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Facts
The assessee, a cooperative credit society, claimed deduction under Section 80P(2)(a)(i) for income from credit facilities and interest income from investments. The Assessing Officer disallowed the deduction, treating interest income as 'income from other sources'. Additionally, an addition was made under Section 69A for cash deposits during the demonetization period.
Held
The Tribunal held that the interest income earned by the cooperative society from its investments with cooperative banks is eligible for deduction under Section 80P(2)(d). Furthermore, the income from providing credit facilities to members is also eligible for deduction under Section 80P(2)(a)(i). The addition under Section 69A was deleted as the deposits were found to be from the society's members.
Key Issues
1. Whether interest income from investments with cooperative banks is deductible under Section 80P(2)(d). 2. Whether income from providing credit facilities is deductible under Section 80P(2)(a)(i). 3. Validity of addition for cash deposits during demonetization period under Section 69A.
Sections Cited
143(3), 69A, 80P, 80P(2)(a)(i), 80P(2)(d)
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Income Tax Appellate Tribunal, “D” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by Revenue is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2024-25/1070652222(1), dated 26.11.2024 passed against the assessment order by Income-tax Officer, Ward -1(2), Kalyan, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 30.12.2019 for Assessment Year 2017.
2. Grounds taken by the Revenue are reproduced as under: “1. On the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that co-operative bank is a commercial bank Marathwada Nagari Sahakari Path Sanshta Maryadit. AY 2017-18 and does not fall under the purview of “ Co-operative Society” referred in section 80P(2)(d) of the Income Tax Act, 1961 and therefore the assessee is not eligible for deduction u/s 80P(2)(d) of the Income Tax Act, 1961.
On the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the interest income of the assessee society out of its “investment” with other co-operative banks is not eligible for deduction u/s 80P(2)(a) as ;this interest income earned by the assessee society form its investments with co-operative banks do not constitute operational income or business income of the assessee society and should be taxed under the head “Income from other sources”.
3. On the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the interest income earned by the assessee society cannot be held eligible for deduction u/s 80P(2)(d) of the Income Tax Act, 1961 either as the section 80P(2)(d) specifies that the interest income earned by the co-operative societies from its investments with any other co-operative society would be eligible for deduction under the said section.
4. On the facts and in circumstances of the case, with regard to the addition of Rs. 1,97,86,879/- u/s 69a, the Ld. CIT(A) erred in fact by completely ignoring the fact that the assessee was not a specified entity to accept SBNs as per the prevailing RBI guidelines [RBI Amended Notification No. S.O.3408(E){F.No.10/03/2016-F.Y.1 DATED 08/11/2016] during the demonetization period.
5. The order of the CIT(A) may be vacated and that of Assessing Officer may be restored.”
Brief facts of the case as culled out from records are that assessee filed its return of income on 15.10.2017 reporting total income at Rs. 2,63,470/- and claiming deduction of Rs. 30,73,096/- u/s 80P(2)(a)(i). Assessee is a Cooperative Credit Society registered under Maharashtra Cooperative Societies Act, 1960 and classified as Resource Society u/s. 12 of the Maharashtra Cooperative Societies Act, 1960. It is claimed that assessee is wholly and exclusively engaged in providing credit facilities to its members and no business is transacted with a person other than members of the society. Assessee derives income from providing credit facilities to its members and from utility bill collection centre. It earned an income of Rs. 30,73,097/- from providing credit facilities to the members and Rs. 2,63,470/- from utility bill collection centre. Ld. Assessing Officer disallowed the claim of deduction u/s. Marathwada Nagari Sahakari Path Sanshta Maryadit. AY 2017-18 80P(2)(a)(i) of the Act of Rs. 30,73,096/- being income attributable to providing credit facilities to the members. Further, while disallowing the said claim, ld. Assessing Officer observed that the interest of Rs. 65,11,539/- on investments made by the assessee is chargeable under the head “Income from other sources”. Further, ld. Assessing Officer made an addition of Rs.1,9786,879/- u/s.69A as unexplained money holding, it represents cash deposited in the bank account during the demonetization period from 09.11.2016to 30.12.2016. In this respect, assessee had contended that the amount so deposited represents receipts from its members as well as against collection of electricity bills since assessee is a collection centre, which it had received the fiduciary capacity.
