Case Law Details
Matar Taluka Local Board Teachers Co-operative Credit Society Ltd. Vs DCIT (ITAT Ahmedabad)
Introduction: In a significant ruling by the Income Tax Appellate Tribunal (ITAT) Ahmedabad, in the case of Matar Taluka Local Board Teachers Co-operative Credit Society Ltd. Vs DCIT, it was decided that deductions under Section 80P of the Income Tax Act, 1961, do not apply to interest earned on Fixed Deposit Receipts (FDRs) from the Bank of Baroda. This decision, passed on 15th December 2023, marks a critical interpretation of the applicability of Section 80P, providing clarity on the scope of deductions for co-operative societies.
Detailed Analysis: The appellant, Matar Taluka Local Board Teachers Co-operative Credit Society Ltd., contested the order dated 09.08.2023 by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2017-18. The core issue revolved around the addition of Rs.69,801/- as interest income from FDRs held with the Bank of Baroda, which the appellant claimed should be eligible for deduction under Section 80P(2)(a)(i) of the Act, given their engagement in providing credit facilities to its members.
The Assessing Officer (AO), however, classified this interest income as “income from other sources,” arguing that the Bank of Baroda is not a co-operative society, thus disqualifying the income from deduction under Section 80P. The AO’s stance was upheld by the CIT(A), leading to the appellant’s appeal to the ITAT.
In its defense, the appellant referenced ITAT’s own decisions in its case for Assessment Years 2018-19 & 2020-21, asserting that similar interest income had been recognized as deductible under Section 80P in the past. Additionally, the appellant argued for the allowance of proportionate expenses incurred in earning the interest income and highlighted the eligibility of interest earned from FDRs with co-operative banks for deduction under Section 80P(2)(d) of the Act, supported by precedents from the Gujarat High Court and Supreme Court decisions.
The ITAT, after reviewing the submissions and precedents, partly allowed the appeal. It acknowledged that interest derived from the Kheda District Co-operative Bank amounting to Rs.3,97,672/- is eligible for deduction under Section 80P(2)(d) as per the Gujarat High Court’s decision. However, it concurred with the AO that deduction under Section 80P does not apply to interest earned on FDRs from the Bank of Baroda, rejecting the appellant’s claim for a broader deduction under Section 80P.
Conclusion: The ITAT Ahmedabad’s ruling underscores a clear boundary for the application of Section 80P deductions, specifically regarding interest income from FDRs with non-cooperative banks like the Bank of Baroda. While it reaffirmed the eligibility of interest from co-operative banks under Section 80P(2)(d), it set a precedent that not all interest income earned by co-operative societies qualifies for deduction under this section. This decision provides essential guidance for co-operative societies in structuring their investments and understanding the scope of deductions under the Income Tax Act, thereby ensuring compliance and optimal tax planning.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee against order dated 09.08.2023, passed by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2017-18.
2. The assessee has raised the following grounds of appeal :-
“1. The order passed by AO and confirmed by NFAC is bad in law and required to be quashed.
2. NFAC erred in law and on facts in making addition of Rs.69,801/- of interest income on FDR ignoring fact that said income is eligible for deduction u/s.80P(2)(a)(i) of the Act as appellant is engaged in providing facilities to its members. In alternative, net interest income should be disallowed while computing deduction.
3. NFAC erred in law and on facts in treating business income as income from other sources.
4. NFAC erred in law and on facts in not granting deduction of Rs.3,97,672/- of interest earned from FDR with co-operative bank as same is eligible for deduction u/s.80P(2)(d) of the Act.
5. Ld. NFAC ought to have allowed proportionate expenditure for earning interest income.
6. Ld. NFAC ought to have considered fact that cooperative bank is cooperative society and they cannot grant loans to non-members and accordingly eligible for deduction u/s.80P(2)(a)/80P(2)(d) of the Act.
7. Initiation of penalty proceedings u/s.270A is unjustified.
8. Charging of interest u/s.234B is unjustified.”
3. Return of income for the Assessment Year 2017-18 declaring total income at Rs. Nil claiming deduction of Rs.26,82,953/- under Chapter VI-A of the Income Tax Act, 1961. The return of the assessee was selected for scrutiny under CASS and notices under Section 143(2) of the Act were issued to the assessee on 09.08.2018 and 12.09.2018 which were served upon the assessee. The assessee submitted details thereby mentioning that the assessee is engaged in the business of providing credit facility to its members. The assessee is a Cooperative Society. During the year, the assessee earned interest of Rs.69,801/-on investments made with Bank of Baroda which is in addition to advancing loans to its members and, therefore, the Assessing Officer observed that the same falls under the head “income from other sources”. The Assessing Officer further observed that Bank of Baroda is not a Co-operative Society and hence the investments made with this Bank and interest earned thereon is not allowed as deduction under Section 80P of the Act. The Assessing Officer made addition of Rs.69,801/- and treated the same as income from other sources.
4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. The Ld. AR relied upon the order of the Tribunal in assessee’s own case for the Assessment Year 2018-19 & 2020-21 being ITA Nos.430 & 431/Ahd/2023, order dated 10.11.2023, wherein identical issue has been decided by the Tribunal in respect of interest earned from Bank of Baroda. The Ld. AR further submitted that the proportionate interest should be allowed and relied upon the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Sabarkantha District Cooperative Milk Producers Union Limited (Tax Appeal No.473 of 2014, order dated 16.06.2014) as well as the decision in the case of Surat Vankar Sahakari Sangh Limited vs. ACIT, 421 ITR 134, which has considered the decision of Hon’ble Karnataka High Court in the case of Totgars Co-operative Sales Society, 392 ITR 74 as well as the decision of Hon’ble Apex Court in the case of Totgars Cooperative Sale Society Limited vs. ITO, 322 ITR 283.
6. The Ld. DR relied upon the Assessment Order and the order of the CIT(A) and further relied upon the decision of Hon’ble Apex Court and the Hon’ble Karnataka High Court in the case of Totgars Co-operative Sales Society, as the deduction sought y the Co-operative Society must constitute operational income and no other income which accrues to the society.
7. Heard both the parties and perused all the relevant material available on record. In the present Assessment Year, the issue is identical to that of Assessment Years 2018-19 & 2020-21 which was decided by the Tribunal. In the present Assessment Year, the interest derived from Kheda District Co-operative Bank is amounting to Rs.3,97,672/- and thus it is eligible for deduction under Section 80P(2)(d) of the Act as per the decision of Hon’ble Gujarat High Court in the case of Sabarkantha District Co-operative Milk Producers Union Limited (supra) and the decision relied by the Ld. DR will not be applicable in the present circumstance as the said Apex Court decision was taken into account by the Hon’ble Jurisdictional High Court. As regards to the interest earned from Bank of Baroda, the contention of the assessee that expenses incurred for earning interest income on the FDRs from Bank of Baroda be allowed but deduction under Section 80P of the Act will not be applicable with the interest earned on the FDR from Bank of Baroda. Thus, appeal of the assessee is partly allowed.
8. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on this 15th December, 2023.