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Income Tax Appellate Tribunal, G BENCH, MUMBAI
order : 27.05.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. These are four appeals filed by the Appellant/Assessee for the Assessment Years 2013-14, 2014-15, 2015-16 and 2017-18 against the orders passed by the First Appellate Authority dismissing the appeal filed by the Appellant/Assessee against the assessment order. All the appeals were heard together as the appeals raised identical grounds in identical facts and circumstances, and accordingly, the same are being disposed by way of common order. to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18 2. Brief facts of the case are that the Appellant is a co-operative housing society registered under Maharashtra Co-operative Societies Act, 1960. The Appellant filed return of income for the Assessment Year 2013-14 declaring „Nil‟ taxable income after claiming deduction under Section 80P of the Act in respect of interest income of INR 11,94,329/- received from bank co-operative banks.
The case of the Appellant was selected for scrutiny and vide order dated, 21.03.2016, the Assessing Officer competed assessment at income of INR 11,94,329/- after disallowing deduction of INR11,94,329/- claimed by the Appellant under Section 80P(2)(d) of the Act holding that a co-operative bank is not a co-operative society and therefore, Appellant was not entitled to claim deduction under Section 80P(2)(d) of the Act in respect of interest income of INR 11,94,329/- received from commercial banks.
Being aggrieved, the Appellant filed appeal challenging the Assessment Order, dated 21.03.2016 before the Commissioner of Income Tax (Appeals), National Faceless Appeals Centre [hereinafter referred to as „the CIT(A)‟]. The CIT(A) confirmed the assessment order by placing reliance on the judgment - Citizen Co-operative Society vs ACIT: 397 ITR 1 and Totgar‟s Co-operative Society Ltd Vs ITO : 322 ITR 283.
The Appellant is now before us in appeal, being aggrieved by the order passed by CIT(A) confirming disallowance of deduction under Section 80P(2)(d) of the Act. The Appellant/Assessee has raised the following grounds of appeal:
1. Commissioner of Income Tax (Appeals) has erred in disallowing deduction u/s 80P respect of interest Rs. 31,02,730/- received from Co-operative banks. to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18
2. Commissioner of Income Tax (Appeals) has erred in assessing the said amount of Rs. 31,02,730/- as income of the assessee.
3. Commissioner of Income Tax (Appeals) has erred in making the disallowance on the strange logic that a Co- operative bank is not a Co-operative society. 4. Commissioner of Income Tax (Appeals) has erred in ignoring the fact that a Cooperative housing society and a Co-operative bank both are governed by the „same legislation, viz. Maharashtra Co-operative Society‟s Act. 5. Commissioner of Income Tax (Appeals) has failed to appreciate that the assessee is a Co-operative Housing Society and is not carrying on any business and that the deduction u/s 80P pertains to the interest income and not business income. 6. Commissioner of Income Tax (Appeals) has failed to distinguish between section 80P(2)(a)(i) which deals with deduction in respect of profits and gain of business and 80P(2)(d) which deals with deduction in respect of income by way interest and/or dividend from other cooperative society. 7. Commissioner of Income Tax (Appeals) has erred in relying on the court decisions which are not applicable to this particular case. 8. Commissioner of Income Tax (Appeals) has erred in not considering the Bombay ITAT decision in the case of Lands End Co-operative Housing Society Ltd. (ITA No. 3566/MUM/2014) which is relevant in the matter and is also binding on the department. 9. Commissioner of Income Tax (Appeals) has erred in passing the order without giving adequate hearing to the assessee.” All the grounds of appeal relate to Appellant‟s challenged to disallowance of deduction claimed by the Appellant under Section 80P(2)(d) of the Act, and therefore, are being taken up together. to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18
The Ld. Counsel for the Appellant appearing before us submitted that the issue stands decided in favour of the Appellant by the judgment of Hon‟ble Supreme Court in the case of The Mavilayi Cooperative vs. CIT: 431 ITR 1 (SC) and a number of decision of the Tribunal including decision in the case of V K Natha Co-Operative Housing Society vs. ACIT, Circle-19(3): & 1385/Mum/2021, dated 18.01.2022 and Lands End Co-operative Housing Society Ltd. Vs. ITO : 3566/Mum/2014, vide order dated 15.01.2016. In the aforesaid judgments the issue has been decided in favour of the assessee after taking into consideration the judgments relied upon by the CIT(A).
The Ld. Departmental Representative was not able to counter the arguments and fairly conceded that in some decisions Tribunal has taken a view in favour of the assessee.
8. We have perused the material on record and note that the Assessing Officer and CIT(A) have denied deduction under Section 80P(2)(d) of the Act on the ground that a co-operative bank is not a co-operative society. We find merit in the contention of the Appellant that the issue stands decided in favour of the Appellant by various decisions of the Tribunal wherein the Tribunal has held that benefit of deduction under Section 80P(2)(d) of the Act would be available in respect of interest received from a co-operative bank after considering the judgments/decisions relied upon by the Assessing Officer and CIT(A).
9. Mumbai Bench of the Tribunal in the case of Lands End Co-operative Housing Society Ltd. Vs. ITO : 3566/Mum/2014, vide order dated 15.01.2016 has held that:
8.3. We have heard…………. xx xx to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18 From the close perusal of the provisions of …………………………Now will evaluate the assessee's case in the light of the decision of the Hon'ble Supreme court. The Honble Supreme Court in the case of Totagar's Co-operative Sale Society Ltd.(Supra) held that a society has surplus funds which are invested in short term deposits where the society is engaged in the business of banking or providing credit facilities to its members in that case the said income from short term deposits shall be treated and assessed as income from other sources and deduction u/s 80(P)(2)(a)(i) would not be available meaning thereby that deduction u/s 80(P)(2)(a)(i) is available only in respect of income which is assessable as business income and not as income from other sources. Whereas in distinction to this, the provisions of section 80(P)(2)(d) of the Act provides for deduction in respect of income of a co-op society by way of interest or dividend from its investments with other coop society if such income is included in the gross total income of such coop society. In view these facts and circumstances we are of the considered view that the assessee is entitled to the deduction of Rs. 14,88,107/- in respect of interest received/derived by it on deposits with coop. banks and therefore the appeal of the assessee is allowed by reversing the order of the CIT(A). The AO is directed accordingly.
