TaxTMI 
TaxTMI 
2025 (8) TMI 194
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....f Rs. 7,84,876/- is not business income and is not eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. 2. That the appellant craves his right to add, annul, amend, alter, withdraw and/or substitute any/or all of the grounds of appeal before the finalization of the appeal." 3. Succinctly, the fact as culled out from the records is that return of income for the assessment year 2010-11 was E-filed by the assessee on 14.10.2010 in the Office of Income Tax Officer, Ward 2(1), Jaipur vide Acknowledgement No. 171249720141010 in the status of trust declaring total income Nil. The case was picked up for the scrutiny. Notice u/s 143(2) was issued on 24.08.2011. Ld. AO noted that the details in response to query letter/order sheet notings have been filed which was placed on record by him. Books of account were produced during the course of proceedings which have been examined on test check basis with reference to the details filed as noted by the ld. AO. Ld. AO while examining the details noted that the assessee is a co-operative society and is availing deduction u/s 80P of the Act. During the year under consideration the assessee has shown income from b....
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....al before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below: "5.1 Ground No. 1: Disallowance of deduction claimed u/s 80P of the Act: 5.1.1 On perusal of the case it is observed that the Appellant, namely M/s The Bank of Rajasthan Employees Credit & Thrift Society Limited, is a co-operative Society and registered under with the Registrar of Co-operative Societies, Rajasthan, Jaipur incorporated on date 30/03/1968 vide registration No. 2427L. The Appellant is not a bank but is providing credit facilities to its members and in the instant case it is observed that the Appellant's income is mainly from two sources one is interest received on loan given to members and the other is interest received on term deposits. 5.1.2 The Appellant filed the return for the year showing total income at Rs. NIL, and claiming a deduction u/s 80P to the tune of Rs. 12,91,250/-. The Appellant has contested that the FDRs were not idle funds of the society and the same was being utilized in the business activities of providing credit facility to its members. During the Appellate Proceedings the Appellant was as....
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....lain why the addition/ disallowance made by the AO should not be upheld. 5.1.3 The Appellant has not complied with aforementioned hearing notice. Therefore, the appeal is decided based on the materials available on record. On perusal of the case, it is observed that the appellant has earned interest income from term deposits in ICIC Bank Ltd. The relevant excerpt of Form 26AS of the Appellant showing interest received from the said banks is reproduced herein under:- 5.1.4 The AO in the assessment order has stated that the Appellant had claimed the interest received as deduction under section 57 of the Income tax Act, 1961 which it is not eligible to do since it falls under the provisions of 80P(2)(a)(i) of the Act. The Appellant on the other hand has contended that interest on FDR is eligible for deduction under section 80P(2)(a)(i) of the Act by virtue of the fact that the Appellant is a cooperative society. 5.1.5 The contentions of the Appellant have been duly considered. There is no disputing the fact that the Appellant is a cooperative society and is eligible to claim deduction under section 80P of the Act. However, the provisions of section 80P categ....
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....its and gains of business attributable to any one or more of such activities: [Provided that in the case of a co-operative society falling under sub-clause (vi), or subclause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:- (1) The individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities, (2) The co-operative credit societies which provide financial assistance to the society (3) The State Government:] [(b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits, or raised or grown by its members to- (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be, or (ii) the Government or a local authority, or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), The whole of the amount of p....
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....r section 80I] [or section 80IA] [section 80J] and section 80JJ]] (4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation. For the purposes of this sub-section, - (a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b)"primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities] Section 80P provides that in a case of a Co-operative Society there shall be a deduction as provided in sub-section (2) of Section 80P of the Act." 5.1.7 From the plain reading of section 80P(2)(a)(i) it is apparent that if the Co- Operative Society is engaged in carrying of business of banking or providing credit facilities to its members, the Co-Operative society is entitled for deduction on whol....
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....ar that the provisions of Section 80P(4) are not applicable to the Appellant. In such a situation, as per the provisions of Section 80P(2)(d) of the Act, the Appellant is eligible for deduction of any income by way of interest or dividends derived by it from its investments with any other Co-operative societies only. In the instant case, the Appellant has earned interest income from nationalized banks not from other co-operative societies. 5.1.10 Further, deposits with the banks are not the core activity of the society, therefore, interest received on it is liable to be taxed. Therefore, the interest income earned by the Appellant is a taxable income and no deduction can be allowed under section 80P(2)(d) of the Act. 5.1.11 The issue of claim of deduction u/s 80P(2)(a)(i)/(ii) of the Act on interest income earned from Nationalised banks is squarely covered against the Appellant by the following decisions of the Hon'ble Apex Court and the Gujarat High Court: i) Totgars Cooperative Sales Society Ltd. Vs. ITO, (2010) 188 Taxman 282 (SC); ii) State Bank of India (SBI) Vs. CIT (2016) 72 com64 (Guj) 5.1.12 In Gujarat State Co-op Agricultur....
