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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC” MUMBAI
Before: SHRI M. BALAGANESH & SHRI PAVAN KUMAR GADALE
The assessee has filed an appeal against the order of the CIT(A)- National Faceless Appeal Centre (NFAC) Delhi passed u/s 143(3) and 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee raised following grounds:
1. Appellant society is a residential housing society but wrongly treated as Cooperative societies in business of providing credit facilities to its members.
2 EL CID CO OP Housing Society Ltd.
2. The learned AO erred in disallowing deduction of Rs. 14,26,317/- claimed u/s 80P(2)(d).
3. Wrong interpretation that Interest earned on deposits with nationalized bank, Co-operative Bank are not eligible as deduction u/s 80P(2)(d) to other than primary agricultural co operative societies.
The appellant, therefore, prays for the reduction of the total income at returned Income.
The appellant further prays for reduction u/s. 234B and u/s. 234C.
The appellant hereby reserves the right to add, alter or amplify the above grounds of appeal.
The Brief facts of the case are that the assessee is a co- operative housing society and having interest income from saving bank account and on banks fixed deposits. The assessee has filed return of income electronically on 31.10.2017 for the assessment year 2016-17 disclosing a total income of Rs. Nil after claiming deduction u/s 80P(2)(d) of the Act of Rs.14,26,317/-.Subsequently, the case was selected for limited scrutiny under the CASS and notice u/s 143(2) and 142(1) of the Act along with the questionnaire are issued via e-proceedings. In response to notice, the assessee has filed details in e-proceedings. Whereas, the assessing officer (A.O) observed that the co-operative housing society is receiving interest on saving bank account and interest on 3 EL CID CO OP Housing Society Ltd.
fixed deposits with the co-operative banks. The A.O. find that the assessee in not entitled to deduction of sec 80P(2)(d) of the Act. The assessee has filed submissions/explanations on the claim of deduction u/s 80P(2)(d) of the Act on interest income from banks. The A.O. observed that the interest income or dividend from the investments made with the co-operative banks are denied deduction/exemption. The assessee has filed a detailed reply explaining the reasons and provisions of the Act and duly supported with the judicial decisions referred at page 2 Para 4.3 of the order. Whereas, the Assessing Officer has dealt on the provisions of section 80P(2)(d) of the Act and observed at page 5 Para 1 of the order as under :
The co-operative banks are functioning at par with the other commercial banks, which do not enjoy any tax benefit. The very basis of functioning of any co-operative society would be the principal of mutuality. If we go through the principle of mutuality, the three important basic conditions of the Principle are as under:
1) There must be a complete identity between the contributors and participators.
2) The actions of the participators must be in furtherance of the mandate of the association.
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3) There must be no scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves.
However, all the above conditions are not satisfied in the case of interest earned from co-operative banks by the co- operative credit society (assessee) because -
1. There is an clement of profiteering in the activities of co-operative Banks in which the assesse has made investment.
2. The second condition demands that to claim an exemption from tax on the principle of mutuality, treatment of the excess funds must be in furtherance of the object, which is not the case here. In the instant case, the surplus funds were not used for any specific service, infrastructure, and maintenance or for any other direct benefit for the member of the society. These were taken out of mutuality when the member's bank placed the same at the disposal of third parties, thus, initiating an independent contract between the bank and the clients of the bank, a third party, not privy to the mutuality. Considering the above mentioned facts it is evidently clear that, 80P(2)(d) does not contain the word "Bank". Its scope is limited to only the "Co-operative societies". Further, the exemption and the deduction clauses of the Act cannot be interpreted liberally.
1. As per section 5(1) (b) of Banking companies Act, 1949 'Banking means the accepting for the purpose of lending or investment, of deposits of money from the public, repayable
5 EL CID CO OP Housing Society Ltd. on demand or otherwise and withdrawal by cheque, draft or otherwise. The co-operative banks performs all the functions as mentioned above and hence the same cannot be treated as societies and thus interest income derived from investment in co-op bank cannot be treated as derived from co-operative societies, thus the same does not qualify for deduction.
