THE ITO,WD-4, KOTTAYAM, KOTTAYAM vs. M/S.SAHYADRI CO-OP CREDIT SOCIETY LTD, KOTTAYAM

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ITA 433/COCH/2018Status: DisposedITAT Cochin17 January 2019AY 2015-169 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee is entitled to the deduction under Section 80P(2) of the Act. It reasoned that the assessee is a Multi-State Co-operative Society providing credit facilities to its members and is not a 'co-operative bank' as defined by Section 80P(4). The Tribunal found no evidence that the Reserve Bank of India had classified the assessee as a co-operative bank, and it was neither a Primary Agricultural Credit Society nor a Primary Co-operative Agricultural and Rural Development Bank. Therefore, Section 80P(4) was held to be inapplicable, aligning with the decisions of the Karnataka and Gujarat High Courts. Regarding the classification of income, the Tribunal held that the interest income earned by the assessee from deposits placed to meet statutory reserve requirements under the Multi-State Co-operative Societies Act, 2002, should be treated as business income, not income from other sources. The Tribunal distinguished the present case from Totgar's Co-operative Sale Society by noting that the deposits were not from sale proceeds but from statutory compulsions. It also relied on CBDT Circular No. 18/2015, which, in light of the Supreme Court's decision in Nawanshahar Central Co-operative Bank Ltd., clarifies that income from investments made by banking concerns is part of their business. The Tribunal allowed the assessee's cross-objection on this issue.

What were the facts?

The Revenue has appealed against the order of the CIT(A) dated July 9, 2018, for Assessment Year 2015-2016. The appeal concerns two main issues: whether the assessee, M/s. Sahyadri Co-operative Credit Society Limited, is entitled to deduction under Section 80P(2) of the Income Tax Act, and whether interest income, commission, and processing fees constitute business income or income from other sources. The Tribunal notes that these issues are identical to those decided in the assessee's own case for preceding assessment years by the Cochin Bench of the Tribunal in ITA Nos. 152 & 153/Coch/2018, dated August 29, 2018. The earlier order had addressed similar issues for Assessment Year 2012-2013.

What were the issues?

1. Whether the assessee is entitled to deduction under Section 80P(2) of the Income Tax Act, 1961. The Revenue's contention is not explicitly recorded, but the Tribunal's discussion implies a challenge based on Section 80P(4). The assessee argues it is a Multi-State Co-operative Society engaged in providing credit facilities to its members and is not a 'co-operative bank' as defined in the Banking Regulation Act, 1949, thus Section 80P(4) is inapplicable. It relies on the Karnataka High Court in CIT vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha and the Gujarat High Court in Jafari Momin Vikas Co-op Credit Society Ltd. 2. Whether interest income, commission from GDCS, and processing fees are income from business or income from other sources. The Revenue's position, as indicated by the Assessing Officer, was to treat such income as 'income from other sources', relying on the Supreme Court's decision in Totgar's Co-operative Sale Society vs. ITO. The assessee contends that the interest income earned on deposits made to meet statutory reserve requirements under the Multi-State Co-operative Societies Act, 2002, should be treated as business income, citing the Supreme Court in Nawanshahar Central Co-operative Bank Ltd. and CBDT Circular No. 18/2015.

Which sections of the Income-tax Act were involved?

Section 80P,Section 80P(2),Section 80P(4),Section 57(i),Section 56(1)(id),Section 22,Section 64

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN

Before: Shri Chandra Poojari, AM & Shri George George K, JM

Hearing: 17.01.2019

Per George George K, JM

This appeal at the instance of the Revenue is directed against the order of the CIT(A) dated 09.07.2018. The relevant assessment year 2015-2016.

2.

Two issues are raised in this appeal : (i) Whether the assessee is entitled to deduction u/s. 80P(2) of the I.T.Act. (ii) Whether the interest income, commission from GDCS and processing fee are income from business or income from other sources.

3.

At the outset, we find that the issues involved in this appeal are squarely covered in favour of the assessee by the order of the Cochin Bench of the Tribunal, in assessee’s own

ITA No.433/Coch/2018. 2 M/s.Sahyadri Co-op Credit Society Ltd. case, in ITA No.152 & 153/Coch/2018 (order dated 29th August, 2018), wherein identical issues were raised to that of the issues raised in the present appeal. The relevant finding of the Tribunal reads as follow:-

6.

