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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI AMIT SHUKLA & Ms. PADMAVATHY S.
O R D E R Per Padmavathy S (AM): This appeal is against the order of the Principal Commssioner of Income-tax, Thane-1 (in short, the „PCIT‟) dated 30/03/2023 for A.Y. 2018-19 passed under section 263 of the Income Tax Act (the Act). The assessee raised the following grounds of appeal:-
2 ITA 1970/Mum/2023 Pravara Gramin Bigar Sheti Sahakari Patsanstha Maryadit “1. On the facts and in the circumstances of the case and in law the Ld. Principal Commissioner of Income Tax Thane-1 was not justified to set aside the assessment order passed by the Income tax Officer, National e-Assessment Centre, Delhi dated 31-3-2021 and directing the Assessing Officer to disallow the entire amount of Rs. 79,39,352/- and pass fresh assessment order based on the findings in the order passed u/s 263 of the Income Tax Act, 1961.
2. The Ld. Assessing Officer has conducted proper enquiry and verified the records, and thereafter come to the conclusion that the interest on investment is eligible for deduction u/s 80P(2)(a)(i) of the Act. However, the Ld. Principal Commissioner of Income Tax Thane-1 took different view while passing the order u/s 263 of the Act and therefore, order passed by the PCIT is without jurisdiction and same is bad in law.
3. The Ld. PCIT Thane-1 has failed to properly verify the assessment record and written submission made by the appellant Society during the course of assessment proceedings where the deduction is allowed u/s 80P(2)(a)(i) and not u/s 80P(2)(d) of the IT Act, 1961 as noted in his order.
The PCIT while passing the orders has wrongly observed that the appellant Society has invested idle funds to earn the interest income, however the assessee Society has not made investments of idle funds but investment is made as per the statutory requirements governing the Society.
5. The PCIT while passing the orders has wrongly relied on the Hon'ble Supreme Court decision in the case of Totgar Co-op. Sales Society Ltd. and latest Hon'ble Karnataka High Court decision in the case of PCIT, Hubli v/s. Totgar Co-op. Sales Society 392 ITR 74 (ITA No-100069/2016) as the assessee Society has not made investment of idle funds.
The Ld. PCIT Thane-1 has erred in observing that the the Co-operative bank is not a Co-operative Society eligible for deduction u/s SOP of the Act and further observing that the interest on fixed deposits shall be taxed under the head of "Income from Other Sources".”
The assessee is a co-operative society and filed the return of income for A.Y. 2-18-19 on 19/09/2018 declaring total income of Rs.Nil. The case was selected for scrutiny under CASS and the assessment was completed under section 143(3) of the Act assessing the total income at Rs.2,51,235/-. The PCIT, on examination of the assessment records noticed that the assessee has shown an interest income of Rs.2,70,40,500/- out of normal banking business of providing credit facilities to its 3 ITA 1970/Mum/2023 Pravara Gramin Bigar Sheti Sahakari Patsanstha Maryadit members and that the assessee also earned the interest income of Rs.79,36,352/- out of deposits with various co-operative banks and interest on savings bank account of Rs.2,51,237/-. The PCIT was of the view that the interest income earned and out deposit made with other co-operative society are not allowable as deduction under section 80P(2)(d) as well as 80P(2)(a)(i) of the Act since the same cannot be attributable to the activities of the assessee. The PCIT held that the provision of Section 80 P(2)(d) and Section 80 P(2)(a)(i) only extend the benefit of deduction towards income earned by cooperative society engaged in the business of providing banking facility to its members and does not extend to the interest received from the investments made in the cooperative banks. The PCIT also invoked Section 80P (4) holding that since investments have been made in the cooperative banks and therefore, deduction is to be denied. To this extent, the PCIT was of the view that the order of the Assessing Officer under section 143(3) was erroneous and prejudicial to the interest of the Revenue and, therefore, issued a show cause notice to the assessee invoking the provisions of section 263 of the Act.