2. The case law relied upon by the AR of the society is distinguishable on the facts of the instant case. In the instant case the assessee is co-operative credit society having made long term investments in FDRs with Bank.
3. The Hon°ble High Court of Karnataka in the case of The Pr.CIT, Hubballi vs. Totgars Co-operative Sale Society Lid, (TA No 100066 of 2016) dated 16.06,2017 has held that 80P(2)(d) is not admissible from interest income received from co-op Bank. The relevant text is reproduced below:
The bone of contention is that the deduction under Section 80P(2) of the Act is now claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act. The reason is that now the investments and deposits after the Supreme Court's decision against the assessee reported in (2010) 322 ITR 283 (SC), the assessee has shifted the deposits and investments from Schedule Banks to Co-operative Bank and such Co-operative Bank is essentially a Co-operative Society also and Clause (d) allows deduction of income by way of interest or dividends derived by the assessee Co-
6 EL CID CO OP Housing Society Ltd. operative Society from its investments with any other Co- operative Society.
The sheet anchor of the contention of the learned counsel for the assessee misses two essential points required for claiming the exemption or 100% deduction from gross total income for a co-operative society: (i) that the character or nature of income, namely interest on investments or deposits, does not change irrespective of the fact whether it is earned or received from a Schedule Bank or Co-operative Bank. (ii) that What the Hon'ble Supreme Court held in the case of the respondent assessee itself, against the assessee, was that such interest income on its surplus and idle funds not immediately required for its business, is not income from business taxable under Section 28 of the Act, but was taxable as "income from other sources" under Section 56 of the Act, whereas for availing the exemption or 100% deduction under Section 80P of the Act the income is specified in clauses (a) to (f) of Subsection (2) of Section 80P of the Act should be its business or operational income.
What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co-
7 EL CID CO OP Housing Society Ltd. operative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act.
The banking business, even though run by a Co- operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub- section (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any co- operative bank and to exclude the normal banking business income from such exemption / deduction category. The words used in Section 80P(4) are significant. They are: "The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society .....". The words "in relation to" can include within its ambit and scope even the interest income earned by the respondent-assessee, a co-operative Society from a Co-operative Bank. This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. The depository Kanara District
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Central Bank Limited in the present case is admittedly not such a primary agricultural credit society.
The amendment of Section 194A(3)(v) of the Act excluding the Co-operative Banks from the definition of "Co- operative Society" by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co- operative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act.
If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise.
In view of the above, it is clear that a co-operative bank is a commercial bank and does not fall under the purview of a 'Co-operative Society" referred in Section 80P(2)(d) of the I-T Act. In the present case, the assessee has earned interest income of Rs. 14,26,317/- from such co- operative bank. In view of the above discussion, the deduction claimed u/s. 80P(2) (d) of the Act of Rs. 14,26,317/- is hereby disallowed and added to the total income of the assessee as Income. Penalty proceedings u/s. 9 EL CID CO OP Housing Society Ltd.
271(1)(c) of the Act is initiated for separately for inaccurate particulars of income claiming wrong deduction.
3. Whereas the A.O. was not satisfied with the claim of the assessee and observed that the co-operative banks are categorized as urban commercial banks and does not fall under the purview of the co-operative society referred u/s 80P(2)(d) of the Act. Therefore, the interest income from co- operative banks are to be taxed under income from other sources and assessed the total income of Rs.14,26,320/- and passed the order u/s 143(3) of the Act dated 21.12.2018.
Aggrieved by the order, the assessee has filed an appeal before the Ld. CIT(A), whereas the Ld.CIT(A) has considered the grounds of appeal, submissions and findings of the Assessing Officer and has confirmed the action of the Assessing Officer and dismissed the assessee’s appeal. Aggrieved by the Ld. CIT(A) order, the assessee has filed an appeal before the Honble Tribunal.
5. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in confirming the action of the A.O in treating the interest income from cooperative banks is ineligible for deduction u/s 80P(2)(d) of the Act and the assessee has filed the written submissions before the lower authorities on the facts and applicability of the provisions. Whereas, the CIT(A) has considered the facts on claim of 10 EL CID CO OP Housing Society Ltd.
deduction u/s 80P(2)(d) of the Act but took a different view. The Ld.AR emphasized that the claim has to be allowed as the cooperative bank is treated as cooperative society for eligibility of deduction u/s 80P(2)(d) of the Act and supported the submissions with the judicial decisions and paper book. Contra, the Ld. DR relied on the orders of the CIT(A).
We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue as emphasized by the Ld.AR in respect of granting of deduction u/s 80P(2)(d) of the Act to the Cooperative Society. The Ld. AR submitted that the interest income derived by a co- operative society from its deposits with the co-operative bank would be entitled for deduction U/sec80P(2)(d) of the Act. Further the co-operative bank pursuant to insertion of sub section (4) to sec80P of the Act would no more be entitled for claim of deduction U/sec80P of the Act but the co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act. The Ld.AR has demonstrated the facts of earning of income, interest on fixed deposits and utilization. We find on the similar issue of Housing Co- operative society receiving interest on fixed deposits and interest on saving bank account from co-operative banks are dealt on par with the co-operative society in the judicial decisions as under:
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1. Petit Towers CHS Vs. ITO, ITA No. 549/Mum/2021.
2. Solitaire CHS Ltd Vs. PCIT,
Land End CHS Ltd Vs. ITO, ITA No. 3566/Mum/2014 4. Sea Green CHS Ltd Vs. ITO, ITA No. 1343/Mum/2017 5. Merwanjee Cama Park CHS Ltd Vs. ITO, 6139/Mum/2014 6. Kaliandas Udoy Bhavan Premises CHS Ltd Vs. ITO, ITA No. 6547/Mum/2017 7. SBI Vs. CIT, (2016), 389 ITR 0578 (Guj) 8. PCIT Vs. Totagars Co Sale Society, (2017), 392 ITR 0074 (Kar) 9. Citizen Co-operative society Ltd Vs. ACIT, (2017) 397 ITR 0001 (SC)
10.The Totgars Co-operative Sale Society Ltd VS ITO, (2010) 322 ITR 0283(SC).
7. We consider it appropriate to refer to the observations of the Coordinate Bench of the Hon’ble Tribunal in M/s Petit Towers Co-operative Housing Society Ltd Vs. ITO in dated 1-09-2021 at page 6 Para 8 of the order, which is read as under:
8. We have given a thoughtful consideration to the contentions advanced by the ld. Authorized representatives for both the parties in context of the aforesaid issue under consideration. As stated by the ld. A.R, and rightly so, the issue that interest received by a co-operative society on its deposits with co-operative banks would be eligible for deduction u/s 80P(2)(d) of the Act is covered in assessee‟s favour by orders of the various coordinate benches of the Tribunal in the following cases :
(i). M/s Solitaire CHS Ltd. Vs. Pr.CIT-26, Mumbai, dated 29.11.2019 (ii). Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum.)
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(iii). M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO- 21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017.
(iv). Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITO- Range 20(2)(2), Mumbai (ITA NO. 6139/Mum/2014, dated 27.09.2017.
(v). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai.
In the aforesaid orders, it has been held by the Tribunal that though the cooperative banks pursuant to the insertion of sub-section (4) to Sec. 80P of the Act would no more be entitled for claim of deduction u/s 80P of the Act, but 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 in force in any State for the registration of co-operative 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 u/s 80P(2)(d) of the Act. We find that the aforesaid issue had exhaustively been looked into by the ITAT, „G‟ bench, Mumbai in the case of M/s Solitaire CHS Ltd, Vs. Pr.CIT-26, Mumbai dated 29.11.2019, wherein the Tribunal had observed as under :
“6. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether the claim of the assessee for deduction under section 80P(2)(d) in respect of interest income earned from the investments/deposits made with the co-operative banks is in order, or not. In our considered view, the issue involved in the present appeal revolves around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by the Pr. CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of sub-section (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with co- operative banks, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Observing, that the co-operative banks from where the assessee was in 13 EL CID CO OP Housing Society Ltd. receipt of interest income were not co-operative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act.
