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TMI Blog2019 (11) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... cts in disallowing the same. It is reiterated that the assessee's books are audited by the state government's Registrar of Cooperative Societies as well and therefore the impugned disallowance is not liable to be affirmed. Our attention is further invited to the CIT(A)'s findings as under: "2.1 The individual grounds of appeal are dealt as under: Ground Nos. 3, 4, 5 & 6: 10% disallowance out of loading and unloading charges, printing & stationery and sales promotion and 20% disallowance out of business promotion. 2.2 The A.O has stated the following in support of the addition - On perusal of the relevant P/L Account of Servo Division and other details, it is found that the assessee Co-operative Society, Servo Division debited i) Loading & Unloading Charges of Rs. 2,11,564/-, ii) Printing & Stationery Charges of Rs. 1,46,049/-, iii) Business Promotion of Rs. 20,96,023/- and iv) Sales Promotion of Rs. 73,698/-. The A.R of the assessee was requested to produce all bills & vouchers in respect of these expenses. But he submitted some documents from which it is found that those expenses was paid sometimes to its employees and staffs, its car drivers through self-made vouchers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to the business of the assessee and relating to that Financial year. Such addition was made purely on assumption basis and there is no basis at all. Copy of ledger and documents enclosed for your perusal. (Page-7) Reference is invited to the Supreme Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITRI, SC] where it was held by the Apex -Court that the expression "Commercial Expediency" is of wide import & includes such expenditure as a prudent businessman incurs for the purpose of the business. 5) The Ld. A.O. disallowed 10% of Sales Promotion of Servo Division Rs. 7,369/- on assumption basis (Out of total Sales promotion expenses of Rs. 73,698/-) The above expenditure was revenue in nature and in relation to the business of the assessee and relating to that Financial year. Such addition was made purely on assumption basis and there is no basis 'at all. Copy of ledger and documents enclosed for your perusal, (Page-B) Reference is invited to the Supreme Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITRI, SC] where it was held by the Apex Court that the expression "Commercial Expediency" is of wide import & includes such expenditure as a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty or a primary co-operative agricultural and rural development bank 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. From the definition u/s 80P(4) it is clear that if it was intended that Co-operative society is not a Cooperative bank then there was no need to Primary Agricultural Credit Society (PACS) or Primary Co-operative Agricultural and Rural Development Bank (PCARDB) since the appellant is not a PACS, therefore, it would be covered under definition of Co-operative Bank and would therefore be covered by 80P(4). (ii) Following definition contained in the Banking Regulation Act. are also useful - (cci) "Co,-operative creditsociety" means a state co-operative bank, a central co-operative bank and a primary co-operative bank; (ccii) "co-operative cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose principal business of a primary credit society is thetransaction of banking business and when its paid up capital and reserves attain the level of Rs. 1 lakh, a primary credit society automatically becomes a primary co-operative bank. (iv) Further, vide para 8 in the case of [Salgaon Sanmitra Sahakari Pathpedhi Ltd. v. Additional Commissioner' of Income-tax, Ward-17(3),Mumbai. - [12, Taxmann.com 246 (2011)] the assessee society was classified as "Co-operative Bank" under section 12(1) of the Maharashtra Co-operative Society Act, 1960 as per the registration certificate issued by the Assistant Registrar, Co-operative Society, Mumbai. Once the urban Co-operative credit society and Pal-pedhis are classified as Bank then they are not eligible for benefit provided under section 80P of the Income Tax Act, 1961, from Assessment Year 2007-08 by virtue of Section 80P(4) read with section 2(24)(viia) both of Income Tax Act, 1961. (v) In Citizen Co-op. Society Ltd. VS. Addl. CIT- the, assessee co-operative society was providing members only. It was found that certain activities carried on by assessee were not as per requirements of principles of co-operative society and that asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant appeal challenges the CIT(A)'s order accepting assessee's section 80P(2)(a)(i) deduction claim of Rs.2,20,70,040/- in the nature of interest income earned from investment in fixed deposits with various banks. 