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Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SHRI. CHANDRA POOJARI & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal by the assessee has been filed by assessee against the order dated 17.12.2021 u/s. 250 passed by the National Faceless Appeal Centre (NFAC), Delhi relating to Assessment Year 2017-18 on following grounds of appeal: “1. The learned CIT (A), NFAC erred in passing the order in the manner in which he did.
2. The Ld. CIT (A) erred in allowing the deduction claimed under section 80P(2)(a) by subjecting the same to the condition that profits attributable to non-members (excluding regular, associate and nominal members) were Page 2 of Appellant did not deal with any nonmembers.
3. The Ld. CIT(A) failed to appreciate that the case law of M/s Citizen Co-operative Society rendered by the Hon'ble Supreme Court, reported in (2017) 84 Taxmann 114(SC) were not applicable to the case of the appellant as it differed on facts to the appellant's Case.
4. The Authorities below failed to appreciate that the interest earned on investments, were attributable to the activities of the Appellant and was allowable as a deduction under section 80P (2) (a) (i) of the Act.
5. The Authorities below failed to appreciate that the co- operative banks were primarily co-operative societies and the interest earned from investments made in co-operative societies were allowable as a deduction under section 80P of the Act.
6. The Authorities below were not justified in making an inference of section 194A(3)(v) of the Act, which was applicable only to cooperative banks and has no application to Co-operative Societies.
7. The Authorities below were not justified in making an inference of section 80P(4) of the Act, which was applicable only in relation to income earned by co-operative banks and not on income earned from co-operative banks.
8. The Appellant craves leave to add, alter, substitute and delete any or all of the grounds of appeal urged above.
9. For the above and other grounds to be urged during the hearing of the Appeal the Appellant prays that the Appeal be allowed in the interest of equity and justice.”
2. Brief facts of the case are as under: 2.1 The assessee is a co-operative society. For the Assessment Year under consideration, assessee filed its return of income on 28.09.2017 declaring total income of Rs.34,010/- after claiming exemption of Rs. 79,62,681/- as deduction u/s. 80P of the Act. 2.2 The assessment was completed u/s. 143(3) by making disallowance of Rs.21,80,179/- from the exemption claimed. The Ld.AO was of the opinion that the said amount is not eligible for Page 3 of claiming deduction u/s. 80P as they are interests earned from investments in scheduled banks and co-operative banks other than co-operative societies. 2.3 Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld.CIT(A).
The Ld.CIT(A) concluded that the interest income received by assessee is not eligible for deduction u/s 80P(2)(d) of the I.T.Act as they have not been received from investments with other co- operative societies.
Aggrieved by the order of Ld.CIT(A), assessee is in appeal before this Tribunal.
The Ld.AR submitted that, identical issue was considered by the ITAT in in the case of M/s.Kakkabe VSSN BAnk Ltd.vs. Pr.CIT by order dated 28.02.2022for assessment A 2015-16. The Ld.AR submitted that, this Tribunal in above cited case, directed the Ld.AO to consider the dictum laid down by the Hon'ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT reported in 431 ITR 1, de horse the observation of the Ld.CIT, u/s 263 of the I.T.Act.
The Ld.DR did not raise any objection for giving a similar direction in the instant case.
We have heard the submissions advanced by both sides based on the material placed on record. Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) held that, when the assessee is registered as a Co-operative Society under the respective State Acts, the interest income received for providing credit facilities to its members is entitled to deduction Page 4 of 80P(2)(a)(i) of the I.T.Act. The relevant finding of the Hon'ble Supreme Court reads as under:- "45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co- operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes cooperative banks which are co-operative 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. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to nonmembers, profits attributable to such loans obviously cannot be deducted.
It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, `nominal members' are 'members' as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions' Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held: "8. The expression "members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in Section 80-P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression "members" in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: "2. (n) 'Member' means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to`members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by Page 5 of Act do not possess such right or power or have no such liability or duty;" Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i).
Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non- members under section 59(2) and (3), which reads as follows: "59. Restrictions on loans.- (1) A society shall not make a loan to any person or a society other than a member: Provided that the above restriction shall not be applicable to the Kerala State Co-operative Bank. Provided further that, with the general or special sanction of the Registrar, a society may make loans to another society. (2) Notwithstanding anything contained in sub-section (1), a society may make a loan to a depositor on the security of his deposit. (3) Granting of loans to members or to non-members under subsection (2) and recovery thereof shall be in the manner as may be specified by the Registrar." Thus, the giving of loans by a primary agricultural credit society to nonmembers is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra).
Resultantly, the impugned Full Bench judgment is set aside. The appeals and all pending applications are disposed of accordingly. These appeals are directed to be placed before appropriate benches of the Kerala High Court for disposal on merits in the light of this judgment."
In view of the recent judgment of the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT (supra), we remit the issues raised in this appeal to the file of Ld.AO. The Ld.AO is directed to examine the deduction u/s 80P(2)(a)(i) of the I.T.Act in the light of the dictum laid down by the Hon'ble Supreme Court in the case of Mavilayi Service Co- operative Bank Ltd. v. CIT (supra). It is ordered accordingly. Accordingly, ground nos. 2 to 5 stands allowed for statistical purposes.
Ground no. 6 is raised by assessee in respect of the disallowance made u/s. 194A(3)(v) of the Act.
Page 6 of 9.1 The Ld.AR submitted that the provisions of section 194A is not applicable to co-operative societies by virtue of amendment w.e.f. Finance Act, 2015. 9.2 The Ld.DR on the contrary, relied on the orders passed by authorities below. 9.3 We have perused the submissions advanced by both sides. We note that section 194A(3)(v) provides for the circumstances where the income is credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society. 9.4 However we understand that there is a threshold limit that is applicable for the exemption to be available to assessee. It is also noted that the exemption is available only on such interest that has been paid by a co-operative society (other than a co-operative bank) to assessee. The Ld.AR at the time of argument submitted that the institutions from where assessee earned interest has been tabulated on page 10 of assessment order which is as under: Interest S.No. Name of the Bank received (Rs.) 1 S C D CC Bank B C Road 3367632 2 S C D CC Bank Bantwala 470383 3 Sri Bagavathi Co-operative Bank 3379500 Samaja Seva Sahakari Bank 4 5005385 Farangipete 5 Samaja Seva Sahakari Bank Bantwal 1838565 6 Sri Bagavathi Co-operative Bank 21119 7 S C D CC Bank B C Road 48391 Samaja Seva Sahakari Bank 8 8126 Farangipete 9 S C D CC Bank Farangipete 30796 10 S C D CC Bank Bantwala 38528 11 Canara Bank Vamadapadavu 20476 12 S C D CC Bank Kuppepadav 22397 13 S C D CC Bank Kaikamba 50197 14 IDBI Bank Ltd Kodialbail 13536 Total 14315031 Page 7 of 9.5 It is submitted that most of the institutions from where interest have been received are co-operative societies which has not been verified by the Ld.AO before disallowing the said amount. Therefore in the interest of justice, we direct this issue to be re- verified by the Ld.AO to identify the interest that has been received by the assessee from a co-operative society (other than a co- operative bank) for the amount to be excluded from the applicability of provisions of section 194A. Accordingly, ground nos. 6 & 7 stands allowed for statistical purposes. In the result, the appeal filed by the assessee stands partly allowed. Order pronounced in open court on 15th June, 2022.