ITO Vs Shri Bhairavnath Multistate Cooperative Credit Society Ltd. (ITAT Pune)
Summary: The Pune Bench of the Income Tax Appellate Tribunal considered a recalled Revenue appeal for Assessment Year 2014-15 in the case of a Co-operative Credit Society registered under the Multi State Co-operative Societies Act, 2002. The society was engaged in providing credit facilities to its members, accepting deposits and giving loans to members in accordance with cooperative laws. It had filed its return of income on 25.09.2014 declaring total income at Nil.
During the relevant year, the assessee received interest income of Rs.3,39,44,265/- from deposits made with commercial banks, cooperative banks and cooperative societies. The Assessing Officer completed the assessment under Section 143(3) by order dated 23.11.2016 at a total income of Rs.33,69,640/-. While doing so, the Assessing Officer denied the assessee’s claim of exemption of Rs.2,65,15,064/- under Section 80P(2)(a)(i)/80P(2)(d) in respect of interest and dividend income earned from deposits with various cooperative banks/societies as well as nationalised banks.
The CIT(A), however, allowed the assessee’s claim under Section 80P(2)(a)(i)/80P(2)(d), relying upon decisions of various Benches of the Tribunal and CBDT Circular No.18/2015 dated 02.11.2015. The Revenue challenged the CIT(A)’s order before the Tribunal.
The Tribunal noted that the matter was a recalled matter pursuant to order dated 30.05.2024 in M.A. No.285/PUN/2022, concerning the Revenue’s appeal in ITA No.2484/PUN/2017 dated 01.08.2018. On consideration of the issue, the Tribunal held that the matter was no longer res integra in view of decisions of Coordinate Benches.
The Tribunal found that the interest income had been earned from investments of surplus funds with cooperative banks/societies. It observed that a cooperative bank is also a specie of cooperative society and therefore interest income earned by the cooperative society from cooperative banks qualifies for deduction under Section 80P(2)(d). The Tribunal further held that such interest also qualifies for exemption under Section 80P(2)(a)(i), following the decision of the Pune Tribunal in Nashik Road Nagari Sahkari Patsanstha Limited Vs. ITO in ITA No.1700/PUN/2017.
In the decision relied upon by the Tribunal, the issue concerned interest earned on surplus funds deposited with Bank of Baroda. The Tribunal in that case considered divergent judicial views concerning whether interest earned on surplus funds could qualify for Section 80P(2)(a)(i) deduction. The Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO and the Telangana and Andhra Pradesh High Court in Vaveru Co-operative Rural Bank Ltd. v CIT had taken a view that such interest income was attributable to the activities of the society and eligible for exemption. In contrast, decisions of the Punjab & Haryana, Gujarat, Delhi and Kolkata High Courts had taken views against such deduction in the circumstances considered by those Courts.
The Pune Tribunal also noted the Coordinate Bench decision in M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit Vs. ITO, ITA Nos.559/560/PUN/2018, dated 11.12.2018, which had taken a view in favour of the assessee following Tumkur Merchants Souharda Credit Cooperative Ltd.
Ultimately, the Tribunal held that the CIT(A)’s order was in conformity with the settled position of law. It affirmed the direction to the Assessing Officer to allow the claim of exemption under Section 80P(2)(a)(i)/80P(2)(d) on interest income earned on investments made out of surplus funds with cooperative banks, cooperative societies and nationalised banks.
Accordingly, the Revenue’s appeal was dismissed.
Cases Discussed / Relied Upon
- Nashik Road Nagari Sahkari Patsanstha Limited Vs. ITO (ITAT Pune), ITA No. 1700/PUN/2017 — Followed for the proposition that interest earned by a co-operative credit society from investment of surplus funds with banks is eligible for deduction under Section 80P(2)(a)(i).
- CIT Vs. Punjab State Cooperative Federation of Housing Building Societies Ltd. (Punjab & Haryana High Court), 11 taxmann.com 448 — Discussed as taking the view that interest on surplus funds invested in short-term deposits and securities is not attributable to the activities of the society for Section 80P(2)(a)(i).
- State Bank of India Vs. CIT (Gujarat High Court), 389 ITR 578 — Discussed as part of the line of authorities against allowing deduction under Section 80P(2)(a)(i) on interest arising from investment of surplus funds.
- Mantola Co-operative Thrift & Credit Society Ltd. Vs. CIT (Delhi High Court), 50 taxmann.com 278 — Discussed as taking the view that interest on surplus funds invested in short-term deposits and securities does not qualify for deduction under Section 80P(2)(a)(i).
- CIT Vs. Punjab State Cooperative Agricultural Development Bank Ltd. (Punjab & Haryana High Court), 389 ITR 68 — Discussed as authority against treating interest arising from investment of surplus funds as eligible income under Section 80P(2)(a)(i).
- CIT Vs. Southern Eastern Employees Cooperative Credit Society Ltd. (Calcutta High Court), 390 ITR 524 — Discussed as taking the view that income arising from surplus invested in short-term deposits and securities is not eligible for deduction under Section 80P(2)(a)(i).
- Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (Karnataka High Court), (2015) 230 Taxman 309 (Kar.) — Followed as supporting the view that interest earned by a co-operative society from temporary investment of surplus funds attributable to its business activities qualifies for deduction under Section 80P(2)(a)(i).
- Vaveru Co-operative Rural Bank Ltd. Vs. CIT (Telangana & Andhra Pradesh High Court) — Discussed as supporting the proposition that interest income attributable to the activities of a co-operative society is eligible for deduction under Section 80P(2)(a)(i).