3. This assessee is a co-operative society of employees working with the Central Bank of India. It provides loan to its members in lieu of charging interest. The assessee invested its surplus funds in both Central Bank of India, 10, Nellie Sengupta Sarani, Kolkat-87 as well as the West Bengal State Co-operative Bank thereby deriving interest income of Rs.2,20,70,040/-. It claimed the same to be eligible for sec. 80P(2)(a)(i) deduction. The Assessing Officer's assessment order dated 26.12.2016 quoted hon'ble apex court's decision in Tatgar's Cooperative Sale Society Ltd. vs. Income Tax Officer (2010) 188 Taxman 282 (SC) to hold that impugned interest income had been earned from investment in fixed deposits than from carrying on business of banking or providing credit facilities to its members. He accordingly disallowed assessee's impugned deduction claimed. 4. The assessee preferred its appeal. The CIT(A) has reversed the Assessing Officer's action disallowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g credit facilities to its members. This is the main activity pursued by the appellant co-op Society and this is sufficiently evident from the Profit and Loss Account of the appellant as well as the Asset & liabilities disclosed in the appellant's Balance Sheet. Apart from the main activity of providing credit facilities to its members, the appellant also obtains deposits from members to inculcate thrift and savings habits amongst them. The credit to members is provided out of the deposits obtained from the members. The funds obtained as deposits are invested in bank time deposits against which overdraft facilities are obtained and credit facilities are provided to the members. All these activities are closely integrated, interrelated and synergized to carry on the business of providing credit facilities to the members. To take a view that the business of providing credit is only the last step in these chain of activities, will not be reasonable, logical or justified. In the Assessment Year 2014-15 (under Appeal), the Assessing Officer held that the interest income from investments made in time deposits with banks amounting to Rs. 22070040 was allegedly not eligible for deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the society's business, were invested in the short-term deposits/securities. In the appellant's case the primary objects were to create fund to be lent to the members as well as to provide facilities for the exercise of Thrifts and Savings. The appellant had to arrange for creation of the necessary funds through - (a) members' contributions to Thrift Fund, (b) members' payments to guarantee fund at the time availing of loan facilities, (c) interest receivable from the members in relation to loans taken by them, (d) interest receivable from the deposits made with the bank out of the contributions/payments received from the members, etc. (iii) While in the case of the concerned co-operative society the interest had been received in relation to the investments made out of the sale proceeds arising out of the business, in the appellant's case interest was earned from deposits and payments received from the members, for creation of funds to be lent out to the members as well as to reward the members by paying interest on their respective balances in thrift fund and guarantee fund. From the above-mentioned specific differences it may kindly be appreciated that whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P(2)(a)(i) would be available in respect thereof. In fact, during the assessment proceeding, this particular Supreme Court decision was brought to the attention of the Assessing Officer . Without prejudice to the above claim of considering the interest income earned on deposits as part of business income, the Interest income from WB Co-operative Bank Ltd. of Rs. 30,25,211 had qualified for deduction u/s. 80P(2)(d) as the relevant interest was earned from another cooperative society. The Assessing Officer disallowed this claim without showing any specific reason. The appellant submits that the finding of the Assessing Officer are all wrong on facts and law. WB Co-op. Bank Ltd. is a co-operative society having license to carry on banking business from RBI. It is a scheduled bank and that schedule is mentioned in Banking Regulation Act, 1949 only, which have no relationship with the Income-tax Act or any Co-operative Societies Act. The appellant co-op. society is again a member/shareholder of WB Co-op. Bank Ltd. and owns shares worth Rs. 1100 of that Bank as duly reflected in its Balance Sheet. The appellant submits that deduction u/s. 80P(2)(d) is available for interest income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est expenses of Rs. 21073824 from the Interest income of Rs. 22070040 for determining the income/loss arising from such earning of Interest allegedly assessable under the head "Income from Other sources". 