SANT NAMDEO NAGRI SAHKARI PAT SANSTHA MARYADIT HINGOLI,HINGOLI vs. CIT (A), AURANGABAD

On the facts and circumstances of the case and in law, the honourable CIT APPEAL erred in confirming the addition made by the Learned AO of Rs.34,38,272/- without appreciating the facts of the case in proper perspective. The appellant hereby prays that the addition of Rs.3438272 may please be deleted.

On the facts and circumstances of the case and in law the honourable CIT APPEAL erred in confirming the addition made by the Learned AO of Rs.3438272 stating that the above mentioned case of Totagars Cooperative Sale Society, the Honble Karnataka High Court itself in a later judgement subsequent to the one decision of the Honble Supreme Court referred by the assessee in the case of Totagars Cooperative Sale Society reported in 322 ITR 283 dated 08.02.2010 has held that the income by way of interest earned by deposits 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 scheduled bank or a cooperative bank and thus, clause d of section 80P 2 of the Act would not apply and therefore would not be eligible for deduction.

On the facts and circumstances of the case and in law, without prejudice to the ground of appeal no 1 and 2 the honourable CIT APPEAL erred in denying the deduction under section 80P 2 d of the Act. Hence, without prejudice to ground of appeal 1 and 2, the appellant hereby prays that the deduction of interest income of Rs.3438272 may please be allowed under section 80P 2 d of the Act.

The appellant hereby reserves the right to add, amend, alter, or raise any additional ground or grounds of appeal or delete or withdraw any of the grounds of appeal.

1 Admittedly, the Assessee is a Co-Operative Society registered under the Maharashtra State Co-Operative Society Act 1960 vide registration certificate dated 12/03/1986. The activities of the assessee as submitted by assessee are as under : (i) To enroll the members (ii) To educate the members in the cause of better savings out of their earning. (iii) To effect operation among members (iv) To accept deposits under the various schemes and pay interest (v) To lend money to members on reasonable interest.

2 In the case under consideration, the AO has held assessee to be a Co- Operative Bank based on the Capital and Reserve of the assessee and based on the activities of the Assessee. No where neither the AO nor the CIT(A) has stated that the Assessee has received Banking License from RBI under the Banking Regulation Act.

3 The Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT [2021] 431 ITR 1(SC) observed as under : Quote “Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are cooperative - societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. ” Unquote

4 Thus, a Co-Operative Society will be treated as a Co-Operative Bank only if it has received License from RBI. In the case of the Assessee neither the AO nor the CIT(A) has stated that the Assessee is in receipt of License from RBI. Therefore, in the absence of Banking License, respectfully following the Hon’ble Supreme Court (Supra), it is held that the assessee is not a Co-Operative Bank as envisaged in section 80P(4) of the Income Tax Act. Hence, provisions of Section 80P(4) will not be applicable in the case of the Assessee.

5 It is specifically mentioned in the Assessment Order that Assessee has invested ‘Surplus funds’ in the PDCC and other banks and earned Interest Income. Thus, it is an admitted fact by the Assessing officer that the investment is of the income derived from the Business of the assessee. As per para 7.1 of the Assessment Order the main object of the assessee society is to provide credit facility to its members and also accept deposits from members. Thus, admittedly the assessee is providing credit facility to its members. Thus, the investments made by the assessee are from the Surplus generated by assessee during the course of providing credit facility to its members and the assessee has earned Interest Income by investing these surplus funds in PDCC Bank. Therefore, the section 80P(2)(a) is applicable in the case of the assessee.

6 The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371analyzed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagar Cooperative Sale Society, and held as under: Quote, “8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not.

While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v.Andhra Pradesh State Co-operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. ……………………

The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co operative credit society, which was also marketing the agricultural produce of its members. Asseen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which thedecision of the Supreme Court arose, the assessee was carrying on the business of marketing agriculturalproduce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other thanmarketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. Thisis perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, butinvested the same in banks. As a consequence, the investments were shown as liabilities, as they representedthe money

But, as rightly contended by the learned senior counsel for the petitioners, the investment made by thepetitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had investedthose amounts in fixed deposits in other co-operative societies or in the construction of godowns andwarehouses, 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 (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to".

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, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” Unquote. 5.6.1 Thus, Hon’ble High Courts of AP &TS (supra) held that Interest Income earned by investing Income derived from Business of providing credit facility by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act.

7 The ITAT Pune Bench in the decision of Ajayshree Gramin Bigar Sheti Sahakari Patasanstha Maryadit in ITA No.1427/PUN/2023 order dated 08.03.2024 held as under : “3.1 We observed that the issue is covered by ITAT Pune Bench’s order in the case of Sumitra Gramin BigarShetiSahakari Pat Sanstha Maryadit Mahaveer Path for A.Y.2008-09 which has decided the same issue in favour of assessee in ITA No.2476/PUN/2016. In that case assessee had received interest income from fixed deposits kept with Nationalized Banks. The ITAT Pune Bench in para 5 has held as under :