TaxTMI 
TaxTMI 
2019 (6) TMI 1703
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....o any of the above grounds of appeal or to withdraw any of them. 2. The assessee is a cooperative society registered under the Cooperative Societies Act, 1916. The assessee society is governed by the Co-operative Societies Act and Rajasthan Co-operative Rules amended from time to time. As it is apparent from the name of the assessee society, it was formed for the benefit of the employees of the Rajasthan State Government Education Department, Kota District and the said Education Department alone can become its members. The nature and purpose of the assessee society for mutual benefit of the members by accepting deposits from members and giving credit to the needy members is not in dispute. The only dispute is regarding the claim of deduction under section 80P in respect of interest received from Kota Nagarik Sahakari Bank Ltd. and on FDRs made with the Scheduled Banks was denied by the AO by applying the provisions of section 80P(4) of the IT Act. The AO disallowed the claim of deduction under section 80P(2)(d) of the IT Act on the ground that the assessee has earned interest on FDRs which is assessable under the head Income from other sources, not business income to be eligible ....
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....ell as the ld. CIT (A) has followed the decision of Hon'ble Supreme Court and, therefore, once the interest earned on the Fixed Deposits is not income from the business activity of the assessee, then the same is not eligible for deduction under section 80P(2)(a) of the Act but the same is eligible only under section 80P(2)(d) if it is earned from the deposits made in any other Co-operative Societies. The assessee has made the deposits in the banks which are cooperative banks, nationalized banks and other scheduled banks. Therefore, none of the deposits were made in the Cooperative Societies. Hence the deduction under section 80(2)(c) or (d) is not available in respect of such interest which is not the business income of the assessee. The ld. D/R has further contended that the Co-operative Bank is not covered under section 80P(2)(d) as it is not a cooperative society. 5. We have considered the rival submissions as well as the relevant material on record. The assessee society's main activity is to accept deposits from members and giving credit to the members on interest as a prudence management and in large interest of depositors of the society. The assessee is required to manage th....
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....ad 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 claimed by the by rejecting the claim of the assessee by holding that since the appellant assessee was not carrying out any commercial activities since year 2000, it was not providing any credit facilities to its members, so it was not eligible for deduction u/s 80P (2) (a) (i) and other sub sections of section 80P. From the facts of the case it is clear that the appellant which is a Cooperative Sugar Mill under liquidation since 2003, in order to compensate it for reclamation of some part of the land owned by it, the State Government has given it a compensation amount previously which had been invested in Bank deposits by the appellant & from which interest the day to day expenses are being met. The A.O. has apparently not understood the provisions involved & applied provisions of section 80P (2) (a)(i) in the case. Subsequently he has held that the society is not eligible for any other deductions u/s 80P. It is notable that the assessee sugar mill has no other income besides the interest income, being in liqu....
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....ments 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 assessable is not material for the claim of deduction under this section. 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. The ITAT, Mumbai has also held the same view in....
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....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 allowable u/s 80P(2)(a)(i) of the Act. Whereas in the case before us the issue is whether a co-operative 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 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) In the case of a co-operative society engaged....
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....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 considered the decisions cited by learned advocate for the assessee as well as the revenue. We feel that the decisions cited by 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 th....
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....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. IRC [1921] 1 KB 64, 71 : "...In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. 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 a....
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....on 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." 6.3. 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 limited one, namely whether for the purpose of Section 80P(2)(d) of the Act, a Co-operative Bank should be considered as a Co-operative Society or not? For, if a Co operative Bank is considered to be a Cooperative Society, then any interest earned by the Cooperative Society from a Co-operative Bank would necessarily be deductable under Section 80P(1) of the Act. 8. The issue whethe....
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....ee u/s 80P(2)(d) in respect of interest income from deposits/FDRs with the Co-operative Banks." Thus the Tribunal after considering the decision of Hon'ble Jurisdictional High Court in case of CIT vs. Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd. (supra) as well as the decision of Hon'ble Karnataka High Court in case of PCIT vs. Totagars Cooperative Sale Society, 392 ITR 74 (Kar.) has upheld the order of the ld. CIT (A) allowing the deduction under section 80P(2)(d) of the Act. Further, the Hon'ble Telangana & Andhra Pradesh High Court in case of Vavveru Co-operative Rural Bank Ltd. vs. CCIT (supra) has discussed this issue in detail in para 28 to 37 as under :- 28. We have carefully considered the above submissions. Before considering the effect of the various decisions cited on both sides, we think it would be ideal to look at the statutory prescription in pure and simple form. As we have indicated earlier, section 80P(2) is actually divided into six parts, categorised under clauses (a), (b), (c), (d), (e) and (f). Each one of these clauses deal with different types of co-operative societies engaged in different types of activities. The benefit made available to each one of....
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....ch income (f) A co-operative society other than (1) A housing society ; (2) An urban consumer society ; (3) A society carrying on transport business ; (4) A society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed Rs. 20,000 (twenty thousand rupees). The income by way of interest on securities and the income from house property chargeable under section 22. 29. From the tabular form presented above, it may be clear that the deductions available under clauses (a) to (c) are activity-based. The deduction available under clauses (d) and (e) are investment-based and the deduction under clause (f) is institution-based. To put it differently, (A) to be eligible for deduction under clause (a), the claim should relate to the profits and gains of business attributable to anyone or more of the activities listed in clause (a), (B) to be eligible for deduction under clause (b), the society should be a primary society engaged in supplying milk, oilseeds, fruits, etc. to named institutions, such as, Government, Local Authority, Federal Co-operative Society, or Government Company, (C) to be eligible for dedu....
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....ing the income in the construction of a godown or warehouse and letting out the same. 33. In other words, the benefit conferred by clause (d) upon all types of cooperative societies is restricted only to the investments made in other cooperative societies. Such a restriction cannot be read into clause (a), as the temporary parking of the profits and gains of business in nationalised banks and the earning of interest income therefrom is only one of the methods of multiplying the same income. To accept the stand of the Department would mean that co-operative societies carrying on the activities listed in clauses (i) to (vii), which invest their profits and gains of business either in other cooperative societies or in the construction of godowns and warehouses, may benefit in terms of clause (d) or (e), but the very same societies will not be entitled to any benefit, if they invest the very same funds in banks. Such an understanding of section 80P(2) is impermissible for one simple reason. The benefits under clauses (d) and (e) are available in general to all co-operative societies, including societies engaged in the activities listed in clause (a). Section 80P(2) is not intended t....