Case Law Details
University of Agricultural Vs ACIT (ITAT Bangalore)
ITAT Bangalore held that assessee, being a employees housing co-operative society, is eligible for deduction u/s 80P(2)(d) in respect of interest earned from co-operative banks.
Facts- Assessee is an employees housing co-operative society having objects exclusively of providing housing, residential sites, house or loans for construction of house to members. AO noted that assessee is covered by the provisions of Karnataka Co-operative Society Act, 1959 and was having 1690 regular members, 141 associate members and 1 nominal member. AO noted that the assessee had claimed exemption of Rs.2 1,99,628/- u/s. 80P(2)(d) of the act.
It was noted that funds received from members towards the provision of residential sites were deposited in the co-operative banks and was used for business of providing residential sites. However, the Ld.AO denied the exemption claimed by assessee u/s. 80P(2)(d) by relying on the decision of Hon’ble Supreme Court in case of Totgar’s Co-operative Sale Society Ltd. vs. ITO.
CIT(A) also dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- Held that the assessee is eligible for 80P(2)(d) deduction in respect of interest earned from co-operative banks based on the view taken in the above decision. It is directed that interest earned by the assessee under the head Income from other sources by granting benefit available to the assessee u/s. 57 of the Act. We direct the Ld.AO to follow the directions therein and to compute the deduction in the hands of the assessee in accordance with law.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
Present appeal filed by assessee against order dated 20.02.2023 passed by NFAC, Delhi for A.Y. 20 16-17.
2. Brief facts of the case are as under:
2.1 Assessee is a employees housing co-operative society having objects exclusively of providing housing, residential sites, house or loans for construction of house to members. The Ld.AO noted that assessee is covered by the provisions of Karnataka Co-operative Society Act, 1959 and was having 1690 regular members, 141 associate members and 1 nominal member. The Ld.AO noted that for year under consideration, assessee had filed its return of income on 3 1.03.2018 declaring total income at Nil. Assessee had also declared income under the head income from other sources. It was noted that assessee had claimed exemption of Rs.2 1,99,628/- u/s. 80P(2)(d) of the act. Details were called for by the Ld.AO in respect of the same.
2.2 The assessee filed its submissions and furnished bank account statements. It was noted that funds received from members towards the provision of residential sites were deposited in the co-operative banks and was used for business of providing residential sites. However, the Ld.AO denied the exemption claimed by assessee u/s. 80P(2)(d) by relying on the decision of Hon’ble Supreme Court in case of Totgar’s Co-operative Sale Society Ltd. vs. ITO reported in (2010) 322 ITR 283.
Aggrieved by the disallowance made by the Ld.AO, assessee filed appeal before the Ld.CIT(A).
3. Before the Ld.CIT(A), assessee contended that for the purpose of section 80P(2)(d), the co-operative bank has to be considered to be a co-operative society and therefore deduction u/s. 80P(2)(d) cannot be denied. The Ld.CIT(A), rejected the submissions of the assessee by placing reliance on the decision of Hon’ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO reported in (2015) 55 taxmann.com 447 and held that income by way of interest from investment made with co-operative banks shall not be entitled to deduction u/s. 80P(2)(d) of the act.
Aggrieved by the order of the Ld.CIT(A), assessee is in appeal before this Tribunal.
4. The Ld.AR at the outset submitted that all the issues contended before this Tribunal are in respect of the disallowance made by the Ld.AO u/s. 80P(2)(d).
4.1 It was submitted by the Ld.AR that, the claim of deduction u/s 80P(2)(d) of the Act, the has been considered by the coordinate bench of this Tribunal in the case of M/s.The Jayanagar Co-operative Society Ltd. v. ITO in ITA No.3254/Bang/2018 by order dated 23.07.2019, on similar facts, had restored the matter to the files of the Ld.AO for de novo consideration. The Ld.AR submitted that, identical issue was considered by the ITAT in ITA No.490/Bang/2021 in the case of M/s. Kakkabe VSSN Bank Ltd.vs. Pr.CIT by order dated 28.02.2022for assessment A 2015-1 6. The Ld.AR submitted that, this Tribunal in above cited case, directed the Ld.AO to consider the dictum laid down by the Hon’ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT reported in 431 ITR 1.
4.2 On the contrary, the Ld.DR relied on the decision of the Hon’ble Supreme Court in the case of Citizens Co-operative Society Ltd. v. ACIT reported in 397 ITR 1, and submitted that, the assessee violated the principles of mutuality by dealing with nominal members, and hence, was not entitled to the benefit of mutuality. The Ld.DR also relied on a subsequent decision of the Hon’ble Karnataka High Court in the case of PCIT Vs. Totgars Co-operative Sale Society Ltd., reported in 395 ITR 611.
We have perused the submissions advanced by both sides in the light of records placed before us.