5. Mr. Choudhury's sole argument during the course of hearing is that assessee's interest income on investment made in fixed deposits in the Central Bank as well as West Bengal State Cooperative Bank (supra) is not eligible for section 80P(2)(a)(i) deduction since not derived or attributable to any banking business activities or from members. Case law CIT vs. South Eastern Railways Employees Co-Op. Credit Society Ltd. (2017) 390 ITR 524 (Cal) is quoted in support deciding the very issue in Revenue's favour. The assessee's case on the other hand is that this issue of allowability of sec.80P(2)(a)(i) deduction is no more res integria since covered in its favour as per tribunal's earlier order(s). It places on record a co-ordinate bench's order in ITA No.2203/Kol/2016 for AY 2013-14 decided on 01.03.2018 as follows:- "3. The issue involved in this appeal by the revenue is as to whether the CIT(A) was justified in allowing deduction u/s.80P(2)(a)(i) of the Income Tax Act, 1961 (Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness attributable to carrying on the business of banking or providing credit facilities to its members is allowed as deduction under the said provision. According to the AO the aforesaid income is not derived from the business of providing credit facility to its members. Applying the decision in the case of Totgar's Co-operative Sale Society Ltd vs ITO (supra), the AO treated the interest income as income from other sources and accordingly denied the benefit of deduction u/s 80P(2)(a)(i) of the Act. 5. Aggrieved by the orders of AO, the Assessee preferred appeal before CIT(A). The CIT(A) held that interest income had to be assessed under the head income from business and that the Assessee was entitled to deduction u/s.80P(2)(a)(i) of the Act on the interest income in question. In doing so, he followed his own order in Assessee's own case in AY 2012-13 wherein he had allowed similar claim of the Assessee. 6. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal. At the time of hearing it was brought to our notice that this tribunal in Assessee's own case adjudicated identical issue in I.T.ANos.158 & 1808 to 1809/Kol/14 & ITA 1126/Kol/15 for Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng loans and credit facilities to its members. However excess funds were utilized in making deposits in banks and investments. The Tribunal relying upon the decision rendered by the Hon'ble Calcutta High Court in the case of CIT vs South Eastern railway Employees Co-operative Credit Society in G.A.No.1838 of 2010 dated 22.07.2010 came to the conclusion that interest income has to be regarded as income from business of banking and is entitled for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal had also distinguished the decision rendered by the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd vs ITO (supra). The following observations of the Hon'ble Tribunal read as under :- "7.1. We further find that the issue involved is covered in favour of the assessee by catena of decisions of the Tribunal in assessee's own case. These decisions are also affirmed by the Hon'ble Jurisdictional High Court in its order for A.Yr.2005-06. In this order the Hon'ble Jurisdictional High Court has considered all the relevant orders and has decided the issue in favour of the assessee. We may gainfully reproduce the operative order of the Jurisdictional High Court which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision in para 11 has itself mentioned that "We are confining the judgment to the facts of the present case". The facts of the case were that assessee's business was to provide credit facilities to its members and to market their agricultural produce. In many cases assessee retained sale proceeds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purposes, it invested same in specified securities and earned interest income. In these circumstances the Hon'ble Apex Court had held that interest earned would come in category of 'Income from other sources' taxable u/s 56 of the Act and would not qualify for deduction as business income u/s 80P(2)(a)(i). From the above it is amply evident in the present case the assessee has not retained any amount due to its members and instead of paying the same had invested the same and earned interest. Thus this case law is not applicable on the facts of the present case. 7.4. As regards the decision of Hon'ble Patna High Court in the case of Bihar Rajya Sahkari Bhoomi Bikash Co-op. Bank Ltd. (supra) the same is also not applicable to the facts of the present case. In that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T 113 ITR 84 (SC) (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 the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor- General, it has used the expression "derived from", as, for instance, in section 80J. In our view, since the expression of wider import, namely, "attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 12. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in 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 CIT v. Andhra Pradesh State Cooperative Bank Ltd. 336 ITR 516 (AP). 13. In that view of the matter, the order passed by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities to its members as the society is not engaged in the business of banking and is therefore not qualifying for deduction u/S.80P(2a)(a)(i) of the Act, the learned Tribunal is correct in law in holding that interest earned on such investment is within the purview of section 80P of the Act? We have gone through the impugned judgment and order of the Learned Tribunal. It appears that the point involved is whether interest earned out of the investment earned by the assessee cooperative can be treated to be the income arising out of business activity or from other sources in order to apply the provision of Section 80P(2)(a)(i) of the LT. Act. It is an undisputed factual position that similar issue arose before the Commissioner of Income Tax (Appeal) in relation to the assessment year 1998-99 to 2002-2003 as also for the assessment year 1995-96 and 1996-97- Then again in relation to the assessment years 2003-04 and 2004- 05 a similar point arose. The Learned Tribunal in relation to the assessment years 1998-99 to 2002-03 by order dated 10.11.2006 in ITA Nos.840 to 844/Kol/2006 and again by order dated 29.12.2006 in relation to assessment years 2003-04 and 2004-05 has deleted the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissed accordingly." 