Interest earned by Co-op Society on Investment with Co-op Bank eligible for Deduction

Technopolis Premises Co-operative Society Limited Vs PCIT (ITAT Mumbai)

We are of the considered view that though the co-operative bank pursuant to the insertion of sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, however, as a co-operative bank continues to be a co-operative society registered under the Co­operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act.

FULL TEXT OF THE ITAT JUDGEMENT

The captioned appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income Tax-25, Mumbai (for short ‘ Pr.CIT’) under Sec. 263 of the Income Tax Act, 1961 (for short ‘Act’), dated 29.08.2019 for A.Y. 2015-16. The assessee has assailed the impugned order on the following grounds of appeal before us:-

“I. Order passed u/s. 263 bad-in-law and liable to be quashed.

1. The Learned Commissioner of Income-tax failed to appreciate that, the order passed by the Assessing Officer u/s. 143(3) is neither erroneous nor prejudicial to the interest of the revenue, hence the order passed u/s. 263 by the Commissioner of Income Tax is bad in law and liable to be quashed

2. Without prejudice to the above, during the assessment proceeding, the Assessing officer vide notice u/s. 142(1) dt. 30/10/2017 called details for deduction claimed under chapter VI-A and in regards to the same, the assessee vide letter dt. 15/11/2017 submitted detailed breakup of deduction claimed u/s 80P along with copies of interest certificates and the order passed by the Assessing officer u/s 143(3) was after considering the details and applying his mind, and hence the order of Assessing officer cannot be said to be erroneous or prejudicial to the interest of revenue and hence the order passed u/s 263 may be quashed.

II. Disallowance of deduction claimed u/s. 80(P)(2)(d) of Rs. 56,16,242/-

3. Without prejudice to the above, the learned Commissioner of Income-tax erred in directing the Assessing officer to disallow the claim of deduction u/s. 80P(2)(D) in respect of interest earned from deposits kept in co-operative banks without appreciating that, co-operatives banks are registered under the Co-operatives Societies Act, 1912 with a license to undertake banking activities and therefore assessee is eligible to claimed deduction u/s. 80(P)(2)(d). Accordingly the direction to disallow the deduction claimed u/s 80(P)(2)(d) is bad in law and without jurisdiction

4. Without prejudice to the above, the case laws relied by the Commissioner of Income tax is not applicable to the facts of the appellant hence the order of Commissioner may be quashed.

5. Without prejudice to the above, the learned Commissioner of Income-tax erred in directing the Assessing officer to calculate tax as per section 115JC and set aside to the Assessing officer without appreciating the fact that neither in the show cause notice the applicability of S.115JC of the Act, hence the order of revision may be quashed.

6. Without prejudice to above the order passed by the Assessing Officer is in accordance with the ratio laid down by various judgements of the Appellate Tribunal Mumbai, hence the revision order passed by the Commissioner may be quashed.

7. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal.

2. Briefly stated, the assessee which is a co-operative society had filed its return of income for A.Y. 2015-16 on 28.09.2015, declaring its total income at Rs. 57,39,670/-. Subsequently, the income of the assessee was assessed by the A.O under Sec. 143(3) of the Act, dated 23.12.2017 at a total income of Rs. 57,39,670/- (after allowing the assesses claim for deduction under Sec. 80P of Rs. 56,16,242/-).

3. The Pr.CIT after culmination of the assessment proceedings called for the records of the assessee. On a perusal of the records, the Pr. CIT was of the view that the assessment framed by the A.O under Sec. 143(3), dated 23.12.2017 was erroneous insofar it was prejudicial to the interest of the revenue on two counts viz. (i) that, the A.O had erroneously allowed the assesses claim for deduction under Sec. 80P(2)(d) on the interest income of Rs. 56,16,242/- that was earned from the investments made with the co-operative banks; and (ii) that, the A.O had erroneously worked out the tax liability of the assessee under the normal provisions at Rs. 19,47,515/- as against the alternate minimum tax (ALT) of Rs. 23,80,257/-. On the basis of his aforesaid observations the Pr.CIT called upon the assessee to explain as to why the assessment framed in its case may not be revised under Sec. 263 of the Act. In reply, the assessee assailed the validity of the jurisdiction assumed by the Pr. CIT under Sec. 263 of the Act. It was claimed by the assessee that as the A.O after necessary deliberations had framed the assessment, therefore, the exercise of the revisional jurisdiction under Sec. 263 by the Pr. CIT was clearly ousted. Also, the assessee tried to impress upon the Pr.CIT that no error did emerge from the assessment framed by the A.O vide his order passed under Sec. 143(3), dated 23.12.2017. It was averred by the assessee that its claim for deduction under Sec. 80P(2)(d) in respect of the interest income on its investments with co-operative banks was well in order. Apart from that, the assessee submitted before the revisional authority that the calculation of the AMT by the A.O suffered from a clerical mistake and the calculation of its tax liability under the normal provisions was rightly done by the A.O. However, the submissions of the assessee did not find favour with the Pr.CIT. Observing, that the assessment framed by the A.O under Sec. 143(3), dated 23.12.2017 was erroneous insofar it was prejudicial to the interest of the revenue for two reasons viz. (i) that, the A.O had wrongly allowed the assesses claim for deduction under Sec. 80P(2)(d) on the interest income earned from its investments with cooperative banks; and (ii) that, the tax liability of the assessee was not calculated under Sec. 115JC, the Pr.CIT ^„set aside‟ the assessment order and directed the A.O to pass a fresh order.

