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www.taxpublishers.in Income Tax Act, 1961, Section 80P Deduction under section 80P--*Co-operative society--Interest earned on FDs with co-operative banks* *Conclusion:* Interest income earned by a co-operative society on FDs with co-operative banks/scheduled banks partakes character of business income, which is eligible for deduction under section 80P(2)(a)(i)/80P(2)(d). Assessee-society was engaged in providing credit facilities to its members. AO disallowed assessee's claim of deduction under section 80P(d)(a)(i)/80P(2)(d) in respect of interest earned on FDs with co-operative banks. CIT(A) upheld the action of AO. *Held:* In view of decision of Coordinate Bench of Tribunal in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit v. ITO, Ward-2, Pandharpur [ITA Nos. 559/560/PUN/2018, dt. 11-12-2018], interest income earned by a co-operative society on FDs with co-operative banks/scheduled banks partakes character of business income, which is eligible for deduction under section 80P(2)(a)(i)/80P(2)(d). Hence, AO was directed to allow assessee's claim of deduction under section 80P(2)(a)(i)/80P(2)(d). *Decision:* In assessee's favour *Followed:* M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit v. ITO, Ward-2, Pandharpur [ITA Nos. 559/560/PUN/2018, dt. 11-12-2018] *Referred:* Pr. CIT Asansol v. Gunja Samabay Krishi Unnayan Samity Ltd. (2023) 147 taxmann.com 518 (Calcutta) : 2023 TaxPub(DT) 392 (Cal-HC), M/s. Chennai Central Co-operative Bank Limited v. The ITO, Ward-VIII (2), Chennai (2023) 148 taxmann.com 17 (Madras) : 2023 TaxPub(DT) 649 (Mad-HC), The Vavveru Co-operative Rural Bank Ltd. v. The Chief CIT, Vijayawada (2017) 396 ITR 371 (A.P.) : 2017 TaxPub(DT) 1639 (Hyd-HC), Tumkur Merchants Souharda Credit Cooperative Limited v. The ITO, Ward-1, Tumkur (2015) 230 taxmann.com 309 (Kar.) : 2015 TaxPub(DT) 2857 (Karn-HC) IN THE ITAT PUNE BENCH INTURI RAMA RAO, A.M. T.S. Nagari Sahakari Patsanstha Maryadit v. ITO ITA No. 433/PUN/2024 15 April, 2024 Assessee by: Premchand C. Patil and Yuvraj Bhandare Revenue by: Arvind Desai ORDER *Inturi Rama Rao, A.M.* This is an appeal filed by the assessee directed against the order of the National Faceless Appeal Centre, Delhi ('NFAC') dated 23-12-2023 for the assessment year 2018-19. 2. Briefly, the facts of the case are that the appellant is a Cooperative credit society engaged in providing credit facilities to its members. The Return of Income for the assessment year 2018-19 was filed on 22-8-2015 declaring total income of Rs. Nil after claiming exemption under section 80P(d)(a)(i)/80P(2)(d) of the Income Tax Act, 1961 ('the Act') of Rs. 26,73,789 and offered the income of Rs. 30,350 to tax. The case was selected for Limited Scrutiny to examine the (i) Investments/Advances/Loans and (ii) Deduction from total income under Chapter VI-A. The assessment was completed by the assessing officer vide order dated 2-3-2021 passed under section 143(3) read with section 143(3A) & 143 (3B) of the Act determining total income at Rs. 9,70,022. While doing so, the Assessing Officer had brought to tax the interest earned on FDs with other co-operative banks holding that the said interest does not qualify for deduction under section 80P(2)(a)(i) of the Act. 3. Being aggrieved, an appeal was filed before the NFAC, who vide impugned order confirmed the action of the assessing officer. 4. Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal. 5. It is submitted before me that the issue is decided in favour of the assessee by placing reliance on the several decisions of the Tribunal as well as the decision of the Co-ordinate Bench of this Tribunal in the case of Sai Prerana Gramin Bigarsheti Sahakari Pat Sanstha Maryadit v. ITO and others in ITA No.1431/PUN/2018 and others dated 3-7-2019, copy placed at page 7 to 14 of the paper book. 6. On the other hand, learned Senior Departmental Representative placing reliance on the orders of the lower authorities submits that no interference is called for. 7. I heard the rival submissions and perused the material on record. The issue in the present appeal relates to the eligibility of the assessee for exemption under section 80P(2)(a)(i) or under section 80P(2)(d) of the Act. It is an admitted fact that the appellant is a cooperative society engaged in the business of providing credit facilities to its members and accepting deposits from its members. It does not enjoy any license to carry on the business of banking from Reserve Bank of India. Therefore, as held by the Hon'ble Supreme Court in the case of PCIT v. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., (2023) 454 ITR 117 (SC) : 2023 TaxPub(DT) 2464 (SC) that the assessee is eligible for deduction under section 80P(2)(a)(i) of the Act. Reliance in this regard can also be placed on the decision of the Hon'ble Bombay High Court in the case of PCIT v. Quepem Urban Co-operative Credit Society Ltd., (2021) 438 ITR 631 (Bom.) : 2021 TaxPub(DT) 2626 (Bom-HC). 8. As regards, the issue as to the allowability of exemption under the provisions of section 80P(2)(a)(i) in respect of interest income earned by a cooperative society from the schedule banks, there is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption under section 80P(2)(a)(i) of the Act. The Hon'ble Punjab & Haryana High Court in the case of CIT v. Punjab State Cooperative Federation of Housing Building Societies Ltd. (2011) 11 taxmann.com 448 (P&H), the Hon'ble Gujarat High Court in the case of State Bank of India v. CIT (2016) 389 ITR 578 (Guj.) : 2016 TaxPub(DT) 3564 (Guj-HC), the Hon'ble Delhi High Court in the case of Mantola Cooperative Thrift & Credit Society Ltd. v. CIT (2014) 50 taxmann.com 278 (Del) : 2014 TaxPub(DT) 3786 (Del-HC), the Hon'ble Punjab & Haryana High Court in the case of CIT v. Punjab State Cooperative Agricultural Development Bank Ltd. 389 ITR 68 and the Hon'ble Kolkata High Court in the case of CIT v. Southern Eastern Employees Cooperative Credit Society Ltd. (2016) 390 ITR 524 (Cal) : 2016 TaxPub(DT) 4145 (Cal-HC) 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 under section 80P(2)(a)(i) of the Act. However, the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO (2015) 230 taxmann.com 309 (Kar.) : 2015 TaxPub(DT) 2857 (Karn-HC) 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 371 (A.P.) : 2017 TaxPub(DT) 1639 (Hyd-HC) took a view that such interest income is attributable to the activities of the society and, therefore, eligible for exemption under section 80P(2)(a)(i) of the Act. Similar view has been taken by the Hon'ble Calcutta High Court in the case of PCIT v. Gunja Samabay Krishi Unnayan Samity Ltd., (2023) 147 taxmann.com 518 (Calcutta) : 2023 TaxPub(DT) 392 (Cal-HC) and the Hon'ble Madras High Court in the case of Chennai Central Cooperative Bank Ltd. v. ITO, (2023) 148 taxmann.com 17 (Madras) : 2023 TaxPub(DT) 649 (Mad-HC). The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit v. ITO (ITA Nos.559/560/PUN/2018, dated 11-12-2018) 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). Following the decision of the Coordinate Bench of the Tribunal, I am of the considered opinion that the interest income earned on fixed deposits with cooperative bank/scheduled bank partakes character of the business income, which is eligible for deduction under section 80P(2)(a)(i) of the Act. Therefore, I direct the Assessing Officer to allow the exemption under section 80P(2)(a)(i) and section 80P(2)(d) of the Act. Thus, the grounds of appeal filed by the assessee stand allowed. 9. In the result, the appeal filed by the assessee stands allowed. Order pronounced on this 15-4-2024.