We have heard the rival submissions and perused the material on record. We find that similar issues involved in the present appeals came up for adjudication for the immediately preceding year, i.e. for assessment year 2012-2013, in assessee’s own case, wherein the Tribunal had decided both the issues in favour of the assessee. The relevant finding of the Tribunal for assessment year 2012-2013, reads as follows:-

“5. We have perused the orders and heard the rival submissions. Certificate dated 16-03-2004 issued by the Office of Central Registrar of Co-operative Societies under the Department of Agriculture & Cooperation of Government of India clearly states that assessee is a Multi State Co-operative Society registered u/s. 7 of the Multi State Co-operative Societies Act, 2002. It is not disputed that the earnings of the assessee Society were from credit facilities given by it to its members. Section 80P(1) of the Act is reproduced hereunder:

“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. (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) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing,

ITA No.433/Coch/2018. 3 M/s.Sahyadri Co-op Credit Society Ltd.

without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities : Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:— (1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) the co- operative credit societies which provide financial assistance to the society; (3) the State Government; (b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to— (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or (ii) the Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business; (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,— (i) where such co- operative society is a consumers' co-operative society, one hundred thousand rupees; and (ii) in any other case, fifty thousand rupees. Explanation.—In this clause, "consumers' co-operative society" means a society for the benefit of the consumers; (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; (e) in respect of any income derived by the co- operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income; (f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the

ITA No.433/Coch/2018. 4 M/s.Sahyadri Co-op Credit Society Ltd. gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22. Explanation.—For the purposes of this section, an "urban consumers' co-operative society" means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.”

It is clear from the above that the profits and gains of business or profession attributable to carrying on a business of providing credit facility to members will be eligible for deduction u/s. 80P(1) of the Act. Hence assessee is eligible for claiming such deduction. Only question that remains is whether assessee could be denied this claim, on account of restrictions placed by Section 80P(4) of the Act. Section 80P(4) is reproduced hereunder:

“(4) The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation – For the purpose 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.”

Hence the question boils down to whether assessee could be considered as a Cooperative Bank. Nothing was brought on record by the Revenue to show that Reserve Bank of India declared it as a Co-operative Bank. Neither was the assessee a Primary Agricultural Credit Society nor was it a Primary Co- operative Agricultural and Rural Development Bank. Hon’ble Karnataka High Court in the case of

ITA No.433/Coch/2018. 5 M/s.Sahyadri Co-op Credit Society Ltd. CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot, (2014) (369 ITR 86) has clearly held that for a Co-operative Society to be considered as a Co-operative Bank, it was necessary that Reserve Bank of India should have given such a classification to the said Co-operative Society. A similar view was taken by the Hon’ble Gujarat High Court in the case of Jafari Momin Vikas Co-op Credit Society Ltd.(2014) (362 ITR 331). In the circumstances, we are of the opinion that section 80P(4) had no application in the case of the assessee. We do not find any reason to interfere with the order of CIT(A) in this regard. Appeal of the Revenue is thus dismissed.

6.

In the Cross Objection of the assessee, grievance raised is on the treatment of interest, under the head ‘income from other sources’ instead of ‘income from business’. The Assessing Officer, while doing the assessment, had considered interest earned by the assessee on bank deposits under the head ‘income from other sources’. Assessee had earned interest of Rs.51,93,347/- on bank deposits. Since the above income was treated under the head ‘income from other sources’, claim of deduction u/s. 80P(1) of the Act stood automatically denied. Reliance was placed by the Assessing Officer on the judgment of Hon’ble apex Court in the case of Totgar’s Co-operative Sale Society vs.ITO (322 ITR 283). Assessee’s appeal on this issue before the CIT(A) did not meet with success.

7.

Now before us, Ld. Counsel submitted that the judgment of the Hon’ble Apex Court in the case of Totgar’s Co-operative Sale Society Ltd. (supra) was not applicable since in the said case the issue was treatment of interest received on deposits created from retention of sale proceeds, not immediately required for business purpose. As per the Ld. AR, in the case of the assessee deposits on which interest income was earned were not from any such

ITA No.433/Coch/2018. 6 M/s.Sahyadri Co-op Credit Society Ltd. retention but were deposits for meeting the statutory reserve requirements under section 64 of the Multi State Co-operative Societies Act, 2002. The Ld. AR also placed reliance on Board Circular No. 18/2015 in F.1279/Misc./140/2015/ITJ dated 02/11/2015. As per the Ld. AR by virtue of the judgment of the Hon‘ble Apex Court in the case of Nawanshahar Central Co-operative Bank Ltd. (2007) 160 Taxman 48 the interest income would be considered only under the head of ‘business’.