7. We find that this issue does not set at rest as per the above extracted judgment. Their lordship's subsequent decision in the very assessee's case for assessment years 2003-04 and 2004-05 came to be decided on 15.07.2016 reported as (2017) 390 ITR 524 (Cal). The Revenue's substantial question of law admitted therein was as to whether the said assessee's interest income arising from investment in banks and other financial institutions quantify for sec. 80P(2)(a)(i) deduction or not. The tribunal had admittedly held the same to be eligible for deduction. Hon'ble jurisdictional high court's answers Revenue's substantial question of law as follows:- "7. We have not been impressed by the first submission advanced by Mr.Saraf. If the Multi-State Co-operative Societies At, 2002 does not provide for the consequences of an omission to act in accordance with section 63 thereof, that is no valid reason why the mandate of law should not be followed. When law requires a business to be done in a particular manner the business can be done only in that manner or not at all. 8. We are also not impressed by the submission advanced by Mr. Khaitan that the interest e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of co-operative societies. Section 80P(1), inter alia, states that where the gross total income of a co-operative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-society. An income, which is attributable to any of the specified activities in section 80P(2) of the Act, would be eligible for deduction. The word 'income' has been defined under section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. Parliament has included specifically 'business profits' into the definition of the words 'income'. Therefore, we are required to give a precise meaning to the words 'profits and gains of business' mentioned in section 80P(2) of the Act. In the present case, as stated above, the assessee-society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression 'profits and gains of business'. Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any one or more of the activities laid down in sub-section (2) is deductible. The Division Bench did not give any independent reasoning. The Division Bench proceeded on the basis that the view taken by them was supported by the judgment in the case of Karnataka State Co-operative Apex Bank (supra) which, with respect, was not a correct impression. The other judgment cited by Mr. Khaitan in the case of Guttigedarara Credit Co-operative Society Ltd. (supra) is not applicable because the caution appearing in sub-section (1) of section 80P, that only an income referred to in sub-section (2) was deductible, was not taken into account. The sub-section (2) provides for only the income attributable to the business of advancing credit facilities to its members. Income arising from any other source including investment of capital "if not immediately required to be lent to the member" was not contemplated. The assessee cannot claim any deduction which is not provided for by the section. Moreover the judgment in the case of Totgar's Cooperative Sale Society Ltd. (supra is a binding authority for the preposition that "interest income arising on the surplus invested in short-term deposits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be allowed. In that view of the mater, the question raised for decision is answered in the affirmative and in favour of the Revenue to the extent as indicated above. The appeal is allowed. The matter is, however, remained to the Assessing Officer (a) to work-out the interest earned under sections 63 and 64 of the Multi-Stat Co-operative Societies Act, 20002 and to allow benefit under section 80P and (b) to ascertain the interest paid to the members for the purpose of earning the sums of Rs. 99 lakhs and 1.2 crores on account of interest from investments. Such interest shall be deducted from the expenses of eligible business. Consequent increased amount of profits of eligible business as discussed above shall be the amount of deduction available to the assessee under section 80P." 8. We deem it appropriate to conclude in these peculiar facts and circumstances that assessee's impugned interest income derived from investment is not eligible for u/s 80P(2)(a)(i) deduction per se. Its reliance on learned co-ordinate bench's decision in its own case dated 01.03.2018 (supra) is not very well founded since going against the hon'ble jurisdictional subsequent judgment on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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