West Bengal State Co-Operative Agriculture & Rural Development Bank Ltd. Vs DCIT (Calcutta High Court)
Conclusion: Where Cooperative Society was engaged in the business of providing credit facilities to its members, they deposited excess amount for short term in banks, interest earned was entitled for deduction under Section 80P(2)(a)(i).
Held: Assessee was a cooperative society of the land mortgage bank in the State of West Bengal, funds were received from NABARD during the relevant financial year. The funds were received in two installments and the funds were in turn lent to the members in 100 of installments and as the assessee did borrow in a wholesale manner and lend on retail basis, there was always some floating fund. Therefore, assessee’s case was that these activities were integral to their business of lending and the interest earning on the deposits was attributable to their lending business. Further, assessee contended that they received repayment from borrowers in several installments and they had to in turn repay to NABARD which had to be done only twice a year i.e., 31st January and 31st July of each year as per the Schedule fixed by NABARD. Further, assessee contended that the society was not carrying on any separate business for earning such interest income and the income so derived was the amount of profits and gains attributable to the activities of carrying in the business of banking or providing credit facilities to its members by a cooperative society and the same was liable to be deducted from the gross total income under Section 80P. AO who completed the assessment under Section 143(3) did not accept the submissions made by assessee by referring to the decision of the Supreme Court in Totgars Cooperative Sales Society Ltd. vs. ITO, (2010) 188 Taxman 282 (SC). Aggrieved by such order, assessee preferred appeal before CIT (Appeals) which was dismissed. Aggrieved by such order, assessee preferred appeal before the Tribunal which was dismissed. It was held that in the case of Totgars Cooperative Sales Society Ltd. where the Supreme Court was dealing with the case where assessee therein, apart from providing credit facility to the members, was also in the business of marketing of agricultural produce grown by its members and the sale consideration received from marketing agricultural produce of its members was retained in many cases and retained amount which was payable to its members from whom produce was bought, was invested in a short term deposit/security. The facts of the case of assessee was entirely different as the amount which was deposited in the bank was not an amount due to the members and it was not the liability of the society to the members and, therefore, the interest earned from such deposits in the bank should be held to be eligible for deduction under section 80P(2)(a)(i). The bench held that AO, CIT(A) as well as Tribunal erred in not granting the deduction as claimed by assessee under section 80P(2)(a)(i) and also erred in following the decision in Totgars Cooperative Sales Society Ltd. (supra) which was not applicable to the facts and circumstances of the case.
