SHI vs. AMARTH SAHAKARI PATPEDHI LTD ,NAVI MUMBAIVS.INCOME TAX OFFICER , WARD 28(3)(2), MUMBAI

As the facts and issues involved in all these appeals under consideration are exactly similar except variation in figures of amount, therefore, for the sake of brevity, the same were heard together and are being disposed of by this consolidated order and as a lead case.

In this case, the Assessee by filing its return of income, has claimed the deduction of Rs.3,63,255/- u/s. 80P of the Act, therefore, the AO show caused the Assessee as to why the claim of deduction of Rs.3,63,255/- u/s. 80P of the Act should not be disallowed in view of the provision of section 80P(4) of the Act. The Assessee by filing its reply dated 15.11.2019 mainly claimed that the Assessee is not a Co- operative Bank carrying banking business and, therefore, not hit by the newly inserted provision of section 80P(4) of the Act.

The ld. Assessing Officer ('A.O.' for short) considered the claim of the Assessee, however, found the same as not acceptable and ultimately disallowed the deduction of Rs.3,63,255/- as claimed u/s. 80P of the Act, by concluding as under:

The sub-section (4) of section 8OP was inserted by Finance Act, 2006 w.e.f 01.04.2007. It provides that provision of said section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. It also defines the expressions "Co-operative Bank", "Primary Agricultural Credit Society" and "Primary co-operative agricultural and rural development bank". It has also inserted sub clause (viia) to section 2(24) so as to provide that the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members shall be included in the definitions of income'. This amendment will take effect from lst April, 2007 and will 3 2705, 2706 & 2707/Mum/2023 (A.Ys. 2012-13, 2015-16, 2017-18 & 2018-19) Shivsamarth Sahakari Patpedhi Ltd. vs. ITO accordingly apply in relation to the assessment year 2007-08 and subsequent years.

The Hon'ble Madras High Court in the case of SBI Staff Co-operative Society Ltd. V. ITO(1998) 144 CTR (Mad) 240:(1998) 234 ITR 104(Mad ) to justify that Patsanstha (Credit institution) is a co-operative society engaged in the business of banking and therefore, the investments in the said Patsanstha (Credit society) is covered by the provision of section 11(5)(üi) of the Act (3) (2).

Similar precedence laid down in Renuka Co-Operative Credit Society Ltd. vs.ITO Wd. 2(2) in ITA No. 346/PNJ/20 13 dated 14/08/2014 and ITO, Ward 1(3), Belgaum vs. Shri Dudundeshwar Urban Co-operative Credit Society Ltd. 53 taxann.Com 165(Panji-Trib.).

In view of the above discussion it is hereby held that the assessee is a Co- operative Bank other than a primary agricultural credit society or a primary co- operative agricultural and rural development bank. The assesse fulfills the conditions laid down u/s 56(c)(ccv) of part V of the Banking Regulation Act 1949 for being a co-operative bank. The assessee further failed to substantiate that the assessee society are transacting with members only. Thus under sub section (4) of section 80P of 1.T. Act,1961 the deduction u/s 80P(2)(a)(i) would not be allowable to the assessee.

In view of the facts and circumstances and the legal provisions explained above, I hold, that the assessee is not eligible for deduction u/s.80P of the Income Tax Act 1961. The assessee's claim for deduction of Rs. 3,63,255/- u/s.80P is disallowed and added back to the total income of the assessee. Penalty initiated u/s. 271(1)(c) of the Income Tax Act, 1961 for furnishing inaccurate particular of income and thereby concealing the said income for A.Y. 2012-13.

The Assessee being aggrieved challenged the afore-said addition of Rs.3,63,255/- by filing the first appeal before the ld. Commissioner , who though held that the Assessee is eligible for deduction u/s. 80P(2)(a)(i) of the Act on the business income earned from its members only, however, ultimately held that the Assessee is not entitled for deduction of the interest income/dividend generated from co-operative banks u/s. 80P(2)(d) of the Act and consequently directed the A.O. to quantify the amount of deduction u/s.80P(2)(d) of the Act on the interest income/dividend income according to the observation made by him and disallowed the same.

The Assessee being aggrieved is in appeal before us.

Heard the rival submissions and perused the materials available on record. The Assessee is in appeal against the denial of deduction of 3,63,255/- as claimed qua income earned as interest/dividend from co-operative bank. The provisions of section 80P(2)(d) of the Act reflects that if any income by way of interest or dividend derived by the Co-operative Society from its investment with any other Co- operative Society, then the whole of such income shall be deducted in computing the total income of the Assessee. Meaning thereby income if any by way of interest or dividend earned from investment with any other Co-operative Society, then such amount of interest or dividend earned shall be deductible in computing the total income of the Assessee.

Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied- (i) income by way of interest or dividend is earned by the Co-operative Society from the investments, and (ii) such investments should be with any other Co-operative Society. Further, the term “co-operative society? is defined under section 2(19) of the Act as under: "(19) "co-operative society" means 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;"

As regards the claim of deduction under section 80P(2)(d) of the Act, it is also pertinent to note that all Co-operative Banks are Co-operative Societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the Co-operative Banks is allowable as a deduction under section 80P(2)(d) of the Act. In Kaliandas Udyag Bhavan Premises Co-op Society Ltd. v. ITO [2018] 94 taxmann.com 15 (Mum.)/[ITA No. 6547/Mum./2017, dated 25-4-2018], while dealing with the provisions of section 80P(2)(d) vis-à-vis section 80P(4) of the Act, the coordinate bench of the Tribunal observed as under: 7....... Thus, from a perusal of the aforesaid sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee co- operative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. 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 cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of sub-section (4) of sec. 80P, vide the Finance Act, 2006, with effect from 1-4- 2007, the provisions of 8 2705, 2706 & 2707/Mum/2023 (A.Ys. 2012-13, 2015-16, 2017-18 & 2018-19) Shivsamarth Sahakari Patpedhi Ltd. vs. ITO 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, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a co-operative society under sec. 80P(2) (d) in respect of the interest income on their investments parked with a co-operative bank. We have given a thoughtful consideration to the issue before us and are of the considered view that 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 may herein observe that the term 'co-operative 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 bank pursuant to the insertion of Sub-section (4) of sec. 80P would no more be entitled for claim of deduction under sec. 80P of the Act, but however, 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 enforced in any state for the registration of co-operative societies, therefore, the interest income derived by a 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."

We find that the learned CIT(A) has placed reliance upon the decision of the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sales Society [2017] 83 taxmann.com 140/395 ITR 611, wherein it was held that interest earned by the assessee, a Co-operative Society. from surplus deposits kept with a Co-operative Bank, was not eligible for deduction under section 80P(210) of the Act. We find that in an earlier decision the Hon'ble Karnataka High Court in Pr. CT v. Totagars Co-operative Sale Society (2017) 78 taxmann.com 169/392 ITR 74 held that according to section 80P(2)(d) of the Act, the amount of interest earned from a Co-operative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Thus, there are divergent views of the same Hon'ble High Court on the issue of eligibility of deduction under section 80P(2)(d) of the Act in respect of interest earned from Co-operative Bank. No decision of the Hon'ble jurisdictional High Court was brought to our notice on this aspect.

In view of our decision in all appeals under considerations are allowed on the same terms. Order pronounced in the open court on 31-10-2023.