After necessary deliberations, we are unable to persuade ourselves to be in agreement with the view taken by the Pr. CIT. Before proceeding any further, we may herein reproduce the relevant extract of the aforesaid 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 subsection (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;”
On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other co-operative society shall be deducted in computing its total income. 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 co-operative society. We are in agreement with the view taken by the Pr. CIT, 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. However, at the same time, we are unable to subscribe to his view that the aforesaid amendment would jeopardize
14 EL CID CO OP Housing Society Ltd. the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of its interest income on investments/deposits parked with a co-operative bank. In our considered view, 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 find that the term „cooperative society‟ had been defined under Sec. 2(19) of the Act, as under:-
“(19) “Co-operative society” means a cooperative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;”
We are of the considered view, that though the co-operative banks pursuant to the insertion of subsection (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but 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 in force in any State for the registration of co- operative 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 have been relied upon by the ld. A.R. We find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co- operative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum) (ii) M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITO- Range-20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. (iv). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai. 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 held, that the interest income earned by the assessee on its investments 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, also 15 EL CID CO OP Housing Society Ltd.
makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co-operative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Insofar the reliance placed by the Pr. CIT on the judgment of the Hon‟ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) is concerned, we are of the considered view that the same being distinguishable on facts 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/deposits parked with a co-operative bank. Although, in all fairness, we may herein observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), had concluded that a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we 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 observed, that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. We 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. Accordingly, taking support from the aforesaid judicial Hon‟ble pronouncement of the 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 cooperative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.
9. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and therein concluded that the assessee would be entitled for claim of deduction under Sec.
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80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 for dislodging the same. In fact, as observed by us hereinabove, the aforesaid view taken by the A.O at the time of framing of the assessment was clearly supported by the order of the jurisdictional Tribunal in the case of Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum). Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we „set aside‟ his order and restore the order passed by the A.O under Sec. 143(3), date 14.09.2016.
As the facts and the issue involved in the present case before us remains the same as were there before the Tribunal in the case of M/s Solitaire CHS Ltd. (supra), wherein the order passed by the Pr. CIT u/s 263 of the Act was quashed, we, thus, respectfully follow the same. Backed by our aforesaid deliberations, we are unable to uphold the view taken by the Pr. CIT that the failure on the part of the A.O to be disallow the assessee‟s claim for deduction u/s 80P(2)(d) had rendered the assessment order passed by him u/s 143(3) of the Act, dated 31.08.2017 as erroneous in so far it was prejudicial to the interest of the revenue.
Accordingly, on the basis of our aforesaid observations, we herein not finding favor with the view taken by the Pr. CIT that the order passed by the A.O u/s 143(3), dated 31.08.2017 was erroneous in so far it was prejudicial to the interest of the revenue within the meaning of Sec. 263 of the Act set-aside the same and restore the order passed by the A.O u/s 143(3) of the Act, dated 31.08.2017.
8. Considering the facts, circumstances and the ratio of the judicial decisions. We find the Honble Tribunal has passed the order in the context of the revision order U/sec263 of the Act and relied on the catena of Honble High court and 17 EL CID CO OP Housing Society Ltd.
Tribunal decisions were the co-operative society receives/earns interest on deposits with the co-operative bank is eligible for claim of deduction under section 80(2)(d) of the Act. The Ld.AR emphatically substantiated the submissions with the facts, evidences and judicial decisions filed before the lower authorities and we find merits in the arguments of the Ld.AR. Accordingly, we set aside the order of the CIT(A) and direct the Assessing officer to allow the claim of deduction u/sec80P(2)(d) of the Act on the interest income received /earned from the co-operative banks and allow the grounds of appeal of the assessee.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 01/06/2022.