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....sessee Co-operative Society, except for the activities as stated in para 2 above, the Co-operative Society does not carry out any other activities from the inception of registration. 4. The funds which were ususually deposited into current accounts of the society were deposited in FDRs and same were pledged against O/D limit. The O/D account is being used for the day-to-day transaction of the Society. Thus, The FDRs were not idle funds of the society. The same is being utilised in the business activities of providing credit facility to its members. 5. The Funds which were kept in FDRs are not idle funds and the same were used in business activities, thus income from Term deposits cannot be considered income from other sources. These funds were deposited in business and income from these funds from part of profit and gains of business and therefore eligible for deduction 80P(2)(a)(i) of the Income Tax Act,1961. 6. The Assessee filed it return of income Vide E Filling Acknowledgement No 171249720141010 on dated 14/10/2023, declaring a total income of Rs. Nil after claiming a deduction of Rs. 12,91,250/- under the provision of section 80P(2)(i) of ITA 1961 ....
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.... providing loans to its members, it is only then that this funds were invested in FDR an interest was earned on them. Had the funds not been idle, they would have been used for giving credit facilities to the members of the assessee society. it is therefore clear that interest earned on term deposit is not business income from the activity of providing credit facility to its members because this interest is not received from the members. it is income from other sources and so it is not liable to deduction u/s 80P(2)(a)(i). 9. (Pg No 7 of AO Order).... Fourth paragraph , interest on term deposit is not eligible for deduction u/s 80P, gross total income will be bifurcated in the ratio of interest on loan to members s and interest on term deposit. According, gross total income from interest on loan to members will come to Rs.16,22,420/- which is eligible for deduction u/s 80P. Similarly, gross total income from interest on term deposit will come to Rs. 7,84,876/- which is not eligible for deduction u/s 80P. 10. The AO did not accept the claim of the assesse and disallowed the claim under section 80P(2)(a)(i) in respect of the disallowed earned FDR interest o....
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....4 defined the meaning of the word of "attributable to" ...... The word 'attributable' used in the said Section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (at page 93) as under:- 'As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from th....
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....cisions and considering the definition of the word "attributable to" as defined by the Apex court and the fact that the society does not carry out any other business activities except providing credit facilities to the members. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. We relied on the following judgements as under 9. The assessee, on this issue of disallowance of claimed deduction, has favorable orders from the Hon'ble ITAT and CIT(A), which are 9.1 The Hon'ble ITAT, Jaipur for the Assessment year 20213-2024 .....(PB page No 20-33) Considered the case of Royal Credit Co-operative Society Ltd., in ITA no. 221/JP/2023 and the relevant finding in that case is also reiterated in the order at page no 8 to 12 and followed the judgement at page no 14 held that Hence, taking the consistent view on the matter, we find that the issue raised by the assessee is squarely covered as per the judicial p....
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....the decision of Hon'ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. vs. ITO (supra) is not applicable in the facts of the present case as in the said case before the Hon'ble Supreme Court the amount deposited with bank did not belong to the society but it was a liability of the society to be paid to the members against the sale of agricultural produce. Thus the sale consideration received by the society to be paid to the members was kept with the bank and earned interest and according the Hon'ble Supreme Court held that such an amount was retained by the society was a liability and it was shown in the Balance Sheet on the liability side. Therefore, on the specific facts of the said case the interest income was held to be nonattributable either to the activities mentioned in section 80P(2)(a)(i) or under section 80P(2)(a)(iii) of the Act. In the case in hand, the interest income received by the assessee is on its own funds and not on the funds which is a liability towards the members. Further, this interest income is earned from the savings bank which is maintained for day to day activity of the assessee society for providing credit fac....
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....a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of Commissioner of Income Tax-III, Hyderabad Vs. Andhra Pradesh State Co-operative Bank Ltd., reported in (2011) 200 Taxman 220/12. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly, it is hereby set aside. The substantial questions of law are answered in favour of the assessee and against the revenue. 6. In addition to the above written submission, the ld. AR appearing on behalf of the assessee submitted that ; The facts of the assessee case are 1. The Assessee Co-operative Society is meant for the benefit of members of society and accepts deposits and provides credit facilities solely to its members. 2. The assessee society primarily works for the mutual benefit of the said members by accepting deposits from members and giving credit to needy members on interest. The Co-op....
