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Income Tax Appellate Tribunal, F BENCH, MUMBAI
order : 20.12.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant has challenged the order, dated 29.03.2022 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) Delhi [hereinafter referred to as „the CIT(A)‟] for the Assessment Year 2018-19, whereby the Ld. CIT(A) had dismissed the appeal against the Assessment Order, dated 03.03.2021, passed under Section 143(3) read with Section 143(3A) & 143(3B) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟).
The Appellant has raised following grounds of appeals: “1. On the facts of the case and in law, the learned CIT (Appeals), NFAC, Delhi has erred in confirming the addition of Assessment Year: 2018-19 Rs.63,92,976/- made by the Assessing Officer by denial of admissible 100% deduction u/s 80-P(2)(a)(i) of the Income Tax Act for Interest Income earned by appellant Co-operative Credit Society on Investments made in Fixed Deposits with Co- operative Banks as the Operational Income from its exclusive business activity of Providing Credit Facilities to its Members ONLY, in accordance with the provisions of Maharashtra State Co-operative Societies Act,1960 and Rules made thereunder as well as its Bye-Laws.
2. On the facts of the case and in law, the learned CIT(Appeals) has failed to consider that the ground of appeal raised by the Appellant Co-operative Credit Society that the aforesaid Interest Income of Rs.63,92,976/- has been assessed under the head Income from Other Sources by Assessing Officer in incorrect, arbitrary & unlawful manner. 3.(a)(b)The learned CIT (Appeals) has also erred in not considering the orders of the binding judicial decisions of Jurisdictional Hon. Bombay High Court & Apex Court followed in the Appellant Society's own case for A.Y. 2014-15 by his predecessor learned CIT (Appeals)-39, Mumbai wherein similar Interest Income earned from Investments from Co-operative was held to be Income from Business and not as income from Other Sources as well as allowing admissible 100% deduction u/s 80- P(2)(a)(i) of the Act.
4. Without prejudice to the aforesaid, the learned CIT (Appeals) has erred in disallowing the claim of the appellant-society for deduction u/s 80P(2)(d) for the Interest Income earned from Co- operative Banks taken up as an alternate ground.
5. (a) Furthermore, the learned CIT (Appeals) has erroneously applied the judgment of The Citizen Co-op Society Limited Vs ACIT in Civil Appeal No. 10245/2017 dated 8 Aug 2017, the facts of the said case are easily distinguishable from the facts of the appellant Society's Case. (b) Similarly, the learned CIT (Appeals) has erroneously applied the judgments of The Totagar Co- operative Sale Society Limited (322 ITR283) (SC) & other decisions in respect of interest on Deposits kept with Co-operative Banks ignoring binding decisions of Jurisdictional hon'ble Bombay High Court cited before the Learned Officials of the National Faceless Appeal Centre (NFAC), Delhi.
6. The appellant craves leave to add, alter, delete any or all ground(s) of appeal.”
Assessment Year: 2018-19 3. Brief facts of the case are that the Assessee is a Co-operative Credit Society registered under the Maharashtra Co-operative Society‟s Act, 1960 engaged in providing credit facilities to its members. The Assessee filed its return of income on 01.10.2018 declaring „Nil‟ income after claiming deduction of INR 75,17,746/- under Section 80P of the Act. The case of the Assessee was selected for scrutiny. During the assessment proceedings, the Assessing Officer noticed that INR.63,12,171/- was credited to the Profit & Loss Account as interest received on deposits with a co- operative bank. Therefore, the Assessee was asked to justify the deduction claimed under Section 80P of the Act vide notice dated 20.12.2020 issued under Section 142(1) of the Act. In response thereto the Assessee filed response dated 19.01.2021. Thereafter, vide notice dated 11.02.2021 the Assessee was asked to show cause why interest income of received from the co- operative bank should not be disallowed. The Assessee vide letter dated 17.02.2021 furnished details submissions. However, the Assessing Officer was not convinced and therefore, vide order dated 03.03.2021, the Assessing Officer disallowed deduction claimed by the Assessee under Section 80P of the Act and proceeded to assess interest income of INR 63,92,976/- in the hands of the Assessee as „Income From Other Sources‟. The Assessing Officer concluded that the Assessee would not be entitled to deduction under Section 80P(2)(a) as well as 80P(2)(d) of the Act.
The appeal preferred by the Assessee before CIT(A) against the assessment order was dismissed vide order dated 29.03.2022. Therefore, the Assessee is now in appeal before us.
