TMI Blog2019 (10) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... y other law for the time being enforced in any state for the registration of co-operative societies, therefore, the interest income derived by a cooperative 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 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. 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 Sahakar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 95,12,659/- is attributable to the interest income of ₹ 1,59,92,544/- earned on FDRs maintained with Jaipur Central Cooperative Bank Ltd., thereby disallowing deduction u/s 80P to this extent. 2.1 The ld. CIT(A) has erred on facts and in law in not considering that investment in FDRs is made out of own funds and borrowed funds has been utilized for business purpose and therefore, no interest expenditure can be attributed for earning the interest income. ITA. No. 634/JP/2019 (For A.Y 2012-13) Whether in the facts and circumstances of the case and in law, the CIT(A) is correct in holding that the income received from investments made with Jaipur Central Co-operative Bank is eligible for deduction u/s 80-P(2)(d) of the I.T. Act, 1961 and thereby justified in allowing relief of ₹ 1,59,92,544/-. 2. Since common issues are involved, all these appeals were heard together and are being disposed off by this consolidated order. 3. With the consent of both the parties, the matter pertaining to AY 2011-12 is taken up for the purposes of present discussion. Briefly stated, the facts of case are that the assessee is a coope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41,527*₹ 1,46,40,834/ ₹ 5,86,88,487). Thus, the net interest income from JCCB would be ₹ 58,49,241/- (₹ 1,46,40,834- ₹ 87,91,593). Accordingly, the AO was directed to allow deduction of ₹ 58,49,241/- u/s 80P(2)(d). 6. During the course of hearing, the ld. AR submitted that during the year, the assessee has received interest income on FDR s amounting to ₹ 1,49,40,834/- 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 co-operative 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, the assessee is a co-operative sugar mill. It claimed deduction u/s 80P(2) 80P(2)(d) in respect of interest of ₹ 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profits for the year ₹ 5,10,09,729/- -------------------- ₹ 49,97,82,216/- Thus, interest free fund is much more than the investment in FDR with JCCB. It is a settled law that if both interest free funds and interest bearing funds are available, then presumption would arise that investments would be out of the interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investments. The Hon ble Supreme Court in case of CIT Vs. Reliance Industries Ltd. (2019) 175 DTR 1 has held Tribunal having found that the interest free funds available to the assessee were sufficient to meet its investment, it could be presumed that funds were given to subsidiaries out of interest free funds and therefore, interest referable 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 ₹ 87,91,593/- to earn the interest income of ₹ 1,49,40,834 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment in Stock and debtors -Sundry Debtors -Stock in trade 59,44,28,770/- 68,52,81,030/- Total investment in stock and debtors 127,97,09,800/- 127,97,09,800/- Thus, the entire borrowed funds are utilised for the purpose for which it is taken and therefore, no part of interest expenditure can be attributed to earning of the interest income. In view of above, it was submitted that the AO be directed to allow deduction u/s 80P(2)(d) as claimed by the assessee by dismissing the ground of the department and allowing the ground of the assessee. 11. The ld DR was heard who has vehemently argued the matter and supported the findings of the lower authorities. He took us through the findings of the AO and the ld CIT(A) which we have already taken note of and hence, not repeated for sake of brevity. 12. We have heard the rival contentions and perused the material available on record. The issue under consideration is whether the interest income on FDRs plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was passed on the basis of the decision passed by the Hon'ble Supreme Court in the case of Totagar's Co-operative Sale Society Ltd. In the case of Totagar's Cooperative Sale Society Ltd v/s ITAT (supra) the Hon'ble Supreme Court while interpreting the section 80P(2)(a)(0 of the Act held that surplus funds not immediately required in the business and invested in the short term deposit would be assessable under the head 'income from other sources where the Cooperative 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 cooperative 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-oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing credit faculties 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)(0 would not be available meaning thereby that deduction u/s 80(P)(2)(a)(0 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. In view these facts and circumstances we are of the considered view that the assessee is entitled to the deduction of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlooked 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 society from its investments with any other co- operative society, the whole of such income. 6. So far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 6. Further the Hon ble Karnataka High Court in case of PCIT and Another vs. Totagars Co-operative Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case. 6.4 Thus, the Hon ble High Court has held that the Co-operative Bank is considered to a cooperative society for the purpose of section 80P(2)(d). Accordingly, in view of the decisions as cited (supra), we do not find any error or illegality in the orders of the ld. CIT(A) to the extent of the allowing the claim of the assessee u/s 80P(2)(d) in respect of interest income from deposits/FDRs with the Co-operative Banks. 14. Therefore, in light of the aforesaid decision, in the instant case, for the purposes of section 80P(2)(d) of the Act, Jaipur Central Cooperative Bank Ltd shall be treated as a co-operative society. Therefore, interest on FDRs placed by the assessee society with such cooperative society shall be eligible for deduction u/s 80P(2)(d) of the Act. 15. Now, coming to a related issue as to whether by virtue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. We find that the lower authorities had observed that as the co-operative bank with which the surplus funds of the assessee were parked as investments, were neither Primary Agricultural Credit Society nor a Primary Cooperative Agricultural and Rural Development Bank, therefore, the interest income earned on such investments would not be entitled for claim of deduction under Sec. 80P(2)(d) of the Act. 7. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to be in agreement with the view taken by the lower authorities. Before proceeding further, we may herein reproduce the relevant extract of the said statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. 80P(2)(d) (1) 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 this section, the sums specified in sub-section (2), in computi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but however, as a co-operative bank continues to be a cooperative 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. 8. We shall now advert to the judicial pronouncements that had been relied upon by the authorized representatives for both the parties and the lower authorities. We find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) for the interest income derived from its investments held with a cooperative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. (supra) (ii) Sea Green Cooperative Housing and Society Ltd. (supra) (iii) Marwanjee Cama Park Cooperative Housing Society Ltd. (supra). We further find that the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. That as regards the reliance placed by the ld. D.R on the judgment of the Hon'ble High Court of Karnataka in the case of Totagars cooperative Sale Society (supra), the High Court had concluded that a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). We however find that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian v. Siemens India Ltd. [1983] 15 Taxman 594/[1985] 156 ITR 11 (Bom), where there is a conflict between the decisions of non-jurisdictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Thus, taking support from the aforesaid judicial pronouncement of the Hon'ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Totagars Cooperative Sale Society(supra) and Hon'ble High Court of Gujarat in the case of State Bank Of India (supra), wherein it was observed that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 48000 3491 42674 Interest (As shown in the return of income) 1022699 1214259 1220756 902765 Deduction u/s 80P(2)(d) of the Act as per return 1027719 1045298 1223026 943736 Disallowed by Assessing Officer 477863 640219 641273 76116 Deduction granted u/s 80P(2)(d) of the Act by Assessing Officer 549856 405079 581753 867618 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 (Ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest 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 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(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 following the decisions referred supra, the assessee society is held eligible for deduction under section 80P(2)(d) in case of interest income of ₹ 1,49,40,834 on FDRs placed with Jaipur Central Cooperative Bank Ltd. 20. In the result, the sole ground of Revenue s appeal is dismissed and ground no. 2 in assessee s cross appeal is allowed. Having decided the matter on merits, the legal ground raised by the assessee challenging the validity of the proceedings u/s 147 has become in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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