Gujarat High Court
The Brahmarshi Co-Op. Credit Society ... vs Assistant Commissioner Of Income Tax, ... on 18 November, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/669/2024 ORDER DATED: 18/11/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 669 of 2024
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THE BRAHMARSHI CO-OP. CREDIT SOCIETY LTD.
Versus
ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE, HIMMATNAGAR
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Appearance:
MR DHINAL A SHAH(12077) for the Appellant(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 18/11/2024
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard Mr. Dhinal A.Shah, learned advocate for the Appellant.
2. This appeal is filed under Section 260A of the Income Tax Act, 1961 (for short "the Act") by the Appellant arising out from the impugned order dated 2nd December, 2021 passed by the Income Tax Appellate Tribunal, SMC Bench, Ahmedabad (for short "the Tribunal") in ITA No. 1085/Ahd/2019 for the Assessment Year 2016-17 proposing the following substantial questions of law:
"(i) Whether on the facts and circumstance of the case and in law, the Hon'ble Tribunal erred in deciding that the interest income earned on deposits with Nationalized banks by the Appellant does not fall into the ambit of deduction Page 1 of 10 Uploaded by BINA SHAH(HC00353) on Mon Dec 09 2024 Downloaded on : Fri Dec 13 23:41:40 IST 2024 NEUTRAL CITATION C/TAXAP/669/2024 ORDER DATED: 18/11/2024 undefined under Section 80P(2)(a)(i) of the Income Tax Act, 1961 ?
2.1 The brief facts of the case are that the Appellant -Assessee which is a Co.operative Society was engaged in the business of providing credit facilities to its members. The Appellant -Assessee filed its return of income on 12.10.2016 for the Assessment Year 2016-17 declaring the total income of Rs.NIL, after claiming deduction under Section 80P of the Act for Rs.20,76,367/-. 2.2 The case of the assessee was selected for scrutiny assessment and a notice under Section 143(2) of the Act was issued. On scrutiny of the accounts, the Assessing Officer found that the appellant-assessee had interest income of Rs.23,48,749/- and therefore, the Assessing Officer was of the view that interest income earned from the deposits with the nationalized bank and the co- operative banks would not qualify to deductions made under Section 80P(2)(a)(i) and 80P(2)(d) of the Act.
3. Being aggrieved, the Appellant-assessee filed an appeal before the CIT (Appeals) . The CIT (Appeals) after consideration the decision of this Court in case of State Bank of India (SBI) Vs. Page 2 of 10 Uploaded by BINA SHAH(HC00353) on Mon Dec 09 2024 Downloaded on : Fri Dec 13 23:41:40 IST 2024 NEUTRAL CITATION C/TAXAP/669/2024 ORDER DATED: 18/11/2024 undefined Commissioner of Income-tax reported in [2016] 389 ITR 578 (Gujarat) held that the interest income earned by the assessee from the nationalized bank would not be entitled to the deduction under Section 80P(2)(a)(i) and the Appellant-Assessee would be entitled to deduction of interest income earned from the deposits placed with the Co-operative Bank under Section 80P(2)(d) of the Act and partly allowed the appeal by granting relief of Rs.6,67,904/- which was the interest income earned by the assessee from S.K.District Central Co.operative Bank and disallowed the deduction qua interest income of Rs.16,80,845/- received by the assessee on the fixed deposit placed with the nationalized bank.
4. The appellant-assessee therefore preferred an appeal before the Tribunal challenging the order passed by the CIT (Appeals) disallowing the interest income of Rs.16,80,845/- received by the assesseee from the nationalized bank.
5. The Tribunal however, considering the rival contentions of both the sides and after perusal of the order of the CIT (Appeals) referred to and relied upon the decision of this Court in case of State Page 3 of 10 Uploaded by BINA SHAH(HC00353) on Mon Dec 09 2024 Downloaded on : Fri Dec 13 23:41:40 IST 2024 NEUTRAL CITATION C/TAXAP/669/2024 ORDER DATED: 18/11/2024 undefined Bank of India (SBI) [Supra] as well as the decision of the Apex Court in case of Mavilayi Service Co-operative Bank Limited Vs. CIT reported in (123 taxmann.com 161) wherein the Apex Court has held that the primary agricultural credit societies are entitled to the benefit of the deduction contained in Section 80P(2)(a)(i) of the Act, notwithstanding the fact that the society may also be giving loans to its members which are not related to agriculture. The Tribunal thereafter upheld the decision of the order of CIT (Appeals) finding no infirmity therein.
6 Learned advocate Mr. Dhinal Shah for the Appellant-Assessee submitted that the assessee had invested the funds which were operational and not surplus fund and as such the entire interest income was earned by the Appellant -Assessee from its business operation. It was submitted that the assessee received the fixed deposits from its members and also given advance to its members and whatever amount is remaining with the assessee was invested in fixed deposits with nationalized bank and credit co-operative bank. It was therefore submitted that the entire investment made Page 4 of 10 Uploaded by BINA SHAH(HC00353) on Mon Dec 09 2024 Downloaded on : Fri Dec 13 23:41:40 IST 2024 NEUTRAL CITATION C/TAXAP/669/2024 ORDER DATED: 18/11/2024 undefined by the assessee was from the operational fund and not the surplus fund and therefore, the as per provision of Section 80P of the Act the same would read with Section 80P(2) (a)(i) of the Act. The Appellant - Assessee would be entitled to the deduction of the entire interest income. It was further submitted that the CIT (Appeals) for the earlier Assessment Years 2011-12, 2013-14 and 2014-15 has on similar facts allowed the deduction on the interest income earned by the appellant -assessee from the nationalized bank under Section 80P(2)(a)(i) of the Act. It was therefore submitted that the Assessing Officer, CIT (Appeals) and Tribunal ought to have allowed the interest income earned by the assessee from the nationalized bank on the operational funds.