Assessment Year: 2018-19 5. When the appeal was taken up for hearing, none was present for the Assessee. However, we proceeded with the hearing to dispose of the appeal on merits. We have heard the Ld. Departmental Representative relied upon the order passed by the Assessing Officer and the CIT(A). We have also perused the material on record and taken into account the submissions made by the Assessee before Assessing Officer and the CIT(A) recorded in their respective orders. In Ground No. 1 to 3(a)/(b) the Assessee has contended that the Assessee is eligible to claim deduction under Section 80P(2)(a)(i) of the Act. Whereas, in Ground No. 4 to 6, on without prejudice basis, the Assessee has claimed that the Assessee is entitled to deduction under Section 80P(2)(d) of the Act. Since the grounds are connected, the same are being taken up together.
The Assessing Officer and the CIT(A) have concluded that the Assessee is not entitled to claim deduction under Section 80P(2)(a)(i) of the Act as it is engaged in the business of banking and therefore, hit by the provisions of Section 80P(4) of the Act. Further, the principle of mutuality is not followed by the Assessee and therefore the Assessee is not entitled to claim any deduction under Section 80P(2)(a)(i) of the Act. Reliance in this regard was placed on the judgment of Hon‟ble Supreme Court in the case of Citizen Co-operative Society Ltd. vs. ACIT Circle 9(1), Hyderabad : 397 ITR 1 (SC). Before CIT(A), the Assessee had contended that the judgment in the case of Citizen Co-operative Society Ltd. (supra) is not applicable to the Assessee to the extent that the Assessee does not carry on any business activities with non- members and therefore, the concept of mutuality is satisfied in the case of the Assessee. The Society had 4,084 members as on 31.03.2018 and it carried on transactions only with these 4 Assessment Year: 2018-19 members as per bye-laws of society and the provisions of the Maharashtra State Cooperative Societies Act, 1960 and rules there made under. Further, by placing reliance upon the judgment of Hon‟ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. Commissioner of Income Tax, Calicut: [2021] 431 ITR 1 (SC)[12-01-2021] it was contended on behalf of the Assessee that the provision of Section 80P(4) are attracted only in case of co-operative society holding a banking license issued by the Reserve Bank of India. The Assessee is not registered with RBI under Banking Regulation Act, 1949 and does not hold any license issued by RBI. We note that the Hon‟ble Supreme Court has, in the case of Mavilayi Service Co-operative Bank Ltd (supra), after considering the judgment of the Hon‟ble Supreme Court in the case of Citizen Co-operative Society Ltd. (supra), held as under:
“21. An analysis of this judgment would show that the question of law that was reflected in paragraph 5 of the judgment was answered in favour of the assessee. The following propositions may be culled out from the judgment: (I) That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee; (II)That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in sub- section (2) of section 80P must be given by way of deduction; (III) That this Court in Kerala State Cooperative Marketing Federation Ltd. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied; (IV) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so - which is not the case with section 80P(2)(a)(i); (V) That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee in that case was not so licenced, the assessee would not fall within the mischief of section 80P(4). (Emphasis Supplied)
In view of the above, we hold that the Assessee is entitled to claim deduction under Section 80P(2)(a)(i) of the Act being a cooperative society not holding a license issued by Reserve Bank of India and transacting only with its members. Now, the issue that arises for consideration is whether deduction would be available to the Assessee in respect of interest income received from cooperative bank under Section 80P(2)(a)(i) or 80P(2)(d) of the Act. The contention of the Revenue is that the interest income is in the nature of „Income from Other Sources‟ and therefore, deduction under Section 80P(2)(a)(i) of the Act would not be available to the Assessee. In our view, even if the aforesaid contentions of the Revenue is accepted, the Assessee would still be able to claim deduction under Section 80P(2)(d) of the Act. The judgment of the Hon‟ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) was rendered in the context of Section 80P(2)(a) of the Act (wherein expression „profits and gains of business‟ has been used), whereas in Section 80P(2)(d) of the Act expression „any income‟ has been used. Impact of insertion of Section 80P(4) of the Act is that a co-operative bank would no more be entitled for claim of deduction under Section 80P of the Act, however, the Assessment Year: 2018-19 interest income derived by a co-operative society from a co- operative bank would continue to be eligible for deduction under Section 80P(2)(d) of the Act irrespective of the fact that such interest income is in the nature of „profits and gains of business‟ or „income from other sources‟ as Section 80P(2)(d) uses the expression „any income‟ and not „profits & gains of business‟. Our view draw strength from the decision of the Tribunal in the case of Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. vs. ITO: dated 24.04.2018. In that case, after examining the judgment of the Hon‟ble Karnataka High Court in the case of Pr.CIT vs. Totgars Co-operative Sale Society Ltd.: 217 395 ITR 211 (Kar), and taking into account the insertion of Section 80P(4) of the Act vide the Finance Act, 2006, the Mumbai Bench of the Tribunal held that a co-operative society would be eligible to claim deduction under Section 80P(2)(d) of the Act in respect of interest received from a co-operative bank as such cooperative bank continues to be a cooperative society. The relevant extract of the decision of the Tribunal read as under:
“7. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to be in agreement with the view taken by the lower authorities. Before proceeding further we may herein reproduce the relevant extract of the said statutory provision, viz Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. “80P(2)(d) (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)………………………………………………………………. (b)……………………………………………………………….
