Finding that the Appellant/ taxpayer is registered under the provisions of the West Bengal Co-operative Societies Act, the Calcutta High Court ruled that the interest earned by the Appellant on the personal loans extended to one class of its members would be eligible for deduction under Section 80P of the Income Tax Act. Referring to the decision in the case of Principal Commissioner of Income Tax vs. Gunja Samabay Krishi Unnayan Samity Ltd., the Court reiterated that where the Co-operative Society earned interest income on surplus fund invested in deposits with banks and Government securities, since neither the said amount of deposit was due to its members nor was it a liability to its members, same would quality for deduction under section 80P(2)(a)(i).
The Division Bench comprising Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das) explained that the expression ‘attributable to’ being a wider in import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. Pointing out that the interest income is not immediately required to be lent to the members, the society, rather than keeping it idle, deposited the amount in the bank for earning interest, the Bench observed that the said interest income is attributable to the profits and gains of the business of the cooperative society providing credit facilities to its members only.
Reference was made to the decision in the case of Guttigedarara Credit Cooperative Society Ltd. vs. Income-tax Officer, Ward 2(2), Mysore [(2015) 60 taxmann.com 215 (Karnataka)], where it was held that “A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in a bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only”.
Briefly, in the case, the Appellant/ taxpayer is a cooperative society carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing long-term credit facilities to its members. The Appellant, being the apex cooperative society of the land mortgage bank in the State of West Bengal, funds were received from NABARD in two instalments, which in turn were lent to the members in 100 instalments. As the Appellant does borrow in a wholesale manner and lend on a retail basis, there is always some floating fund, which has a cost that is interest payable to NABARD, and the same is invested in short-term deposits, which yield income to the Appellant and partly compensate the cost, namely interest payable to NABARD.
Contending that these activities are integral to their business of lending, and the interest earned on the deposits is attributable to their lending business, the Appellant claimed that the amount deposited in the bank so as to earn interest is attributable to the profits from the business of providing credit facilities to its members. Resultantly, the Appellant claimed that such interest income is liable to be deducted from the gross total income under Section 80P. However, the AO denied the claim and opined that neither of the interest incomes is eligible for deduction under Section 80P(2)(d), and the same being an income outside the loan business, should be charged to tax under the head “income from other source”. This finding of the AO was affirmed by the CIT(A) as well as the ITAT.
Cases Relied On:
Guttigedarara Credit Cooperative Society Ltd. vs. Income-tax Officer, Ward 2(2), Mysore – [2015] 60 taxmann.com 215 (Karnataka)
Tumkur Merchants Souharda Credit Cooperative Ltd. vs. Income-tax Officer Word- V, Tumkur – [2015] 55 taxmann.com 447 (Karnataka)
Vavveru Co-operative Rural Bank Ltd. vs. Chief Commissioner of Income Tax – (2017) 88 taxmann.com 728 (Telangana and Andhra Pradesh)
Principal Commissioner of Income Tax vs. Gunja Samabay Krishi Unnayan Samity Ltd – [2023] 147 taxmann.com 518 [Cal]
Case Distinguished:
Totgars’ Cooperative Sale Society Ltd., v. ITO – [322 ITR 283 (SC)]
Appearances:
Advocates Subash Agarwal, Rajarshi Chatterjee, Nitish Bhandary, Amit Shaw and Suman Sahani, for the Appellant
Advocate Prithu Dudhoria, for the Respondent
