Investment of the deposits is also the part of the business activity & so interest or dividend income of credit society would be eligible for deduction under section 80P(2).

Short Overview Where investment of deposits accepted from members or surplus funds was part of the banking/credit business of assessee-society; the investment of surplus amount in mutual funds by the assessee would be said to be related to its business activity and hence, the interest/dividend income earned by the assessee from such investment, would be eligible for deduction under section 80P(2).

Assessee-society was carrying on business of banking and providing credit facilities to its members and also taking deposits from its farmer members. It invested certain surplus amount in mutual funds and thereby earned dividend income from those mutual funds. AO observed that the assessee was not entitled to exemption under section 80P(2) in respect of the said dividend income.

It Is held that In case of a cooperative society engaged in carrying on business of banking or providing credit facilities to its members, the whole of the amount of profits of business attributable to any or more of such activities as mentioned in section 80P(2), are exempt from taxation. Admittedly, assessee-society was carrying on business of banking and providing credit facilities to its members and also taking deposits from its farmer members, thus, accepting deposits on interest was one of its activities. In business of banking or credit facilities, not only accepting deposits but also investment of the deposits is also the part of the business activity of such an entity. Therefore, to invest the deposits accepted from members or surplus funds available with it, was part of the banking/credit business of the assessee. Accordingly, the investment of surplus amount in mutual funds by the assessee would be said to be related to its business activity and hence, the interest/dividend income earned by the assessee from such investment, would be eligible for deduction under section 80P(2).

Decision: In assessee s favour

IN THE ITAT, KOLKATA BENCH

SANJAY GARG, J.M.

Deorah Nahala Baikanthapur Skus Ltd. v. ITO

I.T.A. No.2484/Kol/2018

8 July, 2021

Appellant by: P. Sarkar, Advocate

Respondent by: Jayanta Khanra, JCIT, DR

ORDER

The present appeal has been preferred by the assessee for the assessment year 2015-16 against the Order, dated 9-10-2018 of the Commissioner (Appeals)-14, Kolkata (hereinafter referred to as the CIT (A) ).

2. The assessee, in this appeal, has taken the following revised grounds of appeal:

1. For that on the facts of the case, the appellate order passed by the learned Commissioner (Appeals) on 9-10-2018 is completely arbitrary, unjustified and illegal.

2. For that the facts of the case, the learned Commissioner (Appeals) was wrong in dittoing the order of the assessing officer and computing the total taxable income at Rs. 286,190 as against the total income shown at NIL after deduction of income under section 80P of the I.T. Act, 1961, which is confirmed by learned Commissioner (Appeals), therefore, his finding is completely arbitrary, unjustified and illegal.

3. For that on the facts of the case, The learned Commissioner (Appeals) was wrong in not considering the fact that the assessee being a registered co-operative society 1s carrying on business and providing credit facilities to its members. The investment made on schedule banks and income earned on accrual basis reflected in its account was purely a business income, therefore, interest earned from banks eligible for deduction under section 80P(2) of the Income Tax Act, as such his action is baseless and should be quashed.

4. For that on the facts of the case, the learned Commissioner (Appeals) was wrong in dittoing the order of the assessing officer and confirming the disallowance of Rs. 66,978 on account of dividend from SBI Mutual fund which is exempted under section 10, as such his finding is completely arbitrary, unjustified and illegal.

5. For that on the facts of the case, the learned Commissioner (Appeals) was wrong in not allowing T.D.S. amounting to Rs. 219,211 claimed in I.T. Return which is completely arbitrary, unjustified and illegal.

6. For that the charging interest under section. 234A at Rs. 15,028 and under section. 234B at Rs. 29,172 are completely arbitrary, unjustified and illegal.

7. For that the appellant reserves the right to adduce any further ground or grounds, if necessary, at or before the hearing of the appeal.

3. Ground No.1 is general in nature.

4. Ground Nos.2,3&4 The assessee vide these grounds has contested the confirmation of addition made by the assessing officer of Rs. 66,978 after denying the deduction claimed by the assessee-society under section 80P(2) of the Income Tax Act.

