2022 (1) TMI 1027

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.... Income Tax (Appeals) - XX, Ahmedabad has erred in not allowing the deduction directly u/s. 80P(2)(a)(i) of the I.T.Act, 1961 amounting of Rs. 24,99,916=00 and erred in not properly appreciating the explanation and submission of the appellant. 3. The Id. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in not allowing the deduction u/s. 80P(2)(d) of the I.T.Act, 1961 amounting to Rs. 72,39,179=00 and erred in not properly appreciating the all explanation and submission of the appellant. 4. The Id. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in not appreciating the fact, that the provisions of section 80P(4) being not applicable, considering the facts of the case of the appellant, and as such erred in not granting the deduction u/s. 80P(2)(a)(i) and u/s. 8QP(2)(d) as claimed and also in not properly appreciating the judgement of Hon'ble Guj. High Court given in the case of CIT Gandhinagar v. Jafri Momin Vikas Co-operative Credit Society Ltd passed vide order dated 15/01/2014. 5. The Id. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in holding that Cso-operative Banks are not at par with cooperative soci....

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....nts under the statute was of the view that the assessee is engaged in the activity of banking business and therefore the assessee is not eligible for deduction by virtue of the amended provisions of section 2(24) clause (viia) and 80P(4) of the Act. Thus the deduction claimed by the assessee for Rs. 95,65,459/- was disallowed and added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to the learned CIT (A) who found that the total deduction claimed by the assessee for Rs. 95,65,459/- comprises of the following elements of income: i. Interest income of Rs. 24,99,916/- ii. Interest and dividend income from the co-operative banks of Rs. 72,39,179./- 6. The learned CIT (A) observed that the provisions of section 80P(4) of the Act does not deny to extend the benefit of the deduction to co-operative society. Accordingly, the learned CIT (A) concluded that the deduction claimed by the assessee cannot be denied under section 80P(4) of the Act. 6.1 However, the learned CIT (A) was of the view that interest income of Rs. 24,99,916/- shown by the assessee if it includes the interest on the deposits made with the nationalized bank will n....

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....n 80P(2)(a)(i) of the Act. If such interest income is included in the interest income shown by the assessee, then to that extent the assessee will not be eligible for the deduction under the provisions of section 80P(2)(a)(i) of the Act. The direction of the learned CIT(A) was unambiguous and clear. Therefore we do not find any merit in the ground of appeal raised by the assessee. At the time of hearing the learned AR also did not advance any argument qua the direction of the learned CIT (A) by pointing out any infirmity. 10.1 However, before parting, is pertinent to note that the provisions of section 57 of the Act provides for the deduction of the expenses which have been incurred in generating the income i.e. income from other sources. In the present case if there is income on the deposits made with the nationalized bank, then the corresponding expenses in the nature of interest which has been incurred by the assessee in generating such income shall be allowed. In other words, the only net of interest income from the deposits made with the banks will only be excluded while calculating the amount eligible for deduction under section 80P(2)(a)(i) of the Act. With this observati....

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.... is that now the investments and deposits after the Supreme Court's decision against the assessee in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC), the assessee herein has shifted the deposits and investments from Schedule Banks to Co-operative Bank and such Cooperative Bank is essentially a Co-operative Society also and clause (d) allows deduction of income by way of interest or dividends derived by the assessee cooperative Society from its investments with any other co-operative Society. [Para 11] The sheet anchor of the contention of the assessee misses two essential points required for claiming the deduction from gross total income for a co-operative society; (i) that the character or nature of income, namely interest on investments or deposits, does not change irrespective of the fact whether it is earned or received from a Schedule Bank or Co-operative Bank, (ii) that What the Supreme Court held in the case of the assessee itself, against assessee, was that such interest income on its surplus and idle funds not immediately required for its business, is not income from business taxable under section 28 of the Act, but was taxable....

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....efinition of 'Co-operative Society' by Finance Act, 2015 and requiring them to deduct tax at source under section 194A also makes the legislative intent clear that the cooperative banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of chapter VIA in the form of section 80P of the Act. [Para 15] If the legislative intent is so clear, then it cannot be contended that the omission to amend clause (d) of section 80P(2) of the Act at the same time is fatal to the contention raised by the revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operatve bank, even though the Supreme Court's decision in the case of assessee itself is otherwise. [Para 16] As stated above, it is the character and nature of income which determines its taxability or exemption from taxability. It is needless to say that the provisions relating to exemption and deduction need to be strictly construed and no liberal interpretation or intendment can be inferred in such provisions. What was clearly held to be not exempt and not deductible under section 80....