Yogiraj Nagari Sahkari Patsanstha Maryadit Vs ITO (ITAT Pune)
Summary: The Income Tax Appellate Tribunal (ITAT), Pune Bench “B”, in Yogiraj Nagari Sahkari Patsanstha Maryadit Vs ITO, ITA No. 1152/PUN/2023, dated 6 June 2024, for Assessment Year 2020-21, allowed the assessee co-operative society’s claim for deduction under Section 80P of the Income Tax Act, 1961, in respect of interest earned from deposits with co-operative banks. The assessee, registered under the Maharashtra Co-operative Societies Act, 1960, was engaged in providing credit facilities to its members. It filed its return declaring nil income after claiming a deduction of ₹2,29,99,903 under Section 80P(2)(a)(i). During scrutiny, the Assessing Officer noticed gross receipts of ₹9,60,27,199, including interest of ₹2,56,80,764 received from various co-operative banks. The Assessing Officer disallowed the deduction of ₹2,29,99,903 relating to interest earned on fixed deposits made out of surplus funds with other co-operative banks, holding that such interest was not eligible under Section 80P(2)(a)(i).
The National Faceless Appeal Centre upheld the assessment, relying on Totgar Cooperative Sale Society Ltd., 322 ITR 283 (SC), and PCIT Vs Totgars Cooperative Sale Society Ltd., 395 ITR 611 (Karnataka High Court). Before the Tribunal, the assessee contended that the question was already covered by decisions of the Pune Benches allowing deductions under Sections 80P(2)(a)(i) and 80P(2)(d). The Tribunal examined the decision in The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society Vs ITO, ITA No. 84/PAN/2018, dated 27 May 2022. That decision had considered the statutory treatment of interest derived from investments with co-operative societies and distinguished the relevant judicial authorities, including decisions concerning interest from co-operative banks and the distinction between Sections 80P(2)(a)(i) and 80P(2)(d).
Following the co-ordinate bench decision, the Tribunal held that interest earned by a co-operative society on deposits of surplus funds with co-operative banks as well as scheduled banks qualified for deduction under Sections 80P(2)(a)(i) and 80P(2)(d). It rejected the reasoning adopted by the lower authorities and directed the Assessing Officer to allow the deduction in respect of interest income earned from other co-operative banks. Consequently, the assessee’s appeal was allowed, reversing the disallowance of ₹2,29,99,903. The decision applies the Pune Tribunal’s established approach to the eligibility of interest earned by co-operative credit societies on their bank deposits.
Cases Discussed
- Totgar Cooperative Sale Society Ltd. Vs ITO (Supreme Court), 322 ITR 283 — Relied upon by the NFAC while confirming the disallowance of Section 80P deduction.
- PCIT Vs Totgars Cooperative Sale Society Ltd. (Karnataka High Court), 395 ITR 611 — Cited by the NFAC in support of disallowance; considered in the co-ordinate bench reasoning reproduced by the Tribunal.
- The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society Vs ITO (ITAT Panaji), ITA No. 84/PAN/2018; 27/05/2022 — Followed by the Tribunal in allowing the deduction on interest earned from bank deposits.
- CIT Vs Totagars Cooperative Sale Society (Karnataka High Court), 392 ITR 74 — Discussed in the reproduced co-ordinate bench order concerning Section 80P(2)(d).
- Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. Vs ITO (ITAT Pune), 120 taxmann.com 10 — Discussed in the reproduced decision on eligibility of bank interest for Section 80P deduction.
- Tumkur Merchants Souharda Credit Co-op. Ltd. Vs ITO (Karnataka High Court), 55 taxmann.com 447; (2015) 230 Taxman 309 — Considered as supporting deduction on interest income.
- Mantola Cooperative Thrift Credit Society Ltd. Vs CIT (Delhi High Court), 50 taxmann.com 278; (2014) 110 DTR 89 — Considered as expressing a contrary view on interest earned from banks.
- Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs Pr.CIT (ITAT Pune), ITA No. 713/PUN/2016; 09/04/2019 — Cited in the reproduced co-ordinate bench decision.
- Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs ITO (ITAT Pune), ITA No. 604/PN/2014; 19/08/2015 — Cited as an earlier Pune Tribunal decision allowing a similar deduction.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
This is an appeal filed by the assessee directed against the order of National Faceless Appeal Centre (NFAC), Delhi dt. 16.10.2023 for the assessment year 2020-21.
2. Briefly, the facts of the case are that the appellant is a Cooperative Society established under the Maharashtra Co.op Societies Act, 1960. It is engaged in the business of providing credit facilities to its members. The Return of Income for the assessment year 2020-21 was filed on 26.09.2020 declaring Nil after claiming deduction of Rs.2,29,99,903/- u/s.80P(2)(a)(i) of the Act. The case was selected for Scrutiny under CASS. Statutory notices were served on the assessee to file certain information. On perusal of the balance sheet, the Assessing Officer (AO) noticed that the assessee had shown gross receipts of Rs.9,60,27,199/- which is inclusive of interest received by the appellant from various cooperative banks amounting to Rs.2,56,80,764/-. A show cause notice dated 12.09.2022 was issued to the assessee to justify the claim of deduction made u/s.80P(2)(a)(i). The Assessing Officer (AO) completed the assessment u/s.143(3) disallowing the deduction claimed u/s.80P(2)(a)(i) in respect of interest earned on deposits made with cooperative banks out of surplus funds. While doing so, the Assessing Officer had brought to tax the interest income of Rs.2,29,99,903/- earned on FDs with other co-operative banks holding that the said interest does not qualify for deduction u/s 80P(2)(a)(i) of the Act.