7. Having heard the learned advocate for the appellant-assessee, it would be germane to refer to the provision of Section 80P & 80P(2)(a)(i) as under :-
80P. [ Deduction in respect of income of co-operative societies.
"(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-Page 5 of 10 Uploaded by BINA SHAH(HC00353) on Mon Dec 09 2024 Downloaded on : Fri Dec 13 23:41:40 IST 2024
NEUTRAL CITATION C/TAXAP/669/2024 ORDER DATED: 18/11/2024 undefined 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)in the case of a co-operative society engaged in-
(i)carrying on the business of banking or providing credit facilities to its members, or...."
Section 80P(2)(d) reads as under:-
in respect of any income by way of interest or dividents derived by the co-operative society from its investments with any other co- operative society, the whole of such income;
8. On perusal of the above provision it is clear that in the case of the Co-opertive society engaged in carrying on the business of banking or providing credit facilities to its members, the whole of the amount of profit and gains of business attributable to any one or more of such activities would be entitled to deduction under Section 80P(1) of the Act whereas, sub clause [d] of sub-section 2 of Section 80P refers to 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 would be deducted. This Court was in the Case of State Bank of India (Supra) in similar facts irrespective of whether the income is surplus fund or operational fund has after referring Page 6 of 10 Uploaded by BINA SHAH(HC00353) on Mon Dec 09 2024 Downloaded on : Fri Dec 13 23:41:40 IST 2024 NEUTRAL CITATION C/TAXAP/669/2024 ORDER DATED: 18/11/2024 undefined to the decision of the Hon'ble Apex Court in case of Totgar's Co-operative Saks Society Ltd. Vs. HO reported in [2010] 322 ITR 283 [SC] has held as under:-
"12. Under section 80P of the Act, an assessee is entitled to exemption in respect of income earned out of the activities enumerated in sub-section (2) thereof, which are as follows:
(a) in the case of a cooperative society engaged in--
(i) carrying on the business of banking or providing credit facilities to its members, or
(ii) a cottage industry, or
(iii) the marketing of the agricultural produce of its members, or
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the agricultural produce of its members, or
(vi) the collective disposal of the labour of its members, or
(vii) fishing or allied activities, that is to say the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members the whole of the amount of profits and gains of business attributable to any one or more of such activities:
Thus, in the case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members, what is deductible under section 80P of the Act is the whole of the amount of profits and gains of business attributable to any one or more such Page 7 of 10 Uploaded by BINA SHAH(HC00353) on Mon Dec 09 2024 Downloaded on : Fri Dec 13 23:41:40 IST 2024 NEUTRAL CITATION C/TAXAP/669/2024 ORDER DATED: 18/11/2024 undefined activities. The Supreme Court in Totgars Co-operative Sale Society (supra) has, while giving a precise meaning to the words "profits and gains of business" mentioned in section 80P(2) of the Act, observed that the assessee in that case regularly invested funds not immediately required for business purposes and was of the view that interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". It was held that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce to its members. The court further held that the words "the whole of the amount of profits and gains of business" emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. The court observed that in that particular case, the evidence showed that the assessee-society earned interest on funds which were not required for business purpose at the given point of time. Therefore, in the facts and circumstances of the case, the court was of the view that, such interest income falls in the category of "Other income" which had rightly been taxed by the Department under section 56 of the Act.
13. In the opinion of this court, in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall in any of the categories mentioned under section 80P(2)(a) of the Act. In the case of Totgars Co-operative Sale Society (supra), as rightly submitted by the learned counsel for the respondent, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. This is further clear when one peruses the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. This court is, therefore, of the view that the above decision is not restricted Page 8 of 10 Uploaded by BINA SHAH(HC00353) on Mon Dec 09 2024 Downloaded on : Fri Dec 13 23:41:40 IST 2024 NEUTRAL CITATION C/TAXAP/669/2024 ORDER DATED: 18/11/2024 undefined only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression "profits and gains of business" and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under section 80P(2)(a)(i) of the Act. For the above reasons, this court respectfully does not agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income Tax Officer Ward-V, Tumkur (supra) that the decision of the Supreme Court in Totgars Co-operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law.
9. The facts of this case would be therefore be squarely covered by the above referred decision passed by this Court wherein it is specifically held that interest earned on the investment made by the Credit Co-operative Society with the nationalized bank would not be entitled to deduction under Section 80P(2)(a)(i) of the Act. Therefore, in our opinion the CIT (Appeals) as well the Tribunal on referring and relying upon the decision of the State Bank of India (Supra) cannot be said to have committed any error while not Page 9 of 10 Uploaded by BINA SHAH(HC00353) on Mon Dec 09 2024 Downloaded on : Fri Dec 13 23:41:40 IST 2024 NEUTRAL CITATION C/TAXAP/669/2024 ORDER DATED: 18/11/2024 undefined allowing the deduction qua the interest income earned by the Appellant-assessee on the investment under Section 80P(2)(a)(i) of the Act while allowing the deduction under Section 80P(2)(d) of the Act qua the interest income earned on the investment in fixed deposit made by the assessee with the Co-operative Bank.
10. In view of the forgoing reasons, we therefore, are of the opinion that no questions of law much less any substantial questions of law would arise from the impugned orders passed by the CIT (Appeals ) as well as the Tribunal who have given the concurrent finding of the fact in the case of the Appellant-Assessee. The appeal therefore, being devoid of any merit is accordingly dismissed.
(BHARGAV D. KARIA, J) (D.N.RAY,J) BINA SHAH Page 10 of 10 Uploaded by BINA SHAH(HC00353) on Mon Dec 09 2024 Downloaded on : Fri Dec 13 23:41:40 IST 2024