5. The Ld.AR submitted that an identical issue was considered by Coordinate Bench of this Tribunal in case of M/s. Bhavasar Kshtriya Co-operative Credit Society Ltd. vs. ITO/ADIT in ITA Nos. 581 to 583/Bang/2022 by order dated 19.10.2022 wherein it was held as under:
2.6. We have heard both sides in light of records placed before us.
The Ld.AO denied the claim of the assessee on the ground that interest income earned by making investment of surplus funds has to be assessed under the head “Income from Other Sources” and not income from business and since interest income is not assessed as business income, the claim for deduction under section 57 of the Act cannot be allowed. In upholding the above conclusions, the Ld. CIT(A), inter alia, relied on the decision of the Hon’ble Supreme Court in the case of The Totgar’s Co-operative Sales Society Ltd., Vs. ITO reported in 322 ITR 283, wherein, Hon’ble Supreme Court held that the benefit of deduction under section 80P(2)(a)(i) of the Act is only on income which is assessable under the head “Income from Business”. Interest earned on investment of surplus funds not immediately required in short term deposits and securities by a Co-operative Society providing credit facilities to members or marketing agricultural produce to members is not business income but income from other sources and the society is not entitled to special deduction.
2.7. While Ld.AR relied on the decision of the Hon’ble Karnataka High Court in the case of Tumukur Merchants Souharda Credit Co-operative Ltd., reported in 230 taxman 309. We have carefully gone through the said judgment.
2.8. We have also considered, whether the co-operative bank wherein the assessee made deposits out of its surplus fund be considered as a co-operative society, for if a co-operative bank is considered to be a co-operative society than only the interest earned by the assessee on the deposits would be eligible for deduction u/s 80P(2)(d). We find that co-operative society is a broad and larger umbrella under which the co-operative banks do perform. We also note that all co-operative societies may not be banks, but all co-operative banks are deemed to be co-operative societies. According to banking Regulations Act, a co-operative society bank as the same meaning of the co- operative society. Further, we have also given a thought as to the interest earned by the surplus funds. Section 80P(2)(d) reads as under:
“Section 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.”
2.9. On a plain reading of section 80P(2)(d), there is no such stipulation or prerequisite as to the nature of the funds. We also find that Section 80P(2)(d) of the Act, allows whole deduction of an income by way of interest or dividends derived by the co-operative society from its investment with any other co-operative society.
Section 80P(2)(d) provides additional benefit of deduction under section 80P for those co-operative societies, which has surplus funds even unrelated to its main business activity, which are invested with other co-operative societies. Thus, Clause (d) of section 80P applies to all co-operative societies, whether or not, their main businesses banking and credit facilities to the members. Therefore, in our view, the section envisages deduction in respect of any income derived by the co-operative society from any investment with a co-operative society.
2.10. We have also considered the case of Totgars Co-operative Sale Society Ltd., reported in 322 ITR 283 relied upon by the Ld.DR, and find that, the Hon’ble Supreme Court has deliberated on the issue of deduction u/s 80P(2)(a)(i) but not on Section 80P(2)(d). We also observed that in the case of Totgars Co-operative Sale Society Ltd. itself the Hon’ble High Court of Karnataka has allowed the claim of deduction u/s 80P(2)(d) vide order dated 05.01.2017 and also in Tumukur Merchants Souharda Credit Co-operative Ltd., reported in 230 taxman 309.
2.11. Similar is the view taken by coordinate bench of this Tribunal in case of Thannirupantha Primary Agricultural Credit Co-operative Society Ltd vs.ITO in ITA no.2 76- 277/Bang/2020 by order dated 30/07/2021, wherein it was held as under:
9.1 As regards the claim of deduction u/s 80P(2)(d) of the I.T.Act, the Bangalore Bench of the Tribunal in the case of M/s.The Jayanagar Co-operative Society Ltd. (supra), on identical facts, had restored the issue to the files of the A. O. for de novo consideration. The narration of facts, contentions and the findings of the Tribunal in the case of M/s.The Jayanagar Co-operative Society Ltd. (supra) reads as follow:-
“4. The issues that arise for consideration in this appeal by the assessee are as to whether the Revenue authorities were justified in holding that the assessee was not entitled to the benefit of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 (in short ‘the Act’) on interest income earned and under section 80P(2)(d) of the Act in respect of interest received from Co-operative institutions. The Assessing Officer (AO) denied the claim of the assessee on the ground that interest income earned by making investment of surplus funds has to be assessed under the head “Income from Other Sources” and not income from business and since interest income is not assessed as business income, the claim for deduction under section 57 of the Act cannot be allowed. In upholding the above conclusions, the CIT(A), inter alia, relied on the decision of the Hon’ble Supreme Court in the case of The Totgar’s Co-operative Sales Society Ltd., Vs. ITO 322 ITR 283 (SC) wherein the Hon’ble Supreme Court held that the benefit of deduction under section 80P(2)(a)(i) of the Act is only on income which is assessable under the head “Income from Business”. Interest earned on investment of surplus funds not immediately required in short term deposits and securities by a Co-operative Society providing credit facilities to members or marketing agricultural produce to members is not business income but income from other sources and the society is not entitled to special deduction.
