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TMI Blog2020 (3) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 56 of the act. He has further stated that as per section 80P(2)(a)(i) of the act, the cooperative society engaged in carrying on the business of providing credit facilities to its members, the whole of the profit and gain of business attributable to such activities will be deductible. Earning of interest income from Bank is not activity for which income would be deductible. Therefore, the interest income earned from bank/co-operative bank amounting to Rs. 82,21,635/- was treated as income from other sources u/s. 56 of the act on which deduction u/s. 80P was disallowed. 3. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has sustained the disallowance made by the assessing officer after placing reliance on the decision of Jurisdictional Hon'ble High Court of Gujarat in the case of State Bank of India vs. CIT. The ld. CIT(A) has stated that only the interest derived from the credit provided to its members which is deductible u/s. 80P(2)(a)(i) of the act. 4. Against the decision of the ld. CIT(A), the assessee has filed appeal before the ITAT. The appeal of the assessee was partly allowed by the ITAT vide ITA No. 98/Ahd/2017 on 10-05-2018. The relevant pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general nature and the same are dismissed." 5. Subsequently, the assessee has filed Miscellaneous Application vide 264/Ahd/2018 before the ITAT stating that ground no. 3 of the appellant in respect of allowability of deduction u/s. 80P(2)(d) of the act of interest earned from co-operative bank is not adjudicated. The break-up of interest receipt is as under:- (i) Interest income from Scheduled Bank Rs. 80,55,250/- (ii) Interest Income from Dist. Co-op. Bank Rs. 1,66,385/- In the above cited Miscellaneous Application, the assessee has submitted that there is no finding for allowabilty/deduction u/s. 80P(2)(d) of interest earned from investment made in co-operative bank. Without reiterating the fact as elaborated in this order, the assessing officer stated that deduction u/s. 80P(2)(d) of the act is only allowable if the investment is in other cooperative society and stated it cannot be said that investment in co-operative bank qualify for the deduction u/s. 80P(2)(d) of the act. The assessing officer has further stated that co-operative bank shall have meaning as assigned to it in Part V of the Banking Regulation Act, 1949 in the Banking Regulation Act and Cooperative Cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the by the assessee as referred above the issue involved was pertaining to disallowance of expenditure u/s. 14A of the Act. In that case, the assessing officer has disallowed 50% of the expenditure claimed by the assessee on the reason that interest expenses incurred by the asssessee on borrowed funds might have been used for the purpose of making investment for earning exempt income u/s. 80P(2)(d) of the act. In that case, before the ld. CIT(A) the assessee's submission was that they are having sufficient funds of Rs. 50.19 crores as on 31-03-2009 in the form of capital of Rs. 10.19 crore and reserves and surplus of Rs. 40 crore against the deposit made with the co-op societies of Rs. 36.28 crore only. Therefore, ld. CIT(A) has deleted the disallowance. Considering the above fact on the issue of disallowance of expenses u/s. 14A of the Act the ITAT has held that assessee was having mixed funds and the interest funds were more than investment in cooperative bank and cooperative societies no disallowance was called for from eligible deduction u/s. 80P(2)(d) of the Act. It is clear from the decision of the Hon'ble Jurisdictional High Court in the case laws cited by the assessee vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(a)(i) of the act on interest income earned from fixed deposit maintained with the commercial bank and cooperative banks. As per section 80P(2)(a)(i) of the act the interest income earned on providing credit facility to its members is deductible u/s. 80P(2)(a)(i) of the act. After perusal of the aforesaid provision of the act we observe that deduction u/s 80P(2)(a)(i) is not available on the interest earned on deposit maintained with the commercial bank. We find that the Hon'ble jurisdictional high court has decided the identical issue in favour of the Revenue vide State Bank of India vs. CIT (2016) 72 taxmann.com 64 (Gujarat) wherein it is held that interest income on deposit placed with the commercial banks is not exempt u/s. 80P(2)(a)(i) of the act. In respect of the claim of the Ld. Counsel that interest earned from investment of surplus funds with the cooperative bank is entitled for deduction u/s 80P(2)(d) of the act we have noticed that as per section 80P(2)(d) of the act, the whole of interest and dividend income derived by a co-operative society from its investment in any other cooperative society is deductible u/s. 80P(2)(d). We find that the Hon'ble High Court of Karnat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as 'income from other sources' under section 56, whereas for availing the exemption or 100 per cent deduction under section 80P, the income is specified in clauses (a) to (f) of sub section (2) of section 80P which should be its business or operational income. [Para 12] What section 80P(2)(d) which was though not specifically argued and canvassed before the Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words 'Cooperative Banks' are missing in clause (d) of sub section (2) of section 80P. Even though a cooperative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the primary agricultural credit society with their limited work of providing credit facility to its members continued to be g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 80P(2)(a) by the Supreme Court in the case of assessee, cannot be contrarily held as exempted and deductible now for these years, merely because the depository bank, with whom the investments were made by the assessee happens to be a co-operative bank. One cannot appreciate this distinction so as not to apply the binding precedent of the Supreme Court for subsequent years merely on account of the change of the bank where such deposits were made by the assessee, all other facts remaining the same, particularly the nature and character of the income earned by it. The interest income of assessee continues to be not attributable to its business operations even in these subsequent years. [Para 17] The character of income depends upon the nature of activity for earning that income and though on the face of it, the same may appear to be falling in any of the specified clauses of section 80P(2) of the Act, but on a deeper analysis of the facts, it may become ineligible for deduction under section 80P(2) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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