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....d for the purpose. 3. The Assessee's sole object was not to invest surplus funds to earn the interest from FRDs. 4. The funds that were usually deposited into current accounts of the society were deposited in FDRs and the same were pledged against O/D limit. The O/D account is being used for the day-to-day transactions of the society. Thus, the FDRs were not idle funds of the society. The same is being utilized in the business activities of providing credit facilities to its members. Thus, In the case of assessee, the interest received from the bank is closely linked to the business of providing credit facilities; thus, it is attributable to the business of the assessee. Therefore, the profits and gains can be said to be directly attributable to the business of providing credit facilities to its members. There is a direct and proximate connection between the profits, gains, and the business of the appellant. Therefore, the Assessee is entitled to the benefits provided under section 80P(2)(a)(i) of the Income Tax Act concerning such income Thus, based on the aforementioned facts concerning the assessee, it submits that t....
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....16/JP/2023. 9. The ld DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). 10. We have heard the rival contentions and perused the material placed on record. The bench noted that the assessee in this case is challenging the solitary issue of denial of claim of deduction to the extent of Rs. 7,84,876/- u/s. 80P(2)(a)(i) of the Act. The facts of the case as it emerges from the records are that the assessee received the interest on term deposit of Rs. 28,83,835/- and the ld. AO noted that the assessee is not entitle to claim the deduction to that extent u/s 80P(2)(a)(i) of the Act. Accordingly, gross total income from interest on loan to members is Rs. 16,22,420/- which is eligible for deduction u/s. 80P and thereby claim to the extent of Rs. 7,84,876/- was denied to the assessee. When the matter carried before the ld. CIT(A) he confirmed the denial of deduction on the ground that the assessee being co-operative society their claim should be in accordance with the provision of section 80P(2)(d) of the Act and since the interest is not received from the co-operative bank de....
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.... the Tribunal in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. reported in 74 TTJ 793 (Pune) has held that the credit society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s.80P(2)(a)(i). In view of the above discussion and following the decisions of the Ahmedabad Bench of the Tribunal and Cochin Bench of the Tribunal which in turn have considered the decision of the Hon'ble Supreme Court in the case of Totagar's Cooperative Sale Society Ltd. (Supra) we find no infirmity in the order of the Ld.CIT(A). Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed.'' Even the Jaipur bench has considered this issue in favour of the assessee in the case of Royal Credit Co-operative Society Ltd., in ITA no. 221/JP/2023 and the relevant finding in that case is also reiterated here in below : 10. We have heard the rival contentions, perused the material placed on record and orders of the lower authorities. We have also perused the judicial pronouncements that have been pressed into service by both the parties to drive home to their respective contentions. The ....
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.... (Emphasis by underlining supplied by us) 10.3 On a perusal of the aforesaid statutory provision, we find that the same, contemplates, that the income of a co-operative society from its business of banking or providing credit facilities to its members is eligible for deduction u/s. 80P(2)(a)(i) of the Act. Our indulgence in the present appeal is confined to the limited aspect, i.e, as to whether or not the interest income earned by the assessee-society by depositing its surplus funds with a bank can be brought within the meaning of "income from carrying on the business of banking or providing credit facilities to its members", and thus, would fall within the realm of the deduction contemplated in section 80P(2)(a)(i) of the Act. At this stage, we may herein observe, that it is the claim of the assessee, that as depositing of its surplus funds, i.e, the funds for which there were no takers at the relevant point of time, in the course of its business of providing credit facilities to its members, is inextricably interlinked; or in fact interwoven with its said stream of its business activity, therefore, the interest income received on such short-term deposits was duly eligi....
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.... Court in the case of Totgars Co-operative Sale Society Ltd. (supra) had thereafter been considered by the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. (supra), wherein the Hon'ble High Court had after exhaustive deliberations held as under : '6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs. 1,77,305/- represents the interest earned from short term deposits and from savings bank account. The assessee is a cooperative society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e. section 80P(2)(a)(i): "80P. Deduction in respect of income of cooperative societies.-(1) Where, in the case of an assessee being a cooperative society, the gross total income includes a....
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....ion of electricity. 8. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A cooperative society which is carrying on the business providing credit facilities to its members, earns profit and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providin....
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.... law. Accordingly, it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order: Appeal is allowed. The impugned order is hereby set aside. Parties to bear their own cost.' 10.4 Recently even the honourable apex court on 20.04.2023 in the Civil Appeal NO . 8719/2022 in the case of The PR. Commissioner of Income Tax 17, Mumbai VERSUS M/S ANNASAHEB PATIL MATHADI KAMGAR SAHAKARI PATHPEDI LIMITED held that Apart from the fact that against the relied upon decision in the case of M/s. Quepem Urban Co-operative Credit Society Ltd.(supra),the Special Leave Petition has been dismissed, having heard learned counsel appearing on behalf of the respective parties, the issue involved in the present appeal is squarely covered against the Revenue in view of the decision of this Court in Mavilayi Service Cooperative Bank Limited and Others Vs. Commissioner of Income Tax, Calicut and Another (2021) 7 SCC 90. This Court, in the aforesaid decision has specifically observed and held that primary Agricultural Credit Societies cannot be termed as Co-operative Banks under th....