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Facts
The assessee, a co-operative society, claimed a deduction of Rs.1,02,89,948 u/s 80P for the A.Y. 2018-19, resulting in Nil income. The Assessing Officer disallowed Rs.51,81,233 of this claim, stating the assessee was not entitled to 80P deduction for interest income from co-operative banks and societies. The CIT(A) upheld this disallowance, treating the interest income from co-operative society as taxable under 'other sources'.
Held
The Tribunal, citing various High Court and Supreme Court judgments (including Sahyadri Co-operative Credit Society Ltd., Mavilayi Service Co-operative Bank Ltd., and Peroorkada Service Co-operative Bank Ltd.), held that the assessee is entitled to deduction u/s 80P(2)(d) for interest and dividend income from co-operative banks and u/s 80P(2)(a)(i) for income attributable to business with its members. The matter was restored to the Assessing Officer for fresh adjudication to ensure proper bifurcation of eligible income.
Key Issues
Whether a co-operative society is entitled to a deduction under Section 80P(2)(a)(i) or 80P(2)(d) of the Income Tax Act, 1961, for interest income earned from co-operative banks/societies and commercial banks, or if such income is taxable under Section 56 as 'Income from other sources'.
Sections Cited
80P, 80P(2)(a)(i), 80P(2)(d), 56
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Inturi Rama Rao & Shri Prakash Chand Yadav
Asst.Year 2020-2021 Mannam Service Co-operative The Income Tax Officer Bank Limited No.E-277 Ward - 2 v. Mannam P.O., North Paravur Aluva. Ernakulam – 683 520. PAN : AAAAM8814B. (Appellant) (Respondent) Appellant by : --- None --- Respondent by : Smt.Leena Lal, Sr.AR Date of Pronouncement : 22.01.2025 Date of Hearing : 08.01.2025 O R D E R
Per Prakash Chand Yadav, JM :
The present appeal of the assessee is arising from the order of the learned Commissioner of Income-tax (Appeals) dated 1st June, 2024 and it relates to the assessment year 2018-2019, having DIN & Order No.ITBA/NFAC/S/250/2024- 25/1065333727(1).
Delay of two days in filing of this appeal before the Tribunal is condoned based on the condonation petition accompanied by an Affidavit of the Secretary of the assessee, explaining the reasons for the delay.
The brief facts as coming out from the orders of the authorities below are like this, that the assessee is a co- . Mannam SC.B Limited. operative society filed its return of income for the impugned assessment year on 29.12.2020 declaring Nil income after claiming deduction of Rs.1,02,89,948 u/s.80P of the Income- tax Act, 1961. Thereafter the case of the assessee was selected for scrutiny and the Assessing Officer framed the assessment. During the course of assessment proceedings, the A.O. disallowed an amount of Rs.51,81,233 from the claim of deduction of 80P made by the assessee. The A.O. was of the opinion that the assessee is not entitled for the deduction u/s.80P vis-à-vis the interest income earned from the co- operative bank and co-operative society.
Aggrieved with the order of the A.O., the assessee filed an appeal before the learned CIT(A) and contended that the A.O. has erred in disallowing deduction of sec.80P in respect of interest income earned from co-operative bank and commercial banks. However, the ld.CIT(A) took a view that the interest income earned from co-operative society is to be taxed under the head other sources.
Still aggrieved with the order of the ld.CIT(A), the assessee has come up in appeal before us. When this matter was called upon for hearing no one appeared from the side of the assessee despite service of notice. Therefore, we are proceeding to decide the appeal on the basis of the material available on record.
The learned Departmental Representative relied upon the orders of the authorities below.
. Mannam SC.B Limited. 7. After considering the rival submissions, we are of the view that the issue involved in this case is squarely covered by the decision of the co-ordinate bench in vide order dated 21.11.2024 in the case of Thrissur District Electricity Board Employees Co-operative Society Limited v. ITO. In that case we observe as under:-
“6. We have heard the rival submissions and perused the material available on record. For deciding the issue whether the assessee is entitled for deduction u/s.80P(2)(a)(i), a reference can be made to the judgment of the Hon’ble Supreme Court in the case of Totagar’s Co-operative Sale Society Ltd. v. ITO reported in (2010) 322 ITR 283 (SC). The Hon’ble Apex Court in para 11 of the judgment, has observed as under:- “11. An alternative submission was advanced by the assessee(s) stating that, if interest income in question is held to be covered by section 56 of the Act, even then, the assessee-society is entitled to the benefit section 80P (2)(a)(i) of the Act in respect of such interest income. We find no merit in this submission. Section 80P (2)(a)(i) of the Act cannot be placed at par with Explanation (baa) to section 80HHC, section 80HHD(3) and section 80HHE(5) of the Act. Each of the said sections has to be interpreted in the context of its subject- matter. For example, section 80HHC of the Act, at the relevant time, dealt with deduction in respect of profits retained for export business. The scope of section 80HHC is, therefore, different from the scope of section 80P of the Act, which deals with deduction in respect of income of co-operative societies. Even Explanation (baa) to section 80HHC was added to restrict the deduction in respect of profits retained for export business.The words used in Explanation (baa) to section 80HHC, therefore, cannot be cannot be compared with the words used in section 80P of the Act which grants deduction in respect of “the whole of the amount of profits and gains of business”. A number of judgments were cited on behalf of the assessee(s) in support of its contention that the source was irrelevant while construing the provisions of section 80P of the Act. We find no merit because all the judgments cited were cases relating to co-operative banks and the assessee-society is not carrying on banking business. We are confining this judgment to the facts of the present case. To say that the source of income is not relevant for deciding the applicability of section 80P of the Act would not be correct because we need to give weightage to the words “the whole of the amount of profits and gains of business” attributable to one of the activities specified in section 80P(2)(a) of the Act. An important point needs to be mentioned. The words “the whole of the amount of profits and gains of business” emphasise that the income in respect of which . Mannam SC.B Limited. deduction is sought must constitute the operational income and not the other income which accrues to the society. In this particular case, the evidence shows that the assessee-society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income falls in the category of “Other income” which has been rightly taxed by the Department under section 56 of the Act.”
