Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. Vs DCIT (ITAT Jaipur)
Conclusion: Interest income derived by assessee, co-operative society from its investments held with a co-operative bank, was entitled for claim of deduction under section 80P(2)(d) as for the purposes of section 80P(2)(d) of the Act, Cooperative Bank Ltd shall be treated as a co-operative society.
Held: During the year under consideration, assessee had received interest on FDRs placed with the Cooperative Bank on which deduction u/s 80P was claimed. AO referring to the decision of Hon’ble Supreme Court in case of Totgar’s Cooperative Sales Society Ltd. Vs. ITO held that if a society was regularly earning interest on funds (not required immediately for business purposes), such interest income was taxable u/s 56 under the head ‘Income from other sources’ and not eligible for deduction u/s 80P. Further the deduction u/s 80P(2)(d) was available on interest or dividend derived from its investment made in co-operative society and not available if interest was received from investment made in co-operative bank as per section section 80P(4). Accordingly, AO disallowed the claim of deduction u/s 80P at Rs. 1,49,40,834/-. It was held even though co-operative bank pursuant to insertion of sub-section (4) of section 80P would no more be entitled for claim of deduction under section 80P, however, for the purposes of section 80P(2)(d) of the Act, Cooperative Bank Ltd shall be treated as a co-operative society. Therefore, interest on FDRs placed by the assessee society with such cooperative society would be eligible for deduction u/s 80P(2)(d).
FULL TEXT OF THE ITAT JUDGEMENT
These are cross appeals filed by the assessee and the Revenue against the respective orders of ld. CIT(A)-2, Jaipur dated 27.02.2019 for AY 2011-12 and AY 2012-13 wherein the respective grounds of appeal are as under:-
ITA. No. 512/JP/2019 (For A.Y 2011-12)
“1. The ld. CIT(A) has erred on facts and in law in upholding validity of order passed by AO u/s 147 of IT Act, 1961.
2. The ld. CIT(A) has erred on facts and in law in holding that interest expenditure to the extent of Rs. 87,91,593/- is attributable to the interest income of Rs. 1,46,40,834/- earned on FDRs maintained with Jaipur Central Cooperative Bank Ltd. (JCCB), thereby disallowing deduction u/s 80P to this extent. He has further erred in considering the amount of interest income from JCCB at Rs. 1,46,40,834/- instead o f Rs. 1,49,40,834/-.
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. 633/JP/2019 (For A.Y 2011-12)
“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 Rs. 1,49,40,834/-. ”
ITA. No. 513/JP/2019 (For A.Y 2012-13)
“1. The Ld. CIT(A) has erred on facts and in law in upholding the validity of the order passed by AO u/s 147 of IT Act, 1961.
2. The Ld. CIT(A) has erred on facts and in law in holding that interest expenditure to the extent of Rs. 95,12,659/- is attributable to the interest income of Rs. 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 Rs. 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 cooperative society engaged in the business of procurement of milk, processing it to prepare milk products and sale thereof. It filed its return of income on 29.09.2011 declaring total income of Rs. 3,60,25,830/-. The assessment was completed u/s 143(3) on 06.12.2014 at total income of Rs.4,55,67,387/-. Subsequently, the assessment was reopened by issuance of notice u/s 148 and reassessment was completed u/s 147 r/w 143(3) disallowing the claim u/s 80P(2)(d) of Rs 1,49,40,834 and assessed at a total income of Rs 5,09,66,660. On appeal, the ld CIT(A) allowed the claim u/s 80P(2)(d), however, restricted the quantum of claim to Rs 58,49,241. Against the said findings of the ld CIT(A), both the assessee and the Revenue are in appeal before us.
4. During the year under consideration, the assessee received interest of Rs.1,49,40,834/- on FDRs placed with the Jaipur Central Cooperative Bank on which deduction u/s 80P was claimed. The AO referring to the decision of Hon’ble Supreme Court in case of Totgar’s Cooperative Sales Society Ltd. Vs. ITO held that if a society is regularly earning interest on funds (not required immediately for business purposes), such interest income is taxable u/s 56 under the head ‘Income from other sources’ and not eligible for deduction u/s 80P. Further the deduction u/s 80P(2)(d) is available on interest or dividend derived from its investment made in co-operative society and not available if interest is received from investment made in co-operative bank drawing support from the provisions of section 80P(4) of the Act. Accordingly, the AO disallowed the claim of deduction u/s 80P at Rs.1,49,40,834/-.
5. On appeal, the Ld. CIT(A) held that Jaipur Central Cooperative Bank is a cooperative society. The assessee is also a cooperative society. Thus, deduction u/s 80P(2)(d) is admissible to the assessee in respect of income by way of interest or dividend derived by the assessee (cooperative society) from its investment with any other cooperative society (Jaipur Central Cooperative Bank). However, she held that the total interest income of the assessee is Rs.5,86,88,487/-against which total interest expenditure is Rs.3,52,41,527/-. Therefore, the interest expenditure attributable to the interest income of Rs.1,46,40,834/- from JCCB would be Rs.87,91,593/-(Rs.3,52,41,527*Rs. 1,46,40,834/ Rs.5,86,88,487). Thus, the net interest income from JCCB would be Rs.58,49,241/- (Rs.1,46,40,834-Rs.87,91,593). Accordingly, the AO was directed to allow deduction of Rs.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 Rs.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 Rs.2,65,43,870/- on fixed deposits with cooperative banks. The AO disallowed the deductions holding that assessee is not carrying out banking business nor the income is derived from providing any credit facilities to its members. The Ld. CIT(A) allowed claim of deduction u/s 80P in respect of entire amount. The Ld. D/R submitted that assessee has earned income on account of interest on FDR with co-operative bank and not on the amount deposited with other co-operative societies and therefore, deduction u/s 80P(2)(d) is not available. It was held that the only condition for availing deduction u/s 80P(2)(d) is that income is by way of interest or dividend derived by co-operative society from its investment with any other co-operative society. Co-operative bank is to be treated as co-operative society for the purpose of interest income on investment in such co-operative bank. Hence, assessee is eligible for deduction u/s 80P(2)(d) in respect of the interest income from investment made with the co-operative bank. In view of above, ground of the department be dismissed.
7. It was further submitted that the Ld. CIT(A) after holding that assessee is entitled to deduction u/s 80P(2)(d) in respect of interest received on FDR made with JCCB observed that assessee has incurred total interest expenditure of Rs. 3,52,41,527/- and therefore, interest expenditure attributable to the interest income of Rs.1,46,40,834/- from JCCB would be Rs.87,91,593/- and thus, disallowed the claim u/s 80P(2)(d) to that extent.
8. In this regard, it was submitted that assessee has earned interest of Rs. 1,49,40,834/- on FDRs in Jaipur Central Cooperative Bank and not Rs.1,46,40,834/- as stated by Ld. CIT(A). Further, the assessee has not incurred any interest expenditure in earning the interest income on FDR with Jaipur Central Co-operative Bank. This is because assessee has invested its own funds for making investment in FDR which is evident from the fact that assessee has interest free funds of Rs.49,97,82,216/- as on 31.03.2011 against investment in FDR of Rs. 97.48 cr., out of which investment in FDR with JCCB is Rs. 20 cr. as per the following details:-
Share Capital Rs.36,92,54,756/-
Accumulated Profits Rs. 7,95,17,731/-
Profits for the year Rs. 5,10,09,729/-
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Rs. 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 Rs.87,91,593/- to earn the interest income of Rs.1,49,40,834/- from JCCB is incorrect.
9. It was further submitted that the position of the interest expenditure incurred and interest income earned as reflected in the profit & loss account are as under:-