- M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit Vs. ITO (ITAT Pune), ITA Nos. 559 & 560/PUN/2018, dated 11.12.2018 — Followed by the Coordinate Bench in Nashik Road Nagari Sahkari Patsanstha Limited after applying the Karnataka High Court decision in Tumkur Merchants Souharda Credit Cooperative Ltd.
FULL TEXT OF THE ORDER OF ITAT PUNE
This is a recalled matter vide order dated 30.05.2024 in M.A. No.285/PUN/2022 for the assessment year 2014-15 filed against the appeal of the Revenue in ITA No.2484/PUN/2017 dated 01.08.2018.
2. Briefly, the facts of the case are that the appellant is a Co-operative Credit Society registered under Multi State Co.op Societies Act, 2002. It is engaged in the business of providing credit facilities to its members, accepting deposits and giving loans to the members as per the cooperative laws. The appellant society filed the Return of Income for the assessment year 2014-15 on 25.09.2014 declaring total income at Nil. During the year under consideration, the assessee received interest income of Rs.3,39,44,265/- from the deposits made with commercial banks, cooperative banks and cooperative societies. Against the said return of income, the assessment was completed by the Assessing Officer (AO) vide order dated 23.11.2016 passed u/s 143(3) of the Act at a total income of Rs.33,69,640/-. While doing so, the Assessing Officer denied the claim of exemption of Rs.2,65,15,064/- made u/s.80P(2)(a)(i)/80P(2)(d) in respect of interest and dividend income earned out of the deposits made with various Cooperative banks/societies as well as Nationalised banks.
3. Aggrieved by the above assessment order, an appeal was filed before the CIT(A) who vide impugned order allowed the claim of deduction made by the assessee u/s.80P(2)(a)(i)/80P(2)(d) placing reliance on the decisions of various Benches of the Tribunal and CBDT Circular No.18/2015, dt. 02.11.2015.
4. Being aggrieved, the Revenue is in appeal before the Tribunal appeal.
5. We heard the rival submissions and perused the material on record. We find this issue is no more res integra by virtue of catena of decisions passed by the Coordinate Benches of this Tribunal. In the present case, we find that admittedly the interest income was earned from the investments out of surplus funds made with cooperative banks/socieites, the cooperative bank is also a specie of cooperative society, therefore, the interest income earned by the cooperative society from the cooperative banks qualifies for deduction u/s.80(P)(2)(d) of the Act. Such interest also qualifies for exemption u/s.80P(2)(a)(i) as held by the Co-ordinate Bench of Pune Tribunal in the case of Nashik Road Nagari Sahkari Patsanstha Limited Vs. ITO in ITA No.1700/PUN/2017 wherein the Tribunal held as under :-
“9. We heard the rival submissions and perused the material on record. Admittedly, the appellant is a Cooperative society formed under the provisions of Maharashtra Cooperative Societies Act,1960 with the objective of accepting deposits and lending money to its members. The money which is not immediately required for the purpose of lending to the members is deposited with Bank of Baroda in the form of Fixed Deposit. The question is whether the interest so earned qualifies for exemption u/s. 80P(2)(a)(i) of the Act. The AO as well as the CIT(A) were of the opinion that the interest earned from third parties or non-members does not quality for exemption u/s.80P. It is an admitted position that the interest so earned should be taxed as ‘income from other sources’ There is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption u/s. 80P(2)(a)(i) of the Act. The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Punjab State Cooperative Federation of Housing Building Societies Ltd. 11 taxmann.com 448, the Hon’ble Gujarat High Court in the case of State Bank of India Vs. CIT 389 ITR 578 (Guj.), the Hon’ble Delhi High Court in the case of Mantola Co-operative Thrift & Credit Society Ltd. Vs. CIT 50 taxmann.com 278, the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Punjab State Cooperative Agricultural Development Bank Ltd. 389 ITR 68 and the Hon’ble Kolkata High Court in the case of CIT Vs. Southern Eastern Employees Cooperative Credit Society Ltd. 390 ITR 524 took a view that the income arising on the surplus invested in short term deposits and securities cannot be attributed to the activities of the society and, therefore, not eligible for exemption u/s.80P(2)(a)(i) of the Act. However, the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 taxmann 309 (Kar.) and the Hon’ble Telangana and Hon’ble Andhra Pradesh High Court in the case of Vaveru Co-operative Rural Bank Ltd. v CIT [(2017) 396 ITR took a view that such interest income is attributable to the activities of the society and, therefore, eligible for exemption u/s.80P(2)(a)(i) of the Act. The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit Vs. ITO (ITA Nos.559/560/PUN/2018, dated 11-12-2018) has taken view in favour of the assessee following the judgment of Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Respectfully following the decision of the Coordinate Bench, we hold that the interest income earned on the investment of surplus money with banks is also eligible for exemption u/s.80P(2)(a)(i) of the Act. Thus, the grounds of appeal No. 1 & 2 stands allowed.”
6. Thus, the order passed by the ld.CIT(A) is in conformity with the settled position of law by virtue of the above discussion. Therefore, we affirm the impugned order directing the Assessing Officer to allow the claim of exemption u/s.80P(2)(a)(i)/80P(2)(d) on the interest income earned on investments made out of surplus funds made with Cooperative banks, Cooperative Societies and Nationalised banks.
7. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on this 27th day of June, 2024.
