Deduction u/s 80P eligible on ‘interest’ earned by assessee on deposits placed with SBI by SBI Officers Co-op. Credit Society

SBI Officers Coop. Credit Society Ltd Vs. ITO (ITAT Hyderabad)

This is assessee’s appeal for the A.Y 2012-13. In this appeal, the assessee is aggrieved by the order of the learned CIT (A)-10, Hyderabad, dated 2.11.2016 confirming the dis allowance of Rs. 77,44,295 claimed by the assessee as a deduction u/s 80P of the Act.

2. Brief facts of the case are that the assessee is a Co-operative Credit Society providing credit facility to its members. It filed its return of income for the A.Y 2012-13 on 28.09.2012 admitting “income from business or profession” at Rs. 1,91,88,053 and claiming the same as a deduction u/s 80P of the Act.

3. During the assessment proceedings u/s 143(3) of the I.T. Act, the AO observed that the assessee was established for the benefit of SBI Officers only, by collecting share capital and thrift contributions every month, from members and was sanctioning loans to the members who are in need of money for performing of marriages and higher education of children etc. From the income and expenses statement for the year, the AO observed that the assessee’s receipts include “Interest on Deposits” amounting to Rs. 77,44,295. As the assessee’s total income from the business of providing credit facilities, includes receipts attributable to “interest on deposits” made with a scheduled bank which is not a member of the society, the AO asked the assessee to explain as to why the interest earned on bank deposit should not be treated as income from other sources and exemption u/s 80C should not be disallowed. In response, the assessee filed explanations dated 22.1.2015 and 29.01 .2015, stating that the funds constitute reserves which have been deposited with State Bank of India as per norms of A.P. Cooperative Society Act, 1964 and that the Society is eligible for deduction under the profits attributable to their activity u/s 80P(1)(2(a)(i) of the I.T. Act and that the provisions of section 80P(2)(d) are not applicable to the society as they are keeping the reserves and temporary surpluses with the nationalized Bank as mandated by law. It was submitted that the interest earned on statutory fund deposits made in Bank are eligible for deduction as per the decisions of the Hon’ble Courts and Tribunal’s. The assessee also explained that the decision of the judgment of the Hon’ble Supreme Court in the case of Totgar’s Co-operative Sale Society Ltd vs. ITO is not relevant to the facts of the case and relied upon the decision of the Hon’ble jurisdictional High Court in the case of A.P. State Cooperative Bank Ltd and Apex Courts decision in the case of Karnataka State Cooperative Apex Bank. The AO was, however, not convinced with the assessee’s explanation. He was of the opinion that the interest earned on Fixed Deposits made with nationalized bank is not attributable to the activities of providing credit facilities for its members. He therefore, held that the interest income on FDs received from SBI of Rs. 77,44,295 is the “income from other sources” and disallowed the claim of deduction u/s 80P(2)(a)(i) of the Act to that extent. Aggrieved, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO and the assessee is in second appeal before us.

4. The learned Counsel for the assessee submitted that the assessee, being a Cooperative Society, carrying on the business of banking, is required to deposit the reserves and temporary surpluses with nationalized banks as mandated by law and that the interest earned on such statutory fund deposits is eligible for deduction u/s 80P of the Act as per the decisions of the Tribunal and the jurisdictional High Court. He placed reliance upon the decision of the jurisdictional High Court in the case of Vavveru Co-operative Rural Bank Ltd, in writ petition Nos. 12727 of 2016 and Batch, dated 15.03.2017, wherein the Hon’ble Court was considering the question as to whether the income derived by the petitioners by way of interest on fixed deposit made in the Bank is to be treated as profit and gains of business attributable to any of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not. After considering the various decisions/precedents on the issue, including the decision of the Hon’ble Supreme Court in the case of Totgar’s Co-operative Sale Society Ltd vs. ITO in reported in (2010) 322 ITR 283, dated ^8th February, 2010, the Hon’ble High Court has held that where the investments are made by the petitioners in FD’s of nationalized banks of their own money and if the petitioners had made investment of those amounts in other cooperative societies, then the petitioners therein are eligible for benefit of deduction u/s 80P of the Act. The learned Counsel for the assessee further submitted that in the assessee’s own case, the ‘B’ Bench of this Tribunal in ITA No. 1429/Hyd/2013 dated 26.2.20 14 had held that the assessee is eligible for deduction u/s 80P of the Act and that the Revenue had gone in appeal to the Hon’ble High Court by way of ITTA No. 669/2016 and the Hon’ble High Court, following its decision in W.P. Nos. 12727 of 2016 and Batch dated 15.3.2017, has upheld the order of the Tribunal. He filed the copies of the said orders before us.

5. The learned DR, on the other hand, submitted that similar issue in the case of SBI, Gujarat region had come up for consideration before the Hon’ble Gujarat High Court, as reported in (2016) 72 Taxmann.com 64 (Guj.), wherein following the decision of the Hon’ble Supreme  Court in the case of Totgar’s Co-operative Sale Society Ltd vs. ITO (cited Supra), the Hon’ble High Court had held the issue against the assessee. She, therefore, placed reliance upon the said decision.

6. Having regard to the rival contentions and the material on record, we find that the jurisdictional High Court’s decision is in favour of the assessee, while the decision of the Hon’ble Gujarat High Court is against the assessee. However, we find that in the case of SBI vs. CIT, before the Hon’ble Gujarat High Court, the W.P. was filed against the order of the CIT u/s 263 on the question whether the interest income from SBI was exempt u/s 80P(2) of the I.T. Act. The Hon’ble Gujarat High Court has followed the decision of the Hon’ble Supreme Court of India in the case of Totgar’s Co-operative Sale Society Ltd vs. ITO to hold in favour of the Revenue. The Hon’ble jurisdictional High Court, in the case of Vavveru Coop.Rural Bank Ltd (cited Supra) has distinguished the decision of the Hon’ble Supreme Court in the case of Totgar’s Co-operative Sale Society, to hold the issue in favour of the assessee. As held by the Hon’ble Bombay High Court in the case of CIT Godavaridevi Saraf reported in (1978) 113 ITR 589 (Bom.), we are bound by the decision of the jurisdictional High Court on similar set of facts. Further, in the case of SBH Employees Co-operative Credit Society also, the Hon’ble jurisdictional High Court has held the issue in favour of the assessee. Respectfully following the same, we allow the assessee’s appeal and direct the AO to allow the deduction u/s 80P of the Act of the ‘interest income’ earned by the assessee on the deposits placed with the SBI, a nationalized bank. The learned DR had tried to distinguish the facts of the case before us with the above decision stating that in the case of the assessee, the interest is earned on FDR’s, while, in the case before the Hon’ble High Court, the deposits were not fixed deposits. However, from the assessment order, it is seen that the reserves and surpluses have been kept as deposits and there is no reference to ‘FDRs’ by the AO. Therefore, this distinction is not established.

7. In the result, assessee’s appeal is allowed.

Order pronounced in the Open Court on 15^th December, 2017.