(c)……………………………………………………………… (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” Thus, from a perusal of the aforesaid Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee cooperative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of Sub- section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of the interest income on their investments parked with a co- operative bank. We have given a thoughtful consideration to the issue before us and are of the considered view that as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We may herein observe that the term “co-operative society‟ had been defined under Sec. 2(19) of the Act, as under: “(19) “Co-operative society” means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of cooperative societies;” 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, as 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 income derived by a co-operative 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.
We shall now advert to the judicial pronouncements that had been relied upon by the authorized representatives for both the parties and the lower authorities. We find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 8 Assessment Year: 2018-19 80P(2)(d) for the interest income derived from its investments held with a cooperative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 32 (Mum) (ii) M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITORange-20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon‟ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had also held that the interest income earned by the assessee on its investments held with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, as had been relied upon by the ld. A.R, also makes it clear beyond any scope of doubt, that the purpose behind enactment of sub-section (4) of Sec. 80P was to provide that the cooperative banks which are functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. We are of the considered view that the reliance placed by the CIT(A) on the judgment of the Hon‟ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. vs. ITO (2010) 322 ITR 283(S.C.) being distinguishable on facts, thus, had wrongly been relied upon by him. The adjudication by the Hon‟ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a co-operative society towards deduction under Sec. 80P(2)(d) on the interest income on the investments parked with a co-operative bank. We further find that the reliance place by the ld. D.R on the order of the ITAT “F” bench, Mumbai in the case of M/s Vaibhav Cooperative Credit Society Vs. ITO-15(3)(4) (ITA No. 5819/Mum/2014, dated 17.03.2017 is also distinguishable on facts. We find that the said order was passed by the Tribunal in context of adjudication of the entitlement of the assessee co-operative bank towards claim of deduction under Sec.80P(2)(a)(i) of the Act. We find that it was in the backdrop of the aforesaid facts that the Tribunal after carrying out a conjoint reading of Sec, 80P(2)(a)(i) r.w. Sec. 80P(4) had adjudicated the issue before them. We are afraid that the reliance placed by the ld. D.R on the aforesaid order of the Tribunal being distinguishable on facts, thus, would be of no assistance for adjudication of the issue before us. Still further, the reliance placed by the Ld. D.R on the order of the ITAT „SMC‟ Bench, Mumbai in the case of Shri Sai Datta Co-operative Credit Society Ltd. Vs. ITO (ITA No. 2379/Mum/2015, dated 15.01.2016, would also not be of any assistance, for the reason that in the said matter the Tribunal had set aside the issue to the file of the assessing officer 9 Assessment Year: 2018-19 for fresh examination, That as regards the reliance placed by the ld. D.R on the judgment of the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), the High Court had concluded that a co-operative society would not be entitled to claim of deduction under Section 80P(2)(d). We however find that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom), where there is a conflict between the decisions of non-jurisdictional High Court‟s, then a view which is in favour of the assessee is to be preferred as against that taken against him. Thus, taking support from the aforesaid judicial pronouncement of the Hon‟ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon‟ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a co-operative society on its investments held with a co operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.
We thus in the backdrop of our aforesaid observations are unable to persuade ourselves to be in agreement with the view taken by the lower authorities that the assessee would not be entitled for claim of deduction under Sec. 80P(2)(d), in respect of the interest income on the investments made with the co-operative bank. We thus set aside the order of the lower authorities and conclude that the interest income of Rs.27,48,553/- earned by the assessee on the investments held with the co-operative bank would be entitled for claim of deduction under Sec. 80P(2)(d).” (emphasis supplied)
Similar view was taken by the Mumbai Bench of the Tribunal in the case of Lady Ratan Tower Co-operative Housing Society Ltd. vs. ITO-21(2)(2): dated 09.08.2018, wherein after considering the decision of the Tribunal in the case of Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. (supra), the Tribunal decided identical issue in the favour of the Assessee. To the same effect is the decision of the Tribunal in the case of Mystique Rose Cooperative Housing Society Ltd. Vs. Income Tax Officer-22(2)(3): [ITA No. 1290/MUM/2021, Assessment Year 2014-15, dated 30.03.2022]
In view of the above, we are unable to persuade ourselves to take a view contrary to the one adopted by the Tribunal in the cases Assessment Year: 2018-19 discussed hereinabove. Accordingly, we hold the interest income derived by the Assessee from a co-operative bank would be eligible for deduction under Section 80P(2)(d) of the Act. Accordingly, addition of INR 63,92,976/- is deleted.
In view of the above, Ground No. 4, 5(a) and 5(b) are allowed whereas all the other grounds raised by the Assessee are disposed of as being infructuous.
In the result, appeal is allowed.
Order pronounced on 20.12.2022.