M/S.DAIWAJNA CREDIT CO-OPERATIVE SOCIETY LTD ,UDUPI vs. INCOME TAX OFFICER WARD-1 , UDUPI

O R D E R

PER SHRI PAVAN KUMAR GADALE, JM :

3. The Brief facts of the case are that the assessee is a co-operative society engaged in accepting the deposits and disbursing loans and filed the Return of Income on 27.11.2014 with total income as NIL. Subsequently, the case was selected for scrutiny and Notice under Section 143(2) and 142(1) was issued. In compliance, the learned Authorised Representative of the assessee appeared and filed the details as called for. The Assessing Officer found that the assessee is in the receipt of interest of Rs.1,68,12,170 including interest earned from scheduled banks. The Assessing Officer dealt on the provisions of Section 80P(2)(d) of the Act and observed that the interest earned by the co-operative society from its investments in co-operative society shall only qualify for deduction under Section 80P of the Act. Therefore interest earned by the co-operative society from its scheduled banks does not qualify for deduction. The learned Authorised Representative relied on the decision of jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Co-op Ltd. Vs. ITO in Dt.28.10.2014. Whereas the Assessing Officer has relied on the decision of The Totgars Co-operative Sale Society Ltd. Vs. ITO 322 ITR 283 and has not allowed the deduction of interest from scheduled banks under the provisions of Section 80P(2)(d) of Rs.1,36,433 and assessed the total income of Rs.1,36,430 and passed order under Section 143(3) of the Act dt.18.11.2016. Aggrieved by the A.O’s order, the assessee has filed an appeal with the CIT(Appeals). Whereas the CIT(Appeals) has confirmed the addition of interest from scheduled banks and granted relief in respect of other additions and partly allowed the appeal. Aggrieved by the order of CIT(Appeals), the assessee has filed an appeal with the Tribunal.

4. At the time of hearing, the learned Authorised Representative submitted that the CIT(Appeals) has erred in confirming the addition of interest from scheduled banks though the co-operative society is engaged in providing credit facilities to its members. Whereas the Assessing Officer relied on the decision of co-operative society which is actually engaged in numerous activities, not like assessee. The learned Authorised Representative relied on the judicial decisions and prayed for allowing the appeal. Contra, the learned Departmental Representative supported the orders of CIT(Appeals).

5. We heard the rival submissions and perused the material on record. We find the CIT (Appeals) and has relied on the judicial decisions and has confirmed the action of the Assessing Officer. We found the co-ordinate Bench of Tribunal has dealt on identical issues in Dt.23.07.2019 (Jayanagar Co-operative Housing Society Ltd. Vs. ITO) at page 4 para 5 which read as under : “ 5. While learned AR relied on the decision of the Hon’ble Karnataka High Court in the case of Tumukur Merchants Souharda Credit Co-operative Ltd., 230 taxman 309 (Karn), the DR relied on a subsequent decision of the Hon’ble Karnataka High Court in the case of PCIT Vs. Totgars Co-operative Sale Society Ltd., 395 ITR 611 (Karn.). We have carefully gone through the said judgment. The facts of the case before the Hon’ble Karnataka High Court was that the Hon’ble Court was considering a case relating to Assessment Years 2007-08 to 2011-12. In case decided by the Hon’ble Supreme Court in the case of the very same assessee, the Assessment Years involved was Assessment Years 1991-92 to 1999-2000. The nature of interest income for all the Assessment Years was identical. The bone of contention of the Assessee in AY 2007-08 to 2011-12 was that the deduction under Section 80P(2) of the Act is claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act which was the claim in AY 1991-92 to 1999-2000. The reason given by the Assessee was that in AY 2007-08 to 2011-12 investments and deposits after the Supreme Court's decision against the assessee Totgar's Co-operative Sale Society Ltd. (supra), were shifted from Schedule Banks to Cooperative Bank. U/s.80P(2)(d) of the Act, income by way of interest or dividends derived by a Co-operative Society from its investments with any other Co- operative Society is entitled to deduction of the whole of such interest or dividend income. The claim of the Assessee was that Co-operative Bank is essentially a Co- operative Society and therefore deduction has to be allowed under Clause (d) of Sec.80P(2) of the Act. The Hon'ble Karnataka High Court followed the decision of the supreme Court in The Totgars Co-operative Sales Society Ltd. (supra) and held that interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d)of the Act was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991-92 to 1999-2000 decided by the Hon'ble Supreme Court. Therefore whether the source of funds were Assessee's own funds or out of liability was not subject matter of the decision of the Hon'ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon'ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon'ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra).”

Accordingly we follow the judicial precedence and set aside the order of CIT(Appeals) and remit the entire disputed issues to the file of Assessing Officer with similar directions and allow the grounds of appeal of assessee for statistical purposes.

6. In the result, the assessee's appeal is allowed for statistical purposes. Order pronounced in the open court on 3rd Jan., 2020.