8.

We have perused the orders and heard the rival submissions. It has not been disputed that interest income earned by the assessee were from deposits placed by it in Banks. Contention of the assessee is that such interest should be considered only as part of its business income since the deposits were placed for meeting the requirements of statutory reserves under the Multi State Cooperative Societies Act, 2002. No doubt, the Hon’ble Apex Court in the case of Totgar’s Co-operative Sale Society Bank Ltd.(supra) had held that interest received on deposits created out of sale proceeds received from the members not immediately disbursed to such members, was to be considered under the head ‘income from other sources’. However, in the case before us, admittedly, the deposits were not out of sale proceeds from the members of the assessee- Society. Revenue has not rebutted the claim of the assessee that deposits on which interest was earned was for meeting investment requirement on statutory reserves under the Multi State Co- operative Societies Act, 2002. Clearly, it was out of compulsions of business that the deposits were placed by the as in the Banks. Earning of interest there from, in our opinion, could only be treated as income from its business. It is also interesting to have a look at Circular dated 02/11/2015 (supra) issued by the CBDT which is reproduced hereunder:

ITA No.433/Coch/2018. 7 M/s.Sahyadri Co-op Credit Society Ltd.

“New Delhi, 2 nd November,2015

Subject: Interest from Non-SLR securities of Banks – reg

It has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, “expenses relatable to investment in non-SLR securities need to be disallowed u/s. 57(i) of the Act as interest on non-SLR securities is income from other sources.”

2.

Clause (id) of sub-section(1) of Section 56 of the Act provides that income by way of interest on securities shall be chargeable to income-tax under the head “Profits and Gains of Business and Profession”.

3.

The matter has been examined in light of the judicial decisions on this issue. In the case of CIT vs. Nawanshahar Central Co-operative Bank Ltd. (2007) 160 TAXMANN 48 (SC), the Apex Court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head “Profits and Gains of Business and Profession”.

3.2 Even though the abovementioned decision was in the context of cooperative societies/Banks claiming deduction u/s.80P(2)(a)(i) of the Act, the principle is equally applicable to all banks/ commercial banks, to which Banking Regulation Act, 1949 applies.

ITA No.433/Coch/2018. 8 M/s.Sahyadri Co-op Credit Society Ltd. 4. In the light of the Supreme Court’s decision in the matter, the issue is well settled. Accordingly, the Board has decided that no appeals may henceforth be filed on this ground by the officers of he Department and appeals already filed, if any, on this ground before Courts/Tribunals may be withdrawn/not pressed upon. This may be brought to the notice of all concerned.

sd/- (D S Chaudhry) CIT(A&J), CBDT, New Delhi

Para 3.2 of the above circular clearly indicates that the judgment of the Hon’ble Apex Court in the case of Nawanshahar Central Co-operative Bank Ltd. (supra) can be applied to a Co-operative Society also where there is a claim of deduction u/s. 80P(2)(a)(i) of the Act. Considering all these aspects, we are of the opinion that the interest earned by the assessee could not have been treated under the head ‘income from other sources’ but only as a part of its business income. Cross Objection of the assessee is allowed.”

7.

In view of the Tribunal order in assessee’s own case, which is identical to the facts of the present case, we uphold the orders of the CIT(A). It is ordered accordingly.”

4.

In view of the above order of the Tribunal dated 29th August, 2018, in assessees’ own case for the immediately preceding assessment years, i.e. A.Ys. 2013-2014 and 2014- 2015, we hold that the CIT(A) is justified in deleting the addition made by the Assessing Officer. It is ordered accordingly.

ITA No.433/Coch/2018. 9 M/s.Sahyadri Co-op Credit Society Ltd. 5. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced on this 17th day of January, 2019.

Sd/- Sd/- (Chandra Poojari) (George George K.) ACCOUNTANT MEMBER JUDICIAL MEMBER

Cochin ; Dated : 17th January, 2019. Devdas*

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT (Appeals)-Kottayam. 4. The Pr.CIT Kottayam. 5. DR, ITAT, Cochin 6. Guard file.

BY ORDER,

(Asstt. Registrar) ITAT, Cochin

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