5. While learned AR relied on the decision of the Hon’ble Karnataka High Court in the case of Tumukur Merchants Souharda Credit Co-operative Ltd., 230 taxman 309 (Karn), the DR relied on a subsequent decision of the Hon’ble Karnataka High Court in the case of PCIT Vs. Totgars Co- operative Sale Society Ltd., 395 ITR 611 (Karn.). We have carefully gone through the said judgment. The facts of the case before the Hon’ble Karnataka High Court was that the Hon’ble Court was considering a case relating to Assessment Years 2007-08 to 2011-12. In case decided by the Hon’ble Supreme Court in the case of the very same assessee, the Assessment Years involved was Assessment Years 1991-92 to 1999-2000. The nature of interest income for all the Assessment Years was identical. The bone of contention of the Assessee in AY 2007-08 to 2011-12 was that M/s. Thannirupantha Primary Agri. Cr. Co-op.So.Ltd. the deduction under Section 80P(2) of the Act is claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act which was the claim in AY 1991-92 to 1999- 2000. The reason given by the Assessee was that in AY 2007-08 to 2011-12 investments and deposits after the Supreme Court’s decision against the assessee Totgar’s Co-operative Sale Society Ltd. (supra), were shifted from Schedule Banks to Cooperative Bank. U/s.80P(2)(d) of the Act, income by way of interest or dividends derived by a Co-operative Society from its investments with any other Co-operative Society is entitled to deduction of the whole of such interest or dividend income. The claim of the Assessee was that Co-operative Bank is essentially a Co-operative Society and therefore deduction has to be allowed under Clause (d) of Sec.80P(2) of the Act. The Hon’ble Karnataka High Court followed the decision of the supreme Court in The Totgars Co-operative Sales Society Ltd. (supra) and held that interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d)of the Act was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 200 7-08 to 2011- 12 and in AY 1991-92 to 1999-2000 decided by the Hon’ble Supreme Court. Therefore whether the source of funds were Assessee’s own funds or out of liability was not subject matter of the decision of the Hon’ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon’ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd.
(supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon’ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon’ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra).”
9.2 In the light of the above order of the Tribunal, we deem it appropriate on the facts of the instant case, to restore the issue of claim of deduction u/s 80P(2)(d) of the I. T.Act to the files of the A. O. Hence ground Nos. 6 and 7 are allowed for statistical purposes.
2.12. Thus we hold that the assessee is eligible for deduction under section 80P(2)(d) in respect of interest earned from deposits made on other Co-operative banks. However, we deem it appropriate on the facts of the instant case, to restore the issue of claim of deduction u/s 80P(2)(d) of the Act, to the files of the Ld.AO to allow the claim as indicated herein above, by granting proper opportunity of being heard to the assessee.
2.13. The Ld.AR also took the plea that, the expenditure incurred in earning of interest from the commercial banks be allowed while computing the taxable income. The provision of Section 57 reads as under:
“Section 57: The income chargeable under the head “Income from other sources” shall be computed after making the following deductions, namely:—
(i) in the case of [dividends, 94[o ther than dividends referred to in section 115-O,]] [or interest on securities], any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend [or interest] on behalf of the assessee;
[(ia) in the case of income of the nature referred to in sub-clause (x) of clause (24) of section 2 which is chargeable to income-tax under the head “Income from other sources”, deductions, so far as may be, in accordance with the provisions of clause (va) of sub-section (1) of section 36 ;]
(ii) in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause (c) of section 30, section 31 and [sub-sections (1) [***] and (2)] of section 32 and subject to the provisions of [section 38];
[(iia) in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or [fifteen] thousand rupees, whichever is less.
Explanation.—For the purposes of this clause, “family pension” means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death ;]
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income;
[(iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section.]”
2.14. We have heard the submissions advanced by both sides on this aspect. We direct the Ld.AO to allow the expenditure incurred while computing income under the head, ‘Income from Other Sources’, in relation to earning of interest from the commercial banks.
Accordingly the grounds raised by the assessee for assessment year 2015-16 stands allowed for statistical purposes.”
5.1 We note that the facts and circumstances are identical in the present assessee’s case, with that in the case of M/s. Bhavasar Kshtriya Co-operative Credit Society Ltd. vs. ITO/ADIT (supra).
5.2 We hold that the assessee is eligible for 80P(2)(d) deduction in respect of interest earned from co-operative banks based on the view taken in the above decision. It is directed that interest earned by the assessee under the head Income from other sources by granting benefit available to the assessee u/s. 57 of the Act. We direct the Ld.AO to follow the directions therein and to compute the deduction in the hands of the assessee in accordance with law.
Needless to say that proper opportunity of being heard must be granted to assessee.
In the result, the appeal filed by assessee stands allowed.
Order pronounced in open court on 18th May, 2023.
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