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Income Tax Appellate Tribunal, BANGALORE BENCHES “B”, BANGALORE
Before: Shri Chandra Poojari, AM & Shri George George K, JM
Before Shri Chandra Poojari, AM & Shri George George K, JM M/s.Primary Agricultural Credit The Income Tax Officer Co-op Society Limited Ward 1 v. Banakal Village & Post Chikkamangaluru. Moodigere Taluk Chikkamangaluru Dist – 577 113. PAN : AADAP5715H. (Appellant) (Respondent) Appellant by : Shri Mahesh R.Uppin, Advocate Respondent by :Shri Muzaffar Hussain, CIT-DR Date of Pronouncement : 14.07.2021 Date of Hearing : 14.07.2021 O R D E R
Per George George K, JM
This appeal at the instance of the assessee is directed against CIT’s order dated 19.03.2020, passed u/s 263 of the I.T.Act. The relevant assessment year is 2015-2016.
The grounds raised
read as follow:- “1. In the facts and circumstances of the case, whether the Pr.CIT was right in law in reopening the concluded assessment of the Appellant and annulling the same holding it to be erroneous and prejudicial to the interest of the Revenue and directing the Assessing Officer for making fresh assessment of income of the Appellant.
2. Whether the Pr.CIT was correct in holding that the interest on investments of Rs.4,69,497/- earned by the Appellant does not qualify for deduction u/s 80P(2)(a)(i) of the Ac and it is taxable under the head `Income from other sources’ u/s 56 of the Act in the light of the decision in – Totgars Sale Co-operative Society Ltd. v. ITO.
3. It is submitted that, the Pr.CIT grossly erred in law in passing the impugned order u/s 263 of the Act as the said order is opposed to the dictum of the Hon’ble High Court of Karnataka in – The CIT and Anr. V. Sri. Bilur Gurubasava Pattina Sahakari Sangha Ltd. Bagalkot and also the order of the Hon’ble Tribunal in ITA No.851/Bang/ . M/s.Primary Agricultural Credit Co-op.So.Ltd. 2015 – NAL Employees Credit Co-op Society Ltd. v. The Pr.CIT, Bangalore.
4. The appellant submits, the Prl. C.I.T. failed to observe that the entire Interest on Investments earned by the appellant is attributable to its business income and exempt uls. 80P (2) (a) (i) of the Act as held by the Hon'ble High Court of Karnataka in ITA 29/2015 - Guttlgedarara Credit Co-op. Society Ltd. Mysore Vs. ITO, Mysore and the orders of Hon'ble High Court of Judicature at Hyderabad in W.P. No. 12727 and 12767/2016 – The Vaweru Co-op. Rural Bank Ltd. and Anr. Vs. The Chief C.I.T. and anr. involving identical issue. The interest earned on investments made out of the own funds of the appellant (capital or interest earned from Loans & Advances as are not required for immediate use in business) being S.B. interest, Reserve Fund interest, F.D. interest - are all incidental to the business of the appellant and qualifies for deduction a per the decision of the Hon'ble Apex Court in - C.I.T. Vs. Karnataka State Co-op. Apex Bank Ltd. and ITA 307/2014-Tumkur Merchants Souharda Credit Co-op. Ltd. Vs. I.T.O. Tumkur. Further, the Loan Deposit interest of Rs. 70,299/- was nothing but the interest earned from Deposit Loan granted to members of the appellant society which happens to be its business income (Interest from Loans) but wrongly taken while finalising the financial accounts under the head 'Interest on investments' and this income is also exempt u/s. 80P of the Act, it is submitted.
5. The appellant craves leave to add, to amend, modify and / or to alter any of the foregoing grounds and also urge such other grounds at the time of hearing.”
Brief facts of the case are as follow:- The assessee is a primary agricultural credit society. For the assessment year 2015-2016, the return of income was filed on 30.10.2015 declaring `NIL’ income after claiming deduction u/s 80P(2)(a)(i) of the I.T.Act. The assessment u/s 143(3) of the I.T.Act was completed vide order dated 18.11.2017 accepting the income returned by the assessee- society.
The assessment order dated 18.11.2017 was revised u/s 263 of the I.T.Act vide order dated 19.03.2020 primarily
. M/s.Primary Agricultural Credit Co-op.So.Ltd. for the reason that interest income received by the assessee was claimed as a deduction u/s 80P(2)(a)(i) of the I.T.Act. The CIT conclude that the interest income received by assessee is not eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. as the same is not related to any banking activity. Further, the CIT held by relying on the ratio of the judgment of the Hon’ble Kerala High Court in the case of Pr.CIT & Anr. v. Totagars Co- operative Sale Society reported in [(2017) 395 ITR 611 (Kar.)], the assessee is not entitled to deduction u/s 80P(2)(d) of the I.T.Act since the interest income was not received from investments with other co-operative societies.
Aggrieved by the order passed u/s 263 of the I.T.Act, the assessee has preferred this appeal before the Tribunal. The learned Counsel for the assessee submitted that an identical issue was considered by the ITAT in in the case of M/s.Ugane Primary Agricultural Credit Co- operative Society Ltd. v. Pri.CIT (order dated 15.04.2021). The learned AR submitted that the Tribunal in above cited case, directed the A.O. to consider the dictum laid down by the Hon’ble Apex Court in the case of Mavilayi Service Co- operative Bank Ltd. v. CIT 431 ITR 1, de horse the observation of CIT u/s 263 of the I.T.Act.
The learned Departmental Representative also did not raise any objection for giving a similar direction in the instant case.
We have heard rival submissions and perused the material on record. The Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) had . M/s.Primary Agricultural Credit Co-op.So.Ltd. 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 u/s 80P(2)(a)(i) of the I.T.Act. The relevant finding of the Hon’ble Apex Court reads as follow:-
"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- . M/s.Primary Agricultural Credit Co-op.So.Ltd. 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 reason of the provisions of this 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."
. M/s.Primary Agricultural Credit Co-op.So.Ltd. 8. In view of the recent judgment of the Hon’ble Apex 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 A.O. The A.O. 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 Apex Court in the case of Mavilayi Service Co- operative Bank Ltd. v. CIT (supra). It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.