. Accordingly, the addition made and confirmed by the lower authorities is deleted. 12. After considering the orders of the AO and ld. CIT (A) and written submissions, we find that the assessee deserves to succeed in this ground also. It is seen that expenditure cl....