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Income Tax Act, 1961, Section 80P

Deduction under section 80P--Co-operative society--Interest earned on FDs with co-operative banks

Conclusion: Interest income earned by a co-operative society on FDs with co-operative banks/scheduled banks partakes character of business income, which is eligible for deduction under section 80P(2)(a)(i)/80P(2)(d).

Assessee-society was engaged in providing credit facilities to its members. AO disallowed assessee's claim of deduction under section 80P(d)(a)(i)/80P(2)(d) in respect of interest earned on FDs with co-operative banks. CIT(A) upheld the action of AO. Held: In view of decision of Coordinate Bench of Tribunal in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit v. ITO, Ward-2, Pandharpur [ITA Nos. 559/560/PUN/2018, dt. 11-12-2018], interest income earned by a co-operative society on FDs with co-operative banks/scheduled banks partakes character of business income, which is eligible for deduction under section 80P(2)(a)(i)/80P(2)(d). Hence, AO was directed to allow assessee's claim of deduction under section 80P(2)(a)(i)/80P(2)(d).

Decision: In assessee's favour

Followed: M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit v. ITO, Ward-2, Pandharpur [ITA Nos. 559/560/PUN/2018, dt. 11-12-2018]

Referred: Pr. CIT Asansol v. Gunja Samabay Krishi Unnayan Samity Ltd. (2023) 147 taxmann.com 518 (Calcutta) : 2023 TaxPub(DT) 392 (Cal-HC), M/s. Chennai Central Co-operative Bank Limited v. The ITO, Ward-VIII (2), Chennai (2023) 148 taxmann.com 17 (Madras) : 2023 TaxPub(DT) 649 (Mad-HC), The Vavveru Co-operative Rural Bank Ltd. v. The Chief CIT, Vijayawada (2017) 396 ITR 371 (A.P.) : 2017 TaxPub(DT) 1639 (Hyd-HC), Tumkur Merchants Souharda Credit Cooperative Limited v. The ITO, Ward-1, Tumkur (2015) 230 taxmann.com 309 (Kar.) : 2015 TaxPub(DT) 2857 (Karn-HC)

IN THE ITAT PUNE BENCH

INTURI RAMA RAO, A.M.

T.S. Nagari Sahakari Patsanstha Maryadit v. ITO

ITA No. 433/PUN/2024

15 April, 2024

Assessee by: Premchand C. Patil and Yuvraj Bhandare

Revenue by: Arvind Desai

ORDER

Inturi Rama Rao, A.M.

This is an appeal filed by the assessee directed against the order of the National Faceless Appeal Centre, Delhi ('NFAC') dated 23-12-2023 for the assessment year 2018-19.

2. Briefly, the facts of the case are that the appellant is a Cooperative credit society engaged in providing credit facilities to its members. The Return of Income for the assessment year 2018-19 was filed on 22-8-2015 declaring total income of Rs. Nil after claiming exemption under section 80P(d)(a)(i)/80P(2)(d) of the Income Tax Act, 1961 ('the Act') of Rs. 26,73,789 and offered the income of Rs. 30,350 to tax. The case was selected for Limited Scrutiny to examine the (i) Investments/Advances/Loans and (ii) Deduction from total income under Chapter VI-A. The assessment was completed by the assessing officer vide order dated 2-3-2021 passed under section 143(3) read with section 143(3A) & 143 (3B) of the Act determining total income at Rs. 9,70,022. While doing so, the Assessing Officer had brought to tax the interest earned on FDs with other co-operative banks holding that the said interest does not qualify for deduction under section 80P(2)(a)(i) of the Act.

3. Being aggrieved, an appeal was filed before the NFAC, who vide impugned order confirmed the action of the assessing officer.

4. Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.

5. It is submitted before me that the issue is decided in favour of the assessee by placing reliance on the several decisions of the Tribunal as well as the decision of the Co-ordinate Bench of this Tribunal in the case of Sai Prerana Gramin Bigarsheti Sahakari Pat Sanstha Maryadit v. ITO and others in ITA No.1431/PUN/2018 and others dated 3-7-2019, copy placed at page 7 to 14 of the paper book.

