TMI Blog2023 (4) TMI 480X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant : Shri Vageesh Hegde, CA For the Respondent : Shri Ganesh R. Ghale, Standing Counsel for the revenue. ORDER This appeal by the assessee is against the order of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC] dated 26.11.2021 DIN ITBA/NFAC/S/250/2021-22/1037264541(1) for the AY 2017-18 for not granting deduction u/s. 80P(2)(d) of the Incometax Act, 1961 [the Act] on the interest income of Rs.25,19,453 earned from the Mysore and Chamrajnagar District Co-operative Central Bank Ltd. and Rs.19,515 earned from Punjab National Bank. 2. There is a delay of 57 days in filing the appeal before the Tribunal. The assessee has filed application for condonation of delay along with affidavit stating that the order of the CIT(Appeals) was sent to the assessee by email on 28.10.2022 which came to the notice of the assessee on 19.2.2023 while paying TDS amount and found in the Promotions Category of the emails. The appeal was immediately prepared and filed on 21.2.2023 before the Tribunal causing a delay of 57 days. It is submitted that the delay is unintentional since the assessee was not able to access the mail in the Promotions Category and prayed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction u/s 80P(2)(d) of the Act.. The investee bank is a Co-operative Society and running banking business which is covered u/s 80P(2)(d) of the Act. The AO rejected the assessee s submissions since the assessee has invested the fund which was not put to use during the period which is clearly a surplus fund as and by way of investment by an ordinary investor, hence interest on such investment is to be taxed under the head income from other sources u/s. 56 and not u/s. 28. The AO relying on the judgment of the Supreme Court in the case of Totagar Co-operative Sale Society treated the interest income earned by the assessee society on fixed deposits as income from other sources and denied exemption u/s. 80P(2)(d) of the Act. 5. On appeal, the CIT(Appeals) observed that u/s. 80P(2)(d) interest income earned from investments with any other co-operative society is eligible for deduction and not from co-operative/nationalized banks. He noted that Punjab National Bank and The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. are not co-operative societies, but these are functioning under the Banking Regulation Act, 1949. He observed that co-operative banks carry on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Society = (2017) 392 ITR 74 (Kar. HC) = (2017) 78 taxmann.com 169 (Karnataka HC). The order of Hon'ble CIT (A) totally ignored this fact and sought to deny deduction under Sec. 80P(2)(d). On this ground, the order of Hon'ble CIT (A) is liable to be set aside. 13. It is submitted that the Assessment Order of Learned ITO gives an entirely different reason stating that deduction under Sec. 80P(2) is available only in respect of Operational Income of assessee and in this case, the Assessee has shown interest under the head Income From Other Sources (not as operational income) , the deduction is not available. The Assessing Officer while disallowing deduction under Sec. 80P (2) (d) has held as under: (i) That the Assessee has invested the fund which was not put to use during the period; (ii) That the said amount is a surplus fund invested and hence, it is a case of investment by an ordinary investor; (iii) That interest on such investment is taxable under the head Income From Other Sources under Sec. 56 and not under Sec.28; (iv) That the Hon'ble Supreme Court in the case of Totagars, Cooperative Sale Society Ltd reported in [2010] 188 Taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hubballi Vs Totgars Co- Operative Sale Society Ltd reported in [2017] 78 taxmann.com 169 (Karnataka) (FAVOURABLE)-ANNEXURE-9. (b). Decision of Honorable High Court of Karnataka in the case of Principal Commissioner of Income-tax, Hubballi Vs Totgars Co- Operative Sale Society Ltd reported in [2017] 83 taxmann.com 140 (Karnataka)-ANNEXURE- 1 0-(AGAINST), BUT DISTINGUISHABLE. (c). Decision of the Honorable Bangalore bench of Income Tax Appellate Tribunal IN THE ITAT BANGALORE BENCH 'A' of Karnataka State Co-operative Federation Ltd. v. Assistant Commissioner of Income Tax, Circle 1(2)(1), Bangalore- ANNEXUFtE-11-reported in [2021] 123 taxmann.com 399 (Bangalore - Trib.)/ [2021] 186 ITD 750 (Bangalore -Trib.) [03- 11 2020] which distinguishes the fact in second DECISION AND UPHOLDS THE FIRST DECISION (FAVOURABLE). (d). Decision of The Honorable ITAT of PUNE BENCH 'B' in the case of Rena Sahakari Sakhar Karkhana Ltd. v. Principal Commissioner of Income-tax reported in [2022] 138 taxmann.com 532 (Pune - Trib.) -ANNEXURE- 12 which states that cooperative bank is part of Cooperative society. 7. In addition, the ld. AR submitted that The Mysore and Cham ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efines a primary co-operative bank as the meaning of co-operative society, therefore a co-operative society bank would be included in the words Co-operative Society . Accordingly he submitted that The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. is primarily registered as a co-operative society and obtained licence from RBI for carrying on banking activities, therefore as per para 9 of the said judgment, it is to be termed as a co-operative society and section 80P(2)(d) clearly states that interest received from co-operative society is eligible for deduction u/s. 80P(2)(d) of the Act. 10. Heard both the parties, perused the entire material on record and the orders of the lower authorities. The assessee society is running business of forming, developing and distributing residential sites to its members and has claimed deduction u/s. 80P(2)(d) of the Act on the interest received on Fixed Deposits from The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. and Punjab National Bank. It is clear from the facts of the case as observed by the AO that the surplus funds were invested in Fixed Deposits as investments in Co-operative Bank Nationalised Bank. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court held in the case of the respondent assessee itself, against the assessee, was that such 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 of the Act, whereas for availing the exemption or 100% deduction under Section 80P of the Act the income is specified in clauses (a) to (f) of Subsection (2) of Section 80P of the Act should be its business or operational income. 13. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble 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 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative 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 Regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself is otherwise. 17. As stated above, it is the character and nature of income which determines its taxability or exemption from taxability. It is needless to say that the provisions relating to exemption and deduction need to 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) of the Act by the Hon'ble Supreme Court in the case of respondent 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 respondent assessee happens to be a co-operative bank. We cannot appreciate this distinction so as not to apply the binding precedent of the Hon'ble Supreme Court for subsequent years merely on account of the change of the Bank where such deposits were made by the respondent 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. 18. The contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80P(2)(e) of the Act was by way of netting/difference between the sale of own trade stock stored in such warehouses or godowns was claimed as deductible, the Hon'ble Supreme Court denied the said claim, holding that the burden was on the assessee to establish that the income comes within the four corners of Section 80P(2)(e) of the Act. The relevant portion of the said judgment from the Head Note is quoted below for ready reference: HELD, affirming the decision of the High Court, that the burden was on the assessee under section 80P(2)(e) to establish that the income comes within the four corners of section 80P(2)(e) of the Act. The exemption was available in respect of income derived from the letting of godowns or warehouses, only where the purpose of letting was storage, processing or facilitating the marketing of commodities. If the godown was let out (including user) for any purpose besides storing, processing or facilitating the marketing of commodities, then the assessee was not entitled to such exemption. Any income derived by the society unconnected with such letting or use of the godown would not fall under clause (e). The High Court was right in coming to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from depositing its surplus funds with the bank was profits and gains of business attributable to the activities of the assessee. It was only the interest income derived from the credit provided to its members which was deductible under section 80P(2)(a)(i) and the interest income derived by depositing the surplus funds with the bank not being attributable to the business carried on by the assessee could not be deducted under section 80P(2)(a)(i) . There was no infirmity in the orders of the Appellate Tribunal warranting interference. Totgar's Co-Operative Sale Society Ltd. v. ITO [2010] 322 ITR 283 (SC)followed. ** ** ** Thus, in the light of the principles enunciated by the Supreme Court in Totgar's Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co- operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither. 32. Mr. Bansal relied upon the judgment of the Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO [2015] 55 taxmann.com 447 (Karn). In that case, the assessee-co-operative society provided credit facilities to its members and earned interest from short-term deposits with banks and from savings bank accounts. The interest income earned by the assessee by providing credit facilities to its members was deposited in banks for a short duration which earned interest. The question was whether this interest was attributable to the business of providing credit facilities to the members. The Division Bench held as follows : 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 co-operative society which is carrying on the business of providing credit f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired by the assessee for lending money to the 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. A. P. State Co-operative Bank Ltd. reported in [2011] 336 ITR 516 (AP) ; [2011] 200 Taxman 220/12 taxmann.com 66. 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 question of law is answered in favour of the assessee and against the Revenue. Hence, we pass the following order. Appeal is allowed. (The reproduction is from the original website of the Karnataka High Court). There is an important distinction. The Division Bench expressly held in paragraph 10 that interest income was attributable to the business of banking and, therefore, liable to be deducted under section 80P(2)(a)(i) of the Act. At the cost of repetition, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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