3.1. Aggrieved, assessee went in appeal before the ld. CIT(A) who allowed the claim u/s.80P made by the assessee after observing that ld. Assessing Officer did not bring anything on record to prove that assessee is not carrying out its business in accordance with its bye- laws. For the addition made u/s.69A towards deposit of cash during the demonetisation period, ld. CIT(A), after taking account the facts and decision of Coordinate Bench of ITAT, deleted the same. Appeal of the assessee was thus allowed by ld. CIT(A). Aggrieved, Department is in appeal before the Tribunal.
The first issue involved in the appeal relates to disallowance of Rs. 30,37,097/- towards claim of deduction u/s. 80P(2)(a)(i) of the Act. In this regard, undisputed fact is that assessee is a cooperative credit society exclusively engaged in the business of acceptance of deposits, providing credit facilities to its members. Assessee does not carry any other activity. Thus, its income is attributable to providing credit facilities only. Investments made by the assessee with cooperative Marathwada Nagari Sahakari Path Sanshta Maryadit. AY 2017-18 banks are not out of surplus or idle funds but are made to meet the statutory requirements for fulfilling the object of providing credit facilities to its members. Assessee has earned interest income of Rs.65,11,539/- from the bank deposits which otherwise is also allowable u/s.80P(2)(d) since the investments were made with Thane District Central Cooperative Bank Ltd. which is a bank registered under the Maharashtra Cooperative Societies Act, 1960 and Reserve Bank of India had issued license to carry on the business of banking. Thus, on both counts, i.e., claim u/s.80P(2)(a)(i) and u/s.80P(2)(d) are allowable to the assessee. Ld. CIT(A) on this issue observed that ld. Assessing Officer could not bring on record anything to prove that assessee is not carrying out its business in accordance with the bye-laws of the society. He placed reliance on the decision of Hon'ble High Court of Karnataka in the case of PCIT vs. Totgars Cooperative Seba Society [2017] 78 taxmann.com 169 (Kar) whereby it was held that income earned by cooperative societies out of its investments with cooperative banks are eligible for deduction u/s.80P(2)(d). Accordingly, ld. CIT(A) deleted the addition made by allowing the claim u/s.80P(2)(a)(i) of Rs.30,73,096/-.
On the above stated facts, issue before us is no longer res integra. Firstly, we deal with the aspect of allowability u/s.80(2)P(d)which is extensively dealt by Hon'ble High Court of Karnataka in case of the PCIT vs. Totagar Cooperative Sales Society Limited [2017] 78 taxmann.com 169 (Kar). Relevant findings given in para 7 to 12 are as under: "7. However, the contention being taken by the learned counsel is untenable. For the issue that was before 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 Co- operative Society, then any interest earned by the Co-operative Society from a Co- operative Bank wo necessarily be deductible under Section SOP(I) 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 Marathwada Nagari Sahakari Path Sanshta Maryadit. AY 2017-18 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 Cooperative 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 Ban. 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 IT. Act, the said amount of interest earned from a Co-operative Society Bank would be deductible from the gross income of the Co-operative Society in order to assess it: total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent.
11.The learned counsel has relied on the case of Totgars Co- operative Sale Society Ltd. v. IΠΟ (2010) 322 ITR 283/188 Taxman 282 (SC). 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 L.T. Act and not Section 80P(2)(a)(i) of the IT. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of la canvassed by the learned counsel for the Revenue even arise it is the present case.
For the reasons stated above, this Court does not find any merit in the present appeal. Hence, the appeal is dismissed.”
5.1. We also find that the issue before us of whether a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) for the interest income derived from its investments held with a cooperative bank or not, is covered in favour of the assessee not only by the decision of Hon’ble High Court of Karnataka referred above but also in plethora of cases including few of the following cases: (i) Land and Cooperative Housing Society Ltd. v. ITO (2017) 46 CCH 52 (Mum) (ii) C. Green Cooperative Housing and Society Ltd. v. ITO 21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017
(iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. v. ITO Range- 20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017.