After examining the judgment of the Hon‟ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 and taking into account the insertion of 80P(4) vide the Finance Act, 2006, the Mumbai Bench of the Tribunal in the case of Kaliandas Udyog Bhavan Premises vs. ITO: dated 24.04.2018, has held that the judgment of Hon‟ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd (supra) was wrongly relied upon by the Revenue as the adjudication by the Hon‟ble Supreme Court in the aforesaid case was in context of Section 80P(2)(a)(i), and not on the entitlement of a co-operative society towards deduction under Section 80P(2)(d) of the Act on the interest income received from co-operative ITA. No. 2317 to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18 bank. 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 to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18 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- to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18 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. 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 to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18 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 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 to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18 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)
Same view has been taken by the Tribunal in the case of Mystique Rose Cooperative Housing Society Ltd.: vs. ITO 22(2)(3) (ITA No. 1290/Mum/2021) dated 30.03.2022 and Sonmarg Co-operative Housing Society Limited vs. CIT(A): (ITA No. 1334/Mum/2021) dated 29.03.2022.
The Hon‟ble Supreme Court has, in the case of The Malvilayi Service Co- operative Bank Ltd. vs. Commissioner of Income (2021) 123 taxman.com 161 (SC), made following observations regarding the judgment of Hon‟ble Supreme Court in the case of Citizen Cooperative Society Ltd vs. ACIT: 397 ITR 1:
“22. However, considering that the learned Senior Advocate appearing for the Revenue argued that the concurrent findings of fact in that case were that most of the business of the assessee was conducted illegally with nominal members, who could not be members of such society under the Andhra 10 to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18 Pradesh Act, and considering also that, as the assessee engaged in granting loans to the general public, it could not be treated as a co-operative society meant only for its members and providing credit facilities to its members, the appeal by the assessee would fail. It is important to note that no argument was made by the counsel for the assessee in Citizen Cooperative Society Ltd. (supra) that the assessing officer and other authorities under the IT Act could not go behind the registration of the co-operative society in order to discover as to whether it was conducting business in accordance with its bye-laws.
It is settled law that it is only the ratio decidendi of a judgment that is binding as a precedent. Thus, in B. Shama Rao v. Union Territory [1967] 2 SCR 650, the majority judgment of Shelat J., speaking for himself and other two learned Judges held: "It is trite to say that a decision is binding not because of its conclusion but in regard to its ratio and the principle laid down therein." xx xx 45. To sum up, therefore, the ratio decidendi of Citizen Co- operative 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 co- operative 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 ITA. No. 2317 to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18 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 non-members, profits attributable to such loans obviously cannot be deducted.”(Emphasis Supplied) 12. Relying upon the above observation, the Mumbai Bench of the Tribunal in the case of V K Natha Co-Operative Housing Society Vs. ACIT, Circle- 19(3) (ITA No. 1384 & 1385/Mum/2021) vide order dated 18.01.2022 has held as under:
“8. We note that the Hon‟ble Supreme Court in the aforesaid decision has expounded that section 80(2)(d), cannot be invoked in the case of co-operative banks unless they have license from RBI. In the case of Mavilayi Service So-Operative Bank Ltd. & Ors.
(supra), Hon‟ble Supreme Court has referred to the decision of Citizen Co-operative Bank in civil appeal No. 10245 of 2017 as under:
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 co- operative societies who must possess a license from the RBI to do banking business. Given the fact that the assessee in that case was not so licensed, but assessee would not fall within the mischief of section 80P(4).
9 Examining present case on the touchstone of above decision, we find that it is nobody‟s case that the assessee society has received interest from a co-operative bank, which is having the license from RBI. In this view of the matter, the issue is squarely covered in favour of the assessee by the aforesaid decision of Hon‟ble Supreme Court. Hence, we set aside the orders of authorities below and allow the assessee‟s appeal.” (Emphasis Supplied) to 2320/Mum/2021 Assessment Years: 2013-14, 2014-15, 2015-16 & 2017-18
We are in agreement with the above decisions of the Tribunal. In our view, the Appellant is entitled to claim deduction under Section 80P(2)(d) of the Act in respect of interest received from co-operative banks amounting to INR 11,94,329/-. Accordingly, all the grounds raised are allowed and addition of INR 11,94,329/- made by the AO and confirmed by CIT(A) stand deleted.
In view of the above, ITA 2318/Mum/2021 is allowed.
ITA No. 2319/MUM/2021, (ASSESSMENT YEAR: 2014-15), (ASSESSMENT YEAR: 2015-16) & (ASSESSMENT YEAR: 2017-18)
We note that identical grounds have been raised challenging the disallowance of deduction under Section 80P(2)(d) of the Act in respect of interest income received from Co-operative Banks in appeals pertaining to Assessment Years 2014-15, 2015-16 and 2017-18. The above adjudication shall also apply to the aforesaid appeals. Accordingly, addition of INR 25,40,990/-, INR 31,02,730/- and INR 43,48,493/- made in Assessment Years 2014-15, 2015-16 and 2017-18, respectively, stand deleted.
In view of the above, ITA 2319, 2317 & 2320/Mum/2021 are allowed.
In the result, all the appeals are allowed.