4. Aggrieved, the assessee has assailed the order passed by the Pr.CIT under Sec. 263, dated 29.08.2019 in appeal before us. The Learned Authorized Representative (for short ^„A.R‟) for the assessee took us through the observations recorded by the revisional authority in his order passed under Sec. 263 of the Act. It was submitted by the Ld. A.R that as the A.O had framed the assessment under Sec. 143(3), dated 23.12.2017 after necessary deliberations, therefore, the Pr.CIT was in error in seeking a review of the order in the garb of his revisional jurisdiction under Sec. 263 of the Act. It was submitted by the Ld. A.R that the assesses claim for deduction of the interest income of Rs. 56,16,242/- earned on its investments with co­operative banks under Sec.80P(2)(d) was in order and in conformity with the settled position of law. It was averred by the Ld. A.R that the A.O only after necessary deliberations as regards the entitlement of the assessee towards claim of deduction under Sec. 80P(2)(d) had allowed the same. Apart from that, it was vehemently submitted by the Ld. A.R that the aforesaid claim of deduction raised by the assessee under Sec. 80P(2)(d) was supported by host of orders of the jurisdictional Tribunal viz. (i) Kaliandas Udyog Bhavan Premises Co-op Society Ltd. Vs. ITO 21(2)(1), Mumbai [2018] 94 taxmann.com 15 (Mumbai-Trib.); (ii) Lands End Co-operative Housing Society Ltd. Vs. ITO [2016] 46 CCH 52 (Mum); (iii) Sea Green Co-operative Housing Society Ltd. Vs. ITO [IT Appeal No. 1343 (Mum) of 2017, dated 31-03-2017; and (iv) Merwanjee Cama Park Co-operative Housing Society Vs. ITO [IT Appeal No. 6139 (Mum) of 2014, dated 27-09-2017. In fact, it was submitted by the Ld. A.R that all of the aforesaid orders of the Tribunal were available at the time the assessment was framed by the A.O, vide his order under Sec. 143(3), dated 23.12.2017. As such, it was submitted by the Ld. A.R that now when the A.O while allowing the assesses claim deduction under Sec. 80P(2)(d) had taken a plausible view, which was in conformity with the aforesaid orders of the jurisdictional Tribunal, therefore, the Pr.CIT was clearly divested of his jurisdiction to hold the aforesaid view arrived at by the A.O as erroneous. As regards the observation of the Pr.CIT that the A.O had erred in not computing the tax liability of the assessee as per the AMT, it was submitted by the Ld. A.R that the aforesaid observation of the revisional authority was in itself based on incorrect working of the A.O in the ITNS. On the basis of his aforesaid contentions, it was averred by the Ld. A.R that as the Pr.CIT had erroneously assumed jurisdiction under Sec. 263 of the Act, therefore, the order passed by him was liable to be set aside.

5. Per contra, the Learned Departmental Representative (for short ^„D.R) relied on the order passed by the Pr. CIT under Sec. 263 of the Act. It was submitted by the Ld. D.R that as the assessment framed by the A.O was found to be erroneous insofar it was prejudicial to the interest of the revenue, therefore, the Pr.CIT has rightly exercised her revisional jurisdiction and ^„set aside‟ the assessment framed by the A.O, vide her order passed under Sec. 143(3),dated 23.12.2017.

6. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the jurisdictional pronouncements relied upon by them. As is discernible from the order of the Pr.CIT, the assessment framed by the A.O under Sec.143(3), dated 23.12.2017 had been held to be erroneous insofar it was prejudicial to the interest of the revenue, for two reasons viz. (i) that, the A.O had erroneously allowed the assesses claim for deduction under Sec. 80P(2)(d) on the interest income of Rs. 56,16,242/- that was earned from its investments made with the co­operative banks; and (ii) that, the A.O had erroneously worked out the tax liability of the assessee under the normal provisions at Rs. 19,47,515/- as against the alternate minimum tax (ALT) of Rs. 23,80,257/-.

7. We shall first advert to the view taken by the Pr.CIT that the A.O by erroneously allowing the assesses claim of deduction under Sec. 80P(2)(d) in respect of the interest income that was earned by it from its investments with the co-operative banks, had thus rendered the assessment framed by him under Sec. 143(3), dated 23.12.2017 as erroneous, insofar it was prejudicial to the interest of the revenue. On a perusal of the orders of the lower authorities, we find, that the assessee had during the year under consideration earned interest income of Rs. 56,16,242/- on its investments with the following co-operative banks :

The controversy involved in the present case revolves around the aspect that as to whether the interest income earned by a co-operative society from its investments with the co-operative banks is eligible for deduction under Sec. 80P(2)(d) of the Act, or not. In our considered view, the answer to the aforesaid issue hinges around the adjudication of the scope and gamut of sub­section (4) of Sec. 80P as had been made available on the statute by the legislature, vide the Finance Act 2006, with effect from 01.04.2007. We find that the Pr.CIT held a conviction that pursuant to insertion of sub-section (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) on its interest income earned on the amounts parked as investments with co­operative banks, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. As per the Pr. CIT, as the co-operative banks with which the surplus funds of the assessee were parked as investments were neither Primary Agricultural Credit Society nor a Primary Co-operative Agricultural and Rural Development Bank, therefore, the interest income earned on such investments was not eligible for claim of deduction under Sec. 80P(2)(d) of the Act.

8. We have given a thoughtful consideration to the aforesaid issue before us and are unable to persuade ourselves to be in agreement with the view taken by the Pr. CIT. Before proceeding further, we may herein reproduce the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us.

“80P(2)(d)

(1) Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.

(2). The sums referred to in sub-section (1) shall be the following, namely :-

(a)……………………………………………………………………………………………………………………………………….

(b)……………………………………………………………………………………………………………………………………….

(c)………………………………………………………………………………………………………………………………………..

(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;”

On a perusal of the aforesaid Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other co-operative society shall be deducted in computing the total income of the assessee. We may herein observe that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other co-operative society. Although, with the insertion of sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but the same in our considered view would not jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of the interest income earned on its investments parked with a co-operative bank. We have given a thoughtful consideration to the issue before us and are of the considered view that as long as it is proved that the interest income is being derived by a co­operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We may herein observe that the term ^„co-operative society‟ had been defined under Sec. 2(19) of the Act, as under:-

“(19)  “Co-operative society” means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;”

9. We are of the considered view that though the co-operative bank pursuant to the insertion of sub-section (4) of Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, however, as a co-operative bank continues to be a co-operative society registered under the Co­operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act. Our aforesaid view that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co-operative bank is covered in favour of the assessee in the following cases:

(i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum)

(ii) M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017

(iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITO-Range-20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017.

Also, we find that the Hon’ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had also held that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was to provide that the co-operative banks which are functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. We are of the considered view that the reliance placed by the Pr. CIT on the judgment of the Hon‟ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) being distinguishable on facts, had wrongly been relied upon by her. The adjudication by the Hon‟ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not as regards the entitlement of a co-operative society towards deduction under Sec. 80P(2)(d) on the interest income from its investments parked with a co-operative bank. Accordingly, drawing support from the aforesaid judicial pronouncements, we are of the considered view that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. Be that as it may, in our considered view as the A.O while framing the assessment under Sec. 143(3), dated 23.12.2017, had arrived at a plausible as regards the assesses entitlement under Sec. 80P(2)(d) on the interest income earned on its investments held with the co-operative banks, which view we find at the point of framing of the assessment was in conformity with that arrived at by the jurisdictional Tribunal in a host of judicial pronouncements, therefore, the said fact in itself would suffice to divest the Pr.CIT of his revisional jurisdiction under Sec. 263 in respect of the aforesaid issue.

