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Income Tax Appellate Tribunal, PANAJI
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D BATTULL
आदेश / ORDER
PER RAVISH SOOD, JM : The present appeal filed by the assessee society is directed against the order passed by the CIT(Appeals), Hubli, dated 29.09.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) dated 21.08.2014 for assessment year 2012-13. Before us the assessee has assailed the impugned order on the following grounds of appeal :
“1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in making addition by holding that interest from Co-op bank is taxable u/s.56 of the Income Tax Act, 1961 and thereby disallowing deduction u/s.80P(2)(d). 2. The learned CIT(A) erred in not appreciating that for the purpose of section 80P(2)(d) a Co-operative bank should be considered as a Co- operative society. 3. Without prejudice to above, the learned CIT(A) erred in not appreciating that the assessee was in the business of providing credit facilities to its member and earned entitled to deduction u/s.80P(2)(a)(i) itself of the Act. - said interest was attributable to business carried on by the assessee and there was no investment out of surplus funds generated. 4. The investments were also made as per SLR and hence, also qualifies for deduction u/s.80P(2)(a)(i) of the Act. 5. The appellant craves to add, alter, amend or modify any of the grounds of appeal.”
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Succinctly stated, the assessee which is a co-operative credit society governed by the Karnataka Co-Operative Societies Act, 1959, had filed its return of income for the assessment year 2012-13 on 21.07.2012, declaring an income of Rs. Nil. (after claiming deduction u/s.80P(2)(a)(i) of Rs.24,99,337/-). The return of income filed by the assessee society was initially processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act.
During the course of the assessment proceedings, it was observed by the Assessing Officer that the assessee had during the year under consideration derived income from two streams of its business activities, viz. (i) business of providing credit facilities to its members; and (ii) business of purchase/sale of milk inter-se the members of the society. It was observed by the Assessing Officer that the assessee society had in its return of income raised a claim for deduction of Rs. 24,99,337/- u/s. 80P(2)(a)(i) of the Act. Observing, that as per Section 80P(4) r.w.s. 2(24)(viia) of the Act AND Part V of the Banking Regulation Act the assessee would fall within the meaning
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of a primary co-operative bank and, thus, not eligible for deduction u/s.80P of the Act, the Assessing Officer declined its claim for deduction under the said statutory provision. Backed by his aforesaid observations the Assessing Officer vide his order u/s.143(3) of the Act, dated 21.08.2014 assessed the total income of the assessee society at Rs.24,99,340/-.
Aggrieved, the assessee assailed the assessment order before the CIT(Appeals).
Apropos, the assessee’s claim for deduction u/s 80P(2)(a)(i) of the Act, the CIT(Appeals) was of the view that the same in respect of the income of the assessee which was attributable to its activities of providing credit facilities to its members could not be denied. Qua the assessee’s claim for deduction u/s 80P(2)(d) of the Act as regards the interest/dividend income on FDs/investments held by the assessee society with various co-operative Banks and scheduled banks, the CIT(Appeals) was of the view that as the deduction under the aforesaid statutory provisions was available only in respect of
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interest/dividend received from co-operative Societies, therefore, the same would not be available as regards the interest/dividend income that was received on the deposits /investments of the assessee society with the aforesaid banks which were not its members. Accordingly, backed by his aforesaid observations, the CIT(Appeals) concluded that the interest/dividend income received by the assessee society on its deposits/investments with the co-operative banks and scheduled banks would be liable for tax u/s.56 of the Act. Accordingly, the CIT(Appeals) directed the Assessing Officer to call for the requisite details and, after making necessary verification subject the same to tax after allowing deduction of the corresponding expenses u/s. 57(3) of the Act.
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their
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respective contentions. Our indulgence in the present appeal has been sought by the assessee for adjudicating two issues, viz. (i) that as to whether or not the interest income earned by the assessee society on its deposits with Co-operative banks was eligible for deduction u/s.80P(2)(d) of the Act; and (ii) that as to whether or not the interest income earned by the assessee on its deposits with co-operative banks and scheduled banks was eligible for deduction u/s. 80P(2)(a)(i) of the Act.