We further observed that recently Hon’ble jurisdictional High Court in the case of Sahyadri Co-operative Credit Society Ltd. 301 Taxman 36 (Ker), after observing that the assessee has not used the surplus funds and after considering the judgment of Totagar SC(Supra),has gone to the extent of saying that the making of investment is the business activity of the society. The observations of the High Court in Shayadri in Para 8 are reproduced hereunder: - ‘’We also find force in the submission of the learned Senior counsel, distinguishing the decision of theSupreme Court in M/s. The Totgars' Cooperative Sale Society Limited (supra), on the ground that theCourt in that case had found that the Society concerned had appropriated amounts forming part of surplus receipts which were due to its members, and invested the same to earn interest during the period whenthe surplus receipts were in its hands. It was therefore that the court found that the interest earned bythe Society through deposit of such receipts with banks in fact ought to have accrued to the benefit of theindividual members and not to the Society itself; that in relation to the Society, it was to be treated asincome from other sources since the interest income had lost its nexus with the principal income earnedby the Society. The facts in the instant cases are entirely different and the investment concerned was of amounts that had already attained the character of surplus profits in the hands of the assessee. On this issue, therefore, we find ourselves in agreement with the view taken by the Andhra Pradesh and Karnataka High Courts respectively in The Vavveru Co-operative Rural Bank Ltd. (supra) and Tumkur Merchants Souharda Credit Co-operative Limited (supra).”
While interpretating the provisions of section 80-P Hon’ble Apex Court in the case of Mavilayi reported in 431 ITR 1(SC) has observed as under:- “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”
So far as the claim of the assessee to the deduction of sec.80P(2)(d), we observe that the Hon’ble Kerala High Court in the case of Peroorkada Service Co-operative Bank Ltd. (supra), has allowed the claim of the assessee u/s.80P(2)(d) of the Act. The relevant observations of the Hon’ble jurisdictional High Court are in para 12.1 and 12.2 of the . Mannam SC.B Limited. judgment. The same are reproduced for the sake of ready reference:- “12.1 The decisions relied on by the Supreme Court refer to co-operative banks but not co-operative societies. The issue on hand is about the interest income earned by way of investments made with institutions other than co-operative societies. We are of the view that by referring to the order in Nawanshahar Central Co-operative Bank Ltd. case it cannot be held that the income has to be brought under section 80P(2)(a)(i) of the Act. 12.2 Section 80P deals with Co-operative Societies' computation of income. As already noted, it has four sections and several sub-sections and clauses. The Parliament has considered the various situations in which the exigible income and the deductable income of the assessee is considered while computing the income of the assessee. For getting deduction, in our considered view, the assessee must also establish that the interest income earned by the assessee is from a Co-operative Society. As a matter of fact, in the case on hand, there is no dispute that it is not from a Co-operative Society registered under Kerala Co- operative Societies Act. The interest income earned from District Co-operative Bank/State Co-operative Bank, in the facts and circumstances of the case, do come within Section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by Section 80P(2)(d) viz. Interest or dividend derived by the assessee from its investments with any other Co-operative Society. The source of interest income is from Bank and Treasury, interest income received from Treasury be included in the computation of total income of the assessee. In other words, interest earned from Treasury is inadmissible for deduction and interest income from Co-operative Societies registered under the Kerala Co-operative Societies Act are eligible for deduction. The contra consideration of Commissioner of Income Tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of Section 80P(2)(a)(i) and permissible deduction of interest income is limited to Co-operative Societies/Banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered.”
In view of the above judgments, we are of the considered view that the assessee is entitled for deduction u/s.80P(2)(d) in respect of interest income and dividend income earned from co-operative bank as held in the case of Peroorkada Service Co-operative Bank Ltd.(supra). The assessee would also be entitled for the deduction of section 80(P)(2a)(i) in respect of such income which is attributable to the business of cooperative society exclusively with the members of the society. Therefore, we restore this matter to the file of the A.O. with a direction to decide the issue afresh after considering the judgment of the Hon’ble Kerala High Court and Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. (supra).We also direct the assessee to produce proper bifurcation of the income earned which is eligible for deduction u/s.80P(2)(d) and 80P(2)(a)(i) of the Act.”
. Mannam SC.B Limited. 8. In view of the above, we restore the matter to the file of the A.O. to decide afresh in accordance with the observations made by the Hon’ble High Court in the case of Sahyadri Co- operative Credit Society Ltd. 301 Taxman 36 (Ker) followed by Coordinate Bench in the above quoted case.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on this 22nd day of January, 2025.