10. We shall now advert to the observations of the Pr.CIT that although as per ITNS the AMT in the case of the assessee worked out at Rs. 23,80,257/- [Rs. 1,13,55.916/- (adjusted total income) x 18.5% (rate of tax under Sec. 115JC)], however, the A.O had wrongly calculated the tax liability of the assessee on its normal income at Rs. 19,47,515/- (including surcharge & e.cess) [Rs. 57,39,670/-(normal income) x 30% (rate of tax under the normal provisions)]. On the basis of his aforesaid observations the Pr.CIT was of the view that since the AMT was more than the normal tax liability of the assessee, therefore, the calculation of the tax liability by the A.O on the normal income of the assessee had resulted in short levy of tax of Rs. 5,75,547/- (including interest under Sec. 234B of the Act). Accordingly, the Pr.CIT was of the view that the assessment framed by the A.O under Sec. 143(3), dated 23.12.2017 was also erroneous, insofar it was prejudicial to the interest of the revenue on the aforesaid count.

11. On a perusal of the order of the Pr.CIT, we find, that it has been the claim of the assessee that the A.O was in error in working out the ^„adjusted total income‟ of the assessee under Sec. 115JC of the Act. As can be gathered from the submissions made by the assessee before the Pr.CIT, the tax liability of the assessee as per Sec.115JC as worked out by the assessee and that arrived at by the A.O in the ITNS, is as under :

As per Sec. 115JC of the Act, where the regular income tax payable for a previous year by a person, other than a company is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of that person such previous year and he shall be liable to pay income tax on such total income at the rate of eighteen and one-half percent. As per sub-section (2) of Sec. 115JC, the ^„adjusted total income‟ of the assessee shall be the ^„total income‟ as increased by viz. (i) deductions claimed, if any, under any section (other than 80P) including in Chapter VI-A; (ii) deduction claimed, if any, under Sec. 10AA; and (iii) deduction claimed, if any, under Sec. 35AD as reduced by the amount of depreciation allowable in accordance with the provisions of Sec. 32 as if no deduction under Sec. 35AD was allowed in respect of the assets on which the deduction under that section is claimed. Accordingly, for the purpose of computing the ^„adjusted total income‟ under Sec. 115JC, the total income of the assessee has to be inter alia raised by the deduction envisaged in Chapter-VIA. However, as specifically provided in clause (i) of sub-section (2) to Sec. 115JC, the ^„total income‟ of the assessee is not to be increased by the deduction claimed under Sec. 80P. On a perusal of the calculation of the ^„adjusted total income‟ as per ITNS, we find, that the A.O had worked out the same by increasing the total income of the assessee by the amount of deduction of Rs. 56,16,242/- that was claimed by the assessee under Sec.80P of the Act. As such, on the basis of his aforesaid working, the A.O had erroneously calculated the ^„adjusted total income‟ at Rs. 1,13,55,916/- as against the correct amount of Rs. 57,39,674/-. In the backdrop of the aforesaid facts, we find substantial force in the claim of the Ld. A.R that the observation of the Pr.CIT that the tax liability of the assessee as per AMT was higher than that worked out on its ^„normal income‟, is based on incorrect working of the A.O in the ITNS. In sum and substance, a correct working of the AMT on the ^„adjusted total income‟ of Rs. 57,39,674/- is clearly found to be lower than the tax liability of the assessee under the ^„normal provisions‟. On the basis of the aforesaid facts, we are of a strong conviction that as the calculation of the tax liability by the A.O under the ^„normal provisions‟ at Rs. 19,47,515/- [Rs. 57,39,670/- (normal income) x 30% (+) Surcharge and E.cess] is higher than the correct amount of AMT viz. [Rs. 57,39,674/- (adjusted total income) x 18.5%], therefore, the calculation of the tax liability by the A.O as per the ^„normal provisions‟ at Rs. 19,47,515/- cannot be held to be prejudicial to the interest of the revenue. Accordingly, on the basis of our aforesaid deliberations, we are of the considered view that the Pr.CIT is in error in concluding that the saddling of the assessee with the tax liability under the normal provisions had rendered the assessment order passed by the A.O under Sec. 143(3), dated 23.12.2017 as erroneous, insofar it was prejudicial to the interest of the revenue.

12. On the basis of our aforesaid observations, we set aside the order passed by the Pr.CIT under Sec. 263 of the Act and restore the assessment framed by the A.O vide his order passed under Sec. 143(3), dated 23.12.2017.

13. Resultantly, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 08.01.2020