Having given a thoughtful consideration to the claim of the Ld. Authorized Representative (for short ‘AR’) for the assessee, that both the lower authorities had erred in concluding that the interest income earned by the assessee society on its deposits with the co-operative banks would not be eligible for deduction u/s 80(2)(d) of the Act, we find substantial force in the same. We are of the considered view that as co-operative banks falls within the realm of the definition of “Co- operative Society” as contemplated in Section 2(19) of the Act, therefore, the view taken by lower authorities that the interest income earned by the assessee on its deposits with the co-operative banks
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would not be eligible for deduction u/s 80P(2)(d) of the Act cannot be sustained. Our aforesaid view is fortified by the order of a coordinate bench of the Tribunal, i.e, the ITAT, Mumbai in the case of M/s Solitaire CHS Ltd Vs. Principal Commissioner of Income Tax-26, ITA No.3155/Mum/2019, dated 29.11.2019 (one of us, i.e, the JM was a party), wherein after exhaustive deliberations had held as under: “6. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether the claim of the assessee for deduction under section 80P(2)(d) in respect of interest income earned from the investments/deposits made with the co-operative banks is in order, or not. In our considered view, the issue involved in the present appeal revolves around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by the Pr. CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of sub- section (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with co-operative banks, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Observing, that the co-operative banks from where the assessee was in receipt of interest income were not co-operative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act. 7. After necessary deliberations, we are unable to persuade ourselves to be in agreement with the view taken by the Pr. CIT. Before proceeding any further, we may herein reproduce the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. “80P(2)(d)
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(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-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)............................................................................................ (b)............................................................................................ (c)............................................................................................ (d) in respect of 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;” On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other co-operative society shall be deducted in computing its total income. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other co- operative society. We are in agreement with the view taken by the Pr. CIT, that with the insertion of sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. However, at the same time, we are unable to subscribe to his view that the aforesaid amendment would jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of its interest income on investments/deposits parked with a co-operative bank. In our considered view, as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find that the term „cooperative society‟ had been defined under Sec. 2(19) of the Act, as under:- “(19) “Co-operative society” means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;” We are of the considered view, that though the co-operative banks pursuant to the insertion of subsection (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a
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co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act. 8. We shall now advert to the judicial pronouncements that have been relied upon by the ld. A.R. We find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co-operative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum) (ii) M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) MarvwanjeeCama Park Cooperative Housing Society Ltd. Vs. ITO-Range- 20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. (iv). KaliandasUdyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had held, that the interest income earned by the assessee on its investments with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co-operative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Insofar the reliance placed by the Pr. CIT on the judgment of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) is concerned, we are of the considered view that the same being distinguishable on facts had wrongly been relied upon by him. The adjudication by the Hon’ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a co-operative society towards deduction under Sec. 80P(2)(d) on the interest income on the investments/deposits parked with a co- operative bank. Although, in all fairness, we may herein observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), had concluded that a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we find, that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had observed, that the interest income earned by a co-operative society on its investments held with a co- operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. We find that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom),
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where there is a conflict between the decisions of non-jurisdictional High Court‟s, then a view which is in favour of the assessee is to be preferred as against that taken against him. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon‟ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a cooperative society on its investments held with a co- operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and therein concluded that the assessee would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 for dislodging the same. In fact, as observed by us hereinabove, the aforesaid view taken by the A.O at the time of framing of the assessment was clearly supported by the order of the jurisdictional Tribunal in the case of Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum). Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we „set aside‟ his order and restore the order passed by the A.O under Sec. 143(3), date 14.09.2016. 10. Resultantly, the appeal filed by the assessee is allowed.”
We, thus, not being able to persuade ourselves to subscribe to the view taken by the lower authorities, that, the interest income received by the assessee society from its short term deposits with co- operative banks is not to be construed as income from its investments with any other co-operative society, conclude, that the interest income received by the assessee society on its investments/deposits with the Co-operative Banks would be eligible for deduction u/s 80P(2)(d) of the
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Act. Thus, the Grounds of appeal No.(s) 1 and 2 are allowed in terms of our aforesaid observations.
Adverting to his claim that the interest income earned by the assessee society on its deposits with the banks is eligible for deduction u/s 80P(2)(a)(i) of the Act, the Ld. AR, in support thereof had relied on the judgments of the Hon'ble High Court of Karnataka in the case of Guttigedarara Credit Co-operative Society Ltd. Vs. ITO, 377 ITR 464 (Kar.) and Tumkur Merchants Souharda Cooperative Ltd. Vs. ITO, Tumkur, 55 taxmann.com 447 (Kar.). It was submitted by the Ld. AR, that the Hon'ble High Court of jurisdiction in both the aforementioned judgments, had observed, that where a Co-operative society which was engaged in the business of providing credit facilities to its members had deposited the excess/surplus amount available with it as a short term deposit in a bank, then, the interest income earned there from would be eligible for deduction u/s 80P of the Act. Backed by his aforesaid contention, it was the claim of the Ld. AR that the interest income earned by the assessee society on its deposits with the banks, i.e, the Co-operative banks and nationalized banks, being inextricably
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inter-linked, or, in fact, inter-woven with its business of providing credit facilities to its members, thus, being attributable to its said stream of business was eligible for deduction u/s. 80P(2)(a)(i) of the Act.