The assessee made a detailed written submission relying on various judicial pronouncements to submit that the income earned by the assessee by providing credit facilities to members and the interest income earned on statutory investments is attributable to providing credit facilities to the members. Accordingly, the assessee submitted that the order passed by the Assessing Officer is not erroneous or prejudicial to the interest of the revenue. The PCIT did not accept the submissions of the assessee and held that the interest derived from investing the surplus amount in short term deposits with banks and government securities would fall under the head “Income from other sources” and therefore, deduction under section 80P(2)(d) would not apply. The PCIT relied on the decision of the Hon‟ble 4 ITA 1970/Mum/2023 Pravara Gramin Bigar Sheti Sahakari Patsanstha Maryadit Supreme Court in the case of Totgar Co-operative Sales Society vs ITO 322 ITR 283 (SC). Accordingly, the PCIT held the order of the Assessing Officer to be erroneous and set aside the said order directing the Assessing Officer to pass fresh assessment order. Aggrieved, the assessee is in appeal before the Tribunal.
4. After hearing both the parties and on perusal of the impugned order, we find that the only issue is with respect of allowability of deduction of Rs. 79,39,352/- claimed u/s.80 P(2)(d) on account of interest received by the assessee from various cooperative banks. We notice that the coordinate bench in the case of M/s. Premium Tower Co-operative Housing Society Ltd. vs CIT(A) (ITA No.1583/Mum/2023 dated 17/05/2023) has considered the issue of interest earned from cooperative banks whether eligible for deduction under section 80P and held that –
Section 80P provides that in case of assessee being a cooperative society, the gross total income which includes any income referred to sub-section 2 shall be deducted in accordance with subject to provision of this section. Sub-section 2 of section 80P Clause (a) states that, “in the case of cooperative society engaged in cooperative business of banking and providing credit facilities to its members or ………, the whole of amount of profit and gains of the business attributable to anyone or more or such activity.” Clause (d) of Sub-section 2 of Section 80P reads as under:- (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; 6. Sub section 4 of section 80P carves out of exception that the provision of this section will not apply in relation to any cooperative bank. Further explanation provides that the definition of cooperative bank and primary cooperative bank. The said provision reads as under:- (4) The provisions of this 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.
5 ITA 1970/Mum/2023 Pravara Gramin Bigar Sheti Sahakari Patsanstha Maryadit Explanation. For the purposes of this sub-section- (a) co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949) (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.] 7. Thus, assessee being a cooperative society cannot be reckoned as cooperative bank carrying out banking business. The Hon’ble Jurisdictional High court in the case of Quepem Urban Co-operative Credit Society Ltd. vs. ACIT reported in (2015) 377 ITR 272 (Bom), after analyzing the relevant provision of Section 80P including Sub-section (4) had categorically held that cooperative banks are to be treated as cooperative society. In so far as deduction of interest earned on investment made in cooperative bank, Clause (d) of section 80P(2) provides that any income by way of interest on dividend derived from cooperative societies from its investment with any other cooperative societies, the whole of such income is deductable u/s 80P. The cooperative bank has been defined in part 5 of the Banking Regulation Act 1949. Section 56(ccv) provides that primary cooperative bank means cooperative societies other than a primary agriculture society. This view had come up for the Hon’ble Karnataka High Court in the case of PCIT vs. Totagars Co-operative Sale Society (2017) 392 ITR 74 (Kar.) dated 5th Jan. 2017, wherein the Hon’ble High Court had observed as under:- 1. Whether the learned Tribunal was justified in deleting the additions made by the Assessing Authority being the disallowed deduction claimed u/S 80P(2)(d) of the Income Tax Act and in the light of the decision of the Supreme Court with regard to the same exact assessee as the present one, namely, The Totgars Co- operative Sale Society Ltd., Vs. Income Tax Officer in Civil Appeal Nos.1622 to 1629/2010 decided by the Apex Court on 08.02.2010 or not? 2. Whether, in the facts and circumstances of the case, the Tribunal is justified in not following the decision rendered by the Hon'ble Supreme Court in Civil Appeal No. 1622 of 2010, wherein the Apex Court has to be held that the words used in Section 80P "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 and as such interest earned on funds which are not required for business purposes falls under the category of "other income" taxable under the Income Tax Act?
6 ITA 1970/Mum/2023 Pravara Gramin Bigar Sheti Sahakari Patsanstha Maryadit 6. According to the learned counsel, the present appeal should be admitted on these two substantial questions of law.
