KOTHAPALLY FARMERS CO- OPERATIVE SOCIETY LIMITED,MEDAK vs. INCOME TAX OFFICER, WARD-1, SANGAREDDY

At the outset, it is noticed that there is a delay of 415 days in filing of these appeals before the Tribunal. The assessee has filed an application along with an affidavit for condonation of delay, wherein, the submissions of the assessee are as under :

Brief facts of the case are that the assessee is a Cooperative Society carrying on business of procurement of seed, fertilizers and gives farm credits to the members of the Society. During the assessment proceedings u/s 143(3) of the Act, the Assessing Officer noticed that the assessee received as interest on deposits with Banks/Institutions. The assessee was required to explain/justify the claim of deduction u/s 80P of the Act on the above interest income. The assessee explained that the fixed deposits made by the assessee comprises of the following: a)share capital of the members b)reserve fund c)bad debts reserve d)10% of the loan amount to its member farmers e) government grant as per Vaidyanathan committee recommendations

It was also explained that the above funds have been invested by the assessee in the Banks from time to time as per requirement of the AP cooperative societies Act and hence the interest on fixed deposits is attributable to the business activities of the Assessee and hence eligible for deduction under section 80P(2)(a)(I) of the Act. However, the AO observed that the issue is covered by the decision of the honourable Supreme Court in the case of Totgars Sales Credit society in Civil Appeal No.1622 of 2010 (Arising out of S.L.P. (C) No.7572 of 2009). Accordingly, he disallowed the interest income as deduction under section 80P of the Act. Aggrieved, the assessee preferred an appeal before the CIT(A) who confirmed the order of the AO and the assessee is in second appeal before the tribunal by raising the following grounds of appeal : “1. On the facts and in the circumstances of the case, the order of the learned CIT (A)-2 Hyderabad is erroneous and bad in law. 2. On the facts and in the circumstances of the case, the order of the learned CIT (A)-2 Hyderabad is not justified in confirming the treatment of Rs.77,20,164/- being interest on deposits from scheduled banks as income from other sources which was declared as business income by the appellant. 3. On the facts and in the circumstances of the case, the order of the learned CIT (A)-2 Hyderabad is not justified in confirming the disallowance of Rs.77,20,164/- u/s 80P of the Act. 4. The appellant craves leave to alter, amend or delete any of the above grounds of appeal and/or to add any fresh ground(s) of appeal at or before the hearing of the appeal”.

The learned counsel for the assessee submitted that similar issue had arisen in the assessees own case in the earlier assessment years 2011-12 to 2014-15 and SMC bench of this tribunal in ITA

The learned DR, on the other hand, relied upon the orders of the authorities below.

Having regard to the rival contentions and the material on record, we find that this issue is covered in favour of the assessee by the decision of this tribunal in the assessees own case and therefore this appeal also has to be allowed on similar lines. For the sake of ready reference, the relevant Paras of ITAT order are reproduced here under:

It is vehemently contended at the Revenue's behest that the learned lower authorities have rightly made impugned disallowance since the assessee's interest income has been derived from fixed deposits in nationalised banks than co- operative banks.

I have given my thoughtful consideration to the above sole issue of 80P deduction. Suffice to say, hon'ble jurisdictional high court's decision in Vavveru Co-operative Rural Bank Ltd., Vs. CIT (2017) [396 ITR 371] (AP) holds the very nature of income as eligible for Section 80P deduction as under:

In other words, the benefit conferred by Clause (d) upon all types of Co- operative Societies is restricted only to the investments made in other Co- operative Societies. Such a restriction cannot be read into Clause (a), as the temporary parking of the profits and gains of business in nationalised Banks and the earning of interest income therefrom is only one of the methods of multiplying the same income. To accept the stand of the Department would mean that Co-operative Societies carrying on the activities listed in Clauses (i) to (vii), which invest their profits and gains of business either in other Co- operative Societies or in the construction of godowns and warehouses, may benefit in terms of Clause (d) or (e), but the very same Societies will not be entitled to any benefit, if they invest the very same funds in Banks. Such an understanding of section 80P(2) is impermissible for one simple reason. The benefits under Clauses (d) and (e) are available in general to all Co-operative Societies, including Societies engaged in the activities listed in Clause (a). Section 80P(2) is not intended to place all types of co-operative societies on the same pedestal. The section confers different types of benefits to different types of societies. Special types of societies are conferred a special benefit.

The case before the Supreme Court in Totgars was in respect of a Co- operative Credit Society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the Society. It is also found from Paragraph-3 of the decision of the Karnataka High Court in Totgars that the business activity other than marketing of the agricultural produce actually resulted in net loss to the Society. Therefore, it appears that the assessee in Totga.rs was carrying on some of the activities listed in Clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgars struck a different note.

But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other Co-operative Societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under Clause (d) or (e), as the case may be.

The original source of the investments made by the petitioners in nationalised Banks is admittedly the income that the petitioners derived from the activities listed in sub Clauses (i) to (vii) of Clause

Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the Writ Petitions are allowed, and the order of the Assessing Officer, insofar as it relates to treating the interest income as something not allowable as a deduction under Section 80P(2) (a), is set aside". 5.1. I adopt the foregoing detailed discussion mutatis- mutandis and direct the Assessing Officer to delete the impugned disallowance thereby treating that the assessee as eligible for Section 80P deduction.

These assessee's appeals are allowed. A copy of this common order be placed in the respective case files”.

In the result, the appeals of the assessee are allowed. Order pronounced in the Open Court on 15th September, 2021.