5.2. From the above, we understand that the provisions of section 80P(2)(d) of the Act are very clear and assessee is entitled for deduction u/s.80P(2)(d) of the Act in respect of interest or dividends received from investments made with any other cooperative societies. From the above extraction, we also note that Hon'ble High Court held that the word ‘cooperative society’ are the words of large extent and denotes a genus, whereas the word ‘cooperative bank’ is a word of limited extent, which merely de-markets and identifies a particular species of the genus ‘cooperative societies’. Thus, a cooperative bank is merely a variety of the cooperative societies which can be of a different nature and can be involved in different activities.
5.3. 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, since 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 cooperative societies, therefore, the interest and dividend income derived by a cooperative 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. Accordingly, grounds raised in this respect are dismissed.
6. Issue relating to claim of deduction u/s.80P(2)(a)(i) made by the assessee is also no longer res integra as held in long line of judicial precedents listed below: i) Guttigedarara Credit Where interest income earned by Co-operative Society Ltd. assessee society by providing credit vs. ITO facilities to its members was [2015] 60 taxmann.com deposited in banks for a short 215 (Karnataka) duration which had earned interest, said interest on deposits was attributable to business of banking of assessee and it was liable to deduction under section 80P(2)(a)(i) ii) PCIT v. Gunja Samabay Where assessee, co-operative Krishi Unnayan Samity society, earned interest income on Ltd. surplus funds invested in deposits [2023] 147 taxmann.com with banks and Government 518 (Calcutta) securities, since neither said amount of deposit was due to its members nor it was liability to its members, same would qualify for deduction under section 80P(2)(a)(i) iii) Vavveru Co-operative Income of co-operative societies Rural Bank Ltd. vs. CCIT Assessment years 2010-11, 2013- [2017] 396 ITR 371 14 and 2014-15 -Assessee-society (Telangana and Andhra was entitled to deduction under Pradesh) section 80P in respect of interest income from fixed deposits with nationalised bank when source of such investment was income derived from activities listed in sub- clauses (i) to (vii) of clause (a) of section 80P(2) [In favour of assessee] iv) ITO vs. Yendagandhi Interest income received by Large Sized Co-operative assessee, a co-operative society, on Society Ltd. deposits pertaining to reserved fund [2023] 156 taxmann.com with co-operative banks and other 669 (Visakhapatnam nationalized banks was eligible for Trib.) deduction under section 80P
V) Supa (Kurel) Vibhag Seva Interest income received by Sahakari Mandli Ltd. v. assessee, co-operative society, from ITO FDRs in nationalized bank would [2017] 87 taxmann.com qualify for exemption under section 355 (Ahmedabad - Trib.) 80P(2)(a)(i).
Marathwada Nagari Sahakari Path Sanshta Maryadit. AY 2017-18 vi) DIT Vs. Buldana Urban In the instant case, the amount Co-op. Credit Society Ltd. which was invested in banks to earn [4398/Mum/2023] interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore, they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act.
6.1. Assessee submitted a detailed note on its operations of providing credit facilities to its members which yields interest on deposits made on a temporary basis or to meet statutory requirement for the conduct of its business. The same is reproduced as under: “In this regard, kindly also note that, as per the provisions of section 66 the Maharashtra Co-operative Societies Act, 1960, the Society is required appropriate 25 % of the net profit to Reserve fund. In addition to this, as per section 144-10A of the MCS Act, 1960, Cooperative Credit Societies are required to maintain the Statutory Liquidity Ratio (SLR) of not less than 25% of the deposits accepted from members. In view of this, in order to comply the provisions of said Act, the Society is required to make mandatorily investment of Reserve Fund & SLR in the securities specified in section 70 of the MCS Act, 1960. Therefore, these investments are mandatorily required to carry on the business of providing credit facilities to the members. Further, as per the Bye-laws of the Society, providing credit facilities and making investment is core business activity. Making investment is a core business activity at par with providing credit facilities to the members. The Respondent Society has made investment as per the statutory compliance and provisions of Bye-laws of the Society and unless such investment is made, the respondent Society cannot carry on the business of providing credit facilities. Therefore, interest income received on such investment is an income attributable to providing credit facilities to members and same is Income from Business and the same is eligible for deduction on u/s 80P(2)(a) (i) of the Income Tax Act, 1961. In this regard kindly also note that unlike a Co-operative Banks, advancing loan and investment is core business activity of respondent Society. In case of Co- Marathwada Nagari Sahakari Path Sanshta Maryadit. AY 2017-18 operative banks, income on investment is assessed as income from business moreover there is circular issued by the CBDT that the investment income shall be taxed under the head Income from Business. Though the Respondent is Society is distinct entity from Co-operative Banks, however, the aims and object with regard to the carrying on business are almost same and therefore taking clue from the same, interest on mandatory investment by Society is Income from business and therefore eligible for deduction 80P(2)(a)(i) of the Act as held in CIT(A) order.”