However, the contention being taken by the learned counsel is untenable. For the issue that was before the ITAT, was a limited one, namely whether for the purpose of Section 80P(2)(d) of the Act, a Co- operative Bank should be considered as a Co-operative Society or not? For, if a Co-operative Bank is considered to be a Co-operative Society, then any interest earned by the Co- operative Society from a Co- operative Bank would necessarily be deductable under Section 80P(1) of the Act.
8. The issue whether a Co-operative Bank is considered to be a Co-operative Society is no longer res integra. For the said issue has been decided by the ITAT itself in different cases. Moreover the word "Co- operative Society" are the words of a large extent, and denotes a genus, whereas the word "Co- operative Bank" is a word of limited extent, which merely demarcates and identifies a particular species of the genus Co- operative Societies. Co- Operative Society can be of different nature, and can be involved in different activities; the Co-operative Society Bank is merely a variety of the Co-operative Societies. Thus the Co- operative Bank which is a species of the genus would necessarily be covered by the word "Co-operative Society".
9. Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primary Co-Operative Society bank as the meaning of Co- Operative Society. Therefore, a Co-operative Society Bank would be included in the words 'Co-operative Society'.
Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said 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. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent.
The learned counsel has relied on the case of The Totgars Co-operative Sale Society Ltd. Vs. Income Tax Officer, (supra). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions 7 ITA 1970/Mum/2023 Pravara Gramin Bigar Sheti Sahakari Patsanstha Maryadit of law canvassed by the learned counsel for the Revenue even arise in the present case.
This view has further been reiterated by the judgment of Hon’ble Kerala High Court in the case of PCIT vs. Percoorkada Service Co. Bank Ltd. (2022) 442 ITR 141 (Kerala) dated 01.11.2021, wherein one of the question before the Hon’ble High Court was, whether the interest income earned from deposits with the banks is eligible for deduction u/s 80P(2). The Hon’ble Kerala High Court has also considered the judgment of Hon’ble Supreme Court in the case of Totagars Cooperative Societies Ltd. 322 ITR 323, wherein the Hon’ble High Court has held that interest income earned from district cooperative bank or state cooperative bank, come within the ambit of section 80P (2)(d), therefore the income constitutes income from other sources and it is eligible for deduction covered u/s 80P(2)(d). Otherwise section 80P(2)(d) specifies any income by way of interest or dividend which is otherwise taxable under the head income from other sources, deduction is allowable if the same is derived from investment made with any other cooperative societies.
In contravention, section 80P (2)(a) provides income from carrying out various activities which is in the nature of business. Irrespective whether the interest income derived from activities as provided in section 80P (2)(a) which is otherwise the business income for which deduction is allowable, if there is any interest income which is earned on deposits or investment made with cooperative societies, the same must fall in the category activity or the business, but still is eligible for deduction under the specific provision of section 80P(2)(d). Thus, the interest derived by the assessee from cooperative bank is eligible for deduction u/s 80P(2)(d) because as noted above, cooperative are also cooperative societies for this purpose. This has been held so by the Hon’ble Karnataka High Court and latest judgment of Hon’ble Kerala High Court.
10. Lastly, in so far as judgment of Hon’ble Karnataka High Court in the case of Totagars Cooperative Sale Society (395 ITR 611), which has been referred and relied upon by the Ld. CIT(A), the Hon’ble High Court has held against and observed that income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or cooperative bank. Therefore, section 80P(2)(d) would not apply on the facts of that case. However, as noted above in one of the judgment, the Hon’ble Karnataka High Court has held the same issue in favour of the assessee.
11. Therefore, following the judgment of Hon’ble Karnataka High Court in the case of Totagars Cooperative Sale Society (2017) 392 ITR 74 (Kar.) dated 5th Jan. 2017 and judgment of Hon’ble Kerala High Court in the case of PCIT vs.
8 ITA 1970/Mum/2023 Pravara Gramin Bigar Sheti Sahakari Patsanstha Maryadit Percoorkada Service Co. Bank Ltd. (supra), we hold that assessee is eligible for deduction of interest income earned from cooperative bank. Thus, claim of deduction u/s.80P(2)(d) is allowed to the assessee. 12.