3. Being aggrieved, an appeal was filed before the NFAC, who vide impugned order placing reliance on the judgments of Hon’ble Supreme Court in the case of Totgar Cooperative Sale Society Ltd. 322 ITR 283 (SC) and PCIT Vs. Totgars Cooperative Sale Society Ltd. 395 ITR 611 (Kar HC) etc. confirmed the action of the AO
4. Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
5. The ld. AR submits that the case of the assessee is covered by virtue of decisions passed by the Pune Benches of the Tribunal allowing the deduction u/s.80P(2)(a)(i)/80P(2)(d), therefore, prayed for reversing the order of the authorities below.
6. On the other hand, ld. Sr. DR placing reliance on the orders of the lower authorities submits that no interference is called for.
7. We heard both the sides perused the material on record. The only issue in the present appeal relates to the eligibility of the assessee for exemption u/s. 80P(2)(a)(i) or u/s 80P(2)(d) of the Act in respect of interest income earned from other cooperative banks. The issue is no more res integra as the same is covered by catena of decisions passed by the Pune Benches allowing the deduction u/s.80P of the Act.
8. The Co-ordinate Bench of the Tribunal in the case of The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs. ITO in ITA No.84/PAN/2018 for A.Y. 2012-13 order dated 27.05.2022 held in favour of the appellant society. The relevant paragraphs of the said order of Co-ordinate Bench of the Tribunal (supra) is reproduced herein under :-
“8. We heard the rival submissions and perused the material on record. The only issue in the present appeal is pertaining to the allowability of deduction under the provisions of section 80P(2)(d) of the Act. On perusal of provisions of section 80P(2)(d), it is clear that the income derived by a cooperative society from its investment held with other cooperative societies shall be exempt from the total income of a cooperative society. Therefore, what is relevant for claiming of deduction u/s 80P(2)(d) is that interest income should have been derived from the investment made by the assessee cooperative society with any other cooperative society. In the present case, the reasoning given by the lower authorities for denial of exemption u/s 80P(2)(d) of the Act is that interest was received from cooperative bank has no legs to stand as a cooperative bank is also a cooperative society. This issue was considered by the Hon’ble Karnataka High Court in the case of CIT vs. Totagars Cooperative Sale Society, 392 ITR 74 (Karn) wherein the Hon’ble High Court referring to the Hon’ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. (supra) held that the ratio of decision of the Hon’ble Supreme Court in the aforesaid case (supra) not to be applicable in respect of interest income on investment as same falls under the provisions of section 80P(2)(d) and not u/s 80P(2)(a)(i) of the Act.
9. Even the decision of Pune Bench of the Tribunal in the case of Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. vs. ITO, 120 taxmann.com 10 wherein the Tribunal after making reference to the decisions of the Hon’ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. (supra) and having noticed the divergent views of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. vs. ITO, 55 taxmann.com 447 and the Hon’ble Delhi High Court in the case of Mantola Cooperative Thrift Credit Society Ltd. vs. CIT, 50 taxmann.com 278, decision of the Hon’ble Delhi High Court in the case of Mantola Cooperative Thrift Credit Society Ltd. (supra) had not been preferred to view of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. (supra). The relevant observation of the Pune Bench of the Tribunal in the case (supra) is as under :-
“9. The Pune Benches of the Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITA No.713/PUN/2016, dated 9-4-2019) decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO (ITA No.604/PN/2014, dated 19-8-2015) has allowed similar deduction. In the said case, the Tribunal discussed the contrary views expressed by the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 Taxman 309 (Kar.) allowing deduction u/s. 80P on interest income and that of the Hon’ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT (2014) 110 DTR 89 (Delhi) not allowing deduction u/s.80P on interest income earned from banks. Both the Hon’ble High Courts took into consideration the ratio laid down in the case of Totgar’s Cooperative Sale Society Ltd. (2010) 322 ITR 283 (SC). There being no direct judgment from the Hon’ble jurisdictional High Court on the point, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred to go with the view in favour of the assessee by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra).
10. Insofar as the reliance of the ld. DR on the case of Pr. CIT and Another Vs. Totagars Cooperative Sales Society (2017) 395 ITR 611 (Kar.) is concerned, we find that the issue in that case was the eligibility of deduction u/s.80P(2)(d) of the Act on interest earned by the assessee co-operative society on investments made in co-operative banks. In that case, the assessee was engaged in the activity of marketing agricultural produce by its members; accepting deposits from its members and providing credit facility to its members; running stores, rice mills, live stocks, van section, medical shops, lodging, plying and hiring of goods and carriage etc. It was in that background of the facts that the Hon’ble High Court held that the assessee could not claim deduction u/s.80P(2)(d) of the Act. When we consider the impact of this decision, it turns out that the same is not germane to case under consideration in view of the position that the claim of the instant assessee is directly about the eligibility of deduction u/s.80P(2)(a)(i) of the Act and not u/s.80P(2)(d). Moreover, so many decisions relied on by the ld. AR amply go to prove that the view taken by the AO, cannot by any standard, be construed as not a possible view. We, therefore, hold that the ld. Pr. CIT was not justified in exercising the revisional power anent to interest income of Rs.22,34,270/- earned on investments made with co-operative banks.”
9. Following the decision of the Co-ordinate Bench of this Tribunal (supra), we are of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule banks qualify for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted. Thus, we direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from other cooperative banks. The grounds of appeal filed by the assessee stands allowed.
10. In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 06th day of June, 2024.