6.2. In view of the above facts and judicial precedents, we are of the considered view that assessee is eligible for deduction u/s.80P(2)(a)(i).
Considering the factual matrix in the present case which are akin to the judicial precedents dealt above and the decision of the Coordinate Bench, we hold that assessee is entitled to claim of deduction u/s. 80P(2)(a)(i) and 80P(2)(d). Accordingly, the disallowance made is deleted.
In respect of second issue relating to addition u/s.69A towards deposit of cash in the bank account during the demonetisation period, claim of the assessee is that all the deposits of demonetised currency notes during the period were taken and accepted from its members. Assessee is classified as “Resource Society” u/s.12 of the Maharashtra Cooperative Societies Act, 1960. There are 3436 members and three branches of the assessee society. It operates in a semi-rural area surrounded by Tribal/Adivasi villages and most of them are illiterates and operate their saving account with the assessee society as their bank account. Almost all of its members are from lower/middle and poor class category including below poverty line (BPL). During the demonetisation period, members of the assessee deposited their specified bank notes (SBN) as well as regular currency notes in their saving/daily deposit and loan recovery accounts as well as electric bill payments. According to the assessee, since it is a mutual association, there is no difference between the members and pathpedhi as Marathwada Nagari Sahakari Path Sanshta Maryadit. AY 2017-18 contributors. Participants in the surplus are thus the same members. Assessee has furnished cash transaction of 2016 towards deposit of cash in its bank account showing details of its members, who had deposited the money, source of receipt, etc. The information required by the department, showing member-wise deposit amount was furnished. The amounts were received from identifiable members having PAN and KYC compliant. Assessee thus, explained the nature and source of amount received from its members which was duly accounted in its books of accounts. Further, assessee submitted that opening balance of cash in hand as on 09.11.2016 was of Rs.1,51,001/- which pertained to period prior to demonetisation and was also deposited in the bank account. The same has also been added u/s.69A of the Act.
8.1. Assessee also submitted that it runs electricity bills collection centre of Torrent Power Ltd. in Bhiwandi area. During the demonetisation period, it was allowed to accept utility bills of water and electricity of individuals and households from the period from 25.11.2016 to 15.12.2016. Assessee collected electricity bills of residential consumers amounting to Rs.62,79,180/- during this period which included SBN of Rs.38,50,500/-. The said amount was also deposited in the bank account.
8.2. Ld. CIT(A) considered all the above facts and circumstances under which assessee deposited the cash in its bank accounts during the demonetisation period. He by placing reliance on certain decision of Coordinate Bench, observed that ld. Assessing Officer had not brought any material on record, to prove that the amount deposited in the bank account does not belong to the members of the assessee society. He thus, held that ld. Assessing Officer is not justified in making the addition and the same was deleted.
8.3. We have considered the submissions made and perused the order of the authorities below. We note that ld. Assessing Officer has not doubted on the fact that cash was collected by the assessee from its members only. Assessee has maintained books of accounts which have been duly audited by Government Auditors wherein cash received by it has been recorded. Assessee has furnished all the details of receipt and deposit of the cash giving details relating to its members with their KYC compliances. Considering the facts and judicial precedents relied upon by the ld. CIT(A), we do not find any reason to interfere with the findings arrived at by him in deleting the additions so made. Accordingly, grounds raised in this respect are dismissed.
In the result, appeal of the Revenue is dismissed.