6. On the other hand, learned Senior Departmental Representative placing reliance on the orders of the lower authorities submits that no interference is called for.

7. I heard the rival submissions and perused the material on record. The issue in the present appeal relates to the eligibility of the assessee for exemption under section 80P(2)(a)(i) or under section 80P(2)(d) of the Act. It is an admitted fact that the appellant is a cooperative society engaged in the business of providing credit facilities to its members and accepting deposits from its members. It does not enjoy any license to carry on the business of banking from Reserve Bank of India. Therefore, as held by the Hon'ble Supreme Court in the case of PCIT v. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., (2023) 454 ITR 117 (SC) : 2023 TaxPub(DT) 2464 (SC) that the assessee is eligible for deduction under section 80P(2)(a)(i) of the Act. Reliance in this regard can also be placed on the decision of the Hon'ble Bombay High Court in the case of PCIT v. Quepem Urban Co-operative Credit Society Ltd., (2021) 438 ITR 631 (Bom.) : 2021 TaxPub(DT) 2626 (Bom-HC).

8. As regards, the issue as to the allowability of exemption under the provisions of section 80P(2)(a)(i) in respect of interest income earned by a cooperative society from the schedule banks, there is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption under section 80P(2)(a)(i) of the Act. The Hon'ble Punjab & Haryana High Court in the case of CIT v. Punjab State Cooperative Federation of Housing Building Societies Ltd. (2011) 11 taxmann.com 448 (P&H), the Hon'ble Gujarat High Court in the case of State Bank of India v. CIT (2016) 389 ITR 578 (Guj.) : 2016 TaxPub(DT) 3564 (Guj-HC), the Hon'ble Delhi High Court in the case of Mantola Cooperative Thrift & Credit Society Ltd. v. CIT (2014) 50 taxmann.com 278 (Del) : 2014 TaxPub(DT) 3786 (Del-HC), the Hon'ble Punjab & Haryana High Court in the case of CIT v. Punjab State Cooperative Agricultural Development Bank Ltd. 389 ITR 68 and the Hon'ble Kolkata High Court in the case of CIT v. Southern Eastern Employees Cooperative Credit Society Ltd. (2016) 390 ITR 524 (Cal) : 2016 TaxPub(DT) 4145 (Cal-HC) 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 under section 80P(2)(a)(i) of the Act. However, the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO (2015) 230 taxmann.com 309 (Kar.) : 2015 TaxPub(DT) 2857 (Karn-HC) 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 371 (A.P.) : 2017 TaxPub(DT) 1639 (Hyd-HC) took a view that such interest income is attributable to the activities of the society and, therefore, eligible for exemption under section 80P(2)(a)(i) of the Act. Similar view has been taken by the Hon'ble Calcutta High Court in the case of PCIT v. Gunja Samabay Krishi Unnayan Samity Ltd., (2023) 147 taxmann.com 518 (Calcutta) : 2023 TaxPub(DT) 392 (Cal-HC) and the Hon'ble Madras High Court in the case of Chennai Central Cooperative Bank Ltd. v. ITO, (2023) 148 taxmann.com 17 (Madras) : 2023 TaxPub(DT) 649 (Mad-HC). The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit v. ITO (ITA Nos.559/560/PUN/2018, dated 11-12-2018) 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). Following the decision of the Coordinate Bench of the Tribunal, I am of the considered opinion that the interest income earned on fixed deposits with cooperative bank/scheduled bank partakes character of the business income, which is eligible for deduction under section 80P(2)(a)(i) of the Act. Therefore, I direct the Assessing Officer to allow the exemption under section 80P(2)(a)(i) and section 80P(2)(d) of the Act. Thus, the grounds of appeal filed by the assessee stand allowed.

9. In the result, the appeal filed by the assessee stands allowed.

Order pronounced on this 15-4-2024.