Controversy qua the issue in hand hinges around the aspect, i.e, as to whether or not the interest income earned by the assessee society on its surplus funds, which, in the normal course of its business of providing credit facilities to its members was parked as short term deposits with the banks, i.e, at a point of time when there were no takers for the said funds, would be eligible for deduction u/s. 80P(2)(a)(i) of the Act?. We have given a thoughtful consideration to the contentions advanced by the Ld. Authorized representatives for both the parties. Before proceeding any further, we deem it fit to cull out the provisions of section 80P(2)(a)(i) of the Act, the scope and gamut of which is the primary bone of contention before us, and the same reads as under :
“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 sub-section (2), in computing the total income of the assessee.
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(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) to (iii)…………………………………………………………………………” (Emphasis by underlining supplied by us) On a perusal of the aforesaid statutory provision, we find that the same, contemplates, that the income of a co-operative society from its business of banking or providing credit facilities to its members is eligible for deduction u/s. 80P(2)(a)(i) of the Act. Our indulgence in the present appeal is confined to the limited aspect, i.e, as to whether or not the interest income earned by the assessee-society by depositing its surplus funds with a bank can be brought within the meaning of “….income from carrying on the business of banking or providing credit facilities to its members”, and thus, would fall within the realm of the deduction contemplated in Section 80P(2)(a)(i) of the Act. At this stage, we may herein observe, that it is the claim of the assessee that as depositing of its surplus funds, i.e, the funds for which there were no takers at the relevant point of time, in the course of its business of providing credit facilities to its members is inextricably interlinked, or, in fact interwoven with its said stream of business activity, therefore,
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the interest income received on such short-term deposits would be eligible for deduction under the aforesaid statutory provision, i.e., Sec. 80P(2)(a)(i) of the Act.
Backed by the aforesaid facts, we are of the considered view that as the amount deposited by the assessee society for a short term with the banks, i.e, Co-operative banks or nationalized banks in the course of its business of providing credit facilities to its members, was in the nature of a simplicitor parking of its surplus/excess idle funds for which there were no takers at the relevant point of time, therefore, the same, as stated by the ld. A.R, and rightly so, was inextricably inter-linked, or, in fact interwoven with its aforesaid primary activity, i.e, of providing credit facilities to its members. In the backdrop of our aforesaid deliberations, we are of the considered view, that as held by the Hon'ble Jurisdictional High Court in the case of Guttigedarara Credit Co-operative Society Ltd. (supra) and Tumkur Merchants Souharda Cooperative Ltd. (supra), the interest income earned by the assessee society on the surplus amount that was parked by it as short term deposits with the banks, i.e, Co-operative banks and nationalized
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banks would duly be eligible for deduction u/s.80P(2)(a)(i) of the Act. We, thus, in terms of our aforesaid observations set-aside the order of the CIT(Appeals), and direct the Assessing Officer to allow the assessee’s claim for deduction u/s 80P(2(a)(i) qua the interest income received by it on deposits with the banks. Thus, the Grounds of appeal No.(s) 3 and 4 are allowed in terms of our aforesaid observations.
Ground No.5 is general in nature and hence, dismissed as not pressed.
In the result, appeal of the assessee is allowed in terms of our aforesaid observations.
Order pronounced in Open Court on 31st day of March, 2022.
Sd/- Sd/- JAMLAPPA D BATTULL RAVISH SOOD ACCOUNTANT MEMBER JUDICIAL MEMBER रायपुर/ RAIPUR ; �दनांक / Dated : 31st March, 2022 *SB
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आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals), Hubli, Goa. 4. The Pr. CIT, Belgavi 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, पणजी / DR, ITAT, Panaji. गाड� फ़ाइल / Guard File. 6.
आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.
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Date 1 Draft dictated on 21.02.2022 Sr.PS/PS 2 Draft placed before author 22.02.2022 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order