5. The assessee is a primary agricultural credit society registered under the West Bengal Cooperative Societies Act and carrying on business of banking and providing credit facilities to its members and also taking deposits from its farmer members. During the year, the assessee invested certain surplus amount in mutual funds with SBI and thereby earned dividend income of Rs. 66,978 from SBI mutual fund. The assessing officer observed that the assessee-society was not entitled to the exemption under section 80P(2) of the Income Tax Act in respect of the said dividend income. He, therefore, made the addition of the aforesaid amount into the income of the assessee.

6. Being aggrieved by the said order of the assessing officer, the assessee filed appeal before the Commissioner (Appeals). However, the learned Commissioner (Appeals) observed that the aforesaid amount since was not generated from the business activity of the assessee, therefore, the same was not allowable under section 80P(2) of the Income Tax Act.

7. Being aggrieved by the said order of the learned Commissioner (Appeals), the assessee has come in appeal before this Tribunal.

8. I have heard the rival contentions and gone through the records. The relevant provision of section 80P(2) are reproduced hereunder :–

80P. (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 subsection (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

(ii) a cottage industry, or

(iii) the marketing of agricultural produce grown by 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 :

Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:-

(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities;

(2) the co-operative credit societies which provide financial assistance to the society;

(3) the State Government;

9. As per the above reproduced provisions, in case of a cooperative society engaged in carrying on business of banking or providing credit facilities to its members, the whole of the amount of profits of business attributable to any or more of such activities as mentioned in section 80P(2), are exempt from taxation. Admittedly, as mentioned by the assessing officer in the assessment order itself, the assessee-society was carrying on business of banking and providing credit facilities to its members and also taking deposits from its farmer members. Therefore, accepting deposits on interest is one of the activities of the assessee-society. In the business of banking or credit facilities, not only accepting deposits but also investment of the deposits is also the part of the business activity of such an entity. To invest the deposits accepted from the members or the surplus funds available with it, is part of the banking/credit business of the assessee-society.

Therefore, the investment of the surplus amount in the mutual funds by the assessee-society cannot be said to be not related to the business activity of the assessee-society.

Therefore, the interest/dividend income earned by the assessee for such investment, in my view, will be eligible for deduction under section 80P(2) of the Income Tax Act.

In view of the above, the impugned order of the Commissioner (Appeals) on this issue is set aside and the assessing officer is directed to allow the deduction on the income earned by the assessee from investment in SBI mutual fund.

10. Ground No.5 – Vide Ground No.5, the assessee has contested the action of the learned Commissioner (Appeals) in not allowing TDS amounting to Rs. 2,19,211.

11. The learned Counsel for the assessee has submitted that the assessee mistakenly registered itself as local authority with the Income Tax department (PAN) and not as association of persons . Therefore, the TDS amount of Rs. 2,19,211 claimed in the return of income has been denied to the assessee.

12. I find that there is no discussion on this issue in the assessment order. This issue was raised for the first time before the Commissioner (Appeals). However, the learned Commissioner (Appeals) declined to interfere by observing that there is no discussion about this in the assessment order. He has, therefore, observed that if it was a mistake on the part of the assessee, no appellate remedy lies on the same.

13. I am not convinced with the above observation of the learned Commissioner (Appeals). If the assessee by mistake has wrongly registered itself under a wrong category that does not mean that the said mistake is not curable or that the assessee is to be punished for its bona fide mistakes. Therefore, I restore this issue to the file of the assessing officer with a direction that an opportunity may be given to the assessee to cure the defects, if any, in its registration and thereafter, to allow to the assessee the eligible claims/TDS refund etc. if otherwise so admissible to the assessee under the provisions of the Income Tax Act.

With the above observations, the appeal of the assessee is treated as allowed for statistical purposes.

14. In the result, the appeal of the assessee is allowed for statistical purposes.