THE VEER CO-OPERATIVE GROUP HOUSING SOCIETY LTD.,NEW DELHI vs. ITO, WARD- 39(4), NEW DELHI

(i) Interest on FDR from Canara Bank Rs. 83,687/- (ii) Interest on FDR from Saraswat Rs.6,63,611/- Cooperative Bank Ltd., Total Rs.7,47,298/- 4.1. The assessee has claimed even interest income as exempt on the ground of mutuality. The interest income received by the assessee-society, in the view of the A.O, does not satisfy the test of mutuality for the reason that the same is 4 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. earned from third party i.e, from Bank on deposits of FDRs. The A.O. referred to Judgment of the Hon’ble Supreme Court in the case of Bangalore Club vs. CIT (2013) 212 Taxman 566 in which it was held that interest income earned by the Club from the Bank has a taint of commerciality and fatal to the principal of mutuality. In this view of the matter, the interest income of Rs.7,47,298/- earned by the assessee-society was chargeable to tax under the Head “Income from other sources”. The A.O. accordingly assessed the income of the assessee at Rs.7,47,298/-.

5 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. society. Further, deduction of Rs.50,000/- should be allowed to the Cooperative Society under section 80P(2)(c)(ii) of the I.T. Act. The assessee-society relied upon Section 80P(2)(d) of the I.T. Act, 1961 which provides deduction in respect of income of Cooperative Societies i.e., “in respect of any income by way of interest or dividend derived by the Cooperative Society from its investments with any other Cooperative Society, whole of such income”. On perusal of the above provision of Section 80P(2)(d) of the I.T. Act, it is clear that a Cooperative Society shall be allowed deduction on interest received on investments in another Cooperative Society, irrespective of the amount of income. In the instant case, assessee-society is in receipt of interest on FDR for Rs.6,63,611/- from a Cooperative Bank namely Saraswat Cooperative Bank Ltd., and thus, the issue under dispute is, Whether the interest income received from Cooperative Bank should be charged to tax or not ? The Law provides for exemption of interest income received from Cooperative Society. In general sense, Banks which are registered as Scheduled Cooperative Bank and not as 6 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. Scheduled Commercial Bank are to be treated as a ‘Cooperative Society’ only. It is Law that Cooperative Banks are Cooperative Societies formed for the benefit of their own Members. The only difference is the nature of business i.e., banking activities. The A.O. failed to appreciate the legal provision. Further, as per Section 2(19) of the Act, the Cooperative Society means, a Cooperative Society registered under the Cooperative Societies Act or under any law for the time being in force. The provisions of I.T. Act either in Section 2(19) or in Section 80P do not make any discrimination between the Cooperative Society carrying on banking business and other Cooperative Societies. Cooperative Banks are primarily Cooperative Societies by constitution and Bank by nature of the business. Cooperative Society Banks are merely a variety of Cooperative Society. Thus, the Cooperative Banks would necessarily be covered under the scope of Cooperative Societies and deduction under section 80P(2)(d) be allowed. The assessee-society relied upon the decision of Hon’ble Karnataka High Court in the case of Pr. CIT vs. Totagars

7 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. Cooperative Sale Society (2017) 392 ITR 74 in which it was held that “thus the Cooperative Bank which is a species of the genus would necessarily be covered by the word “Cooperative Society”. The assessee-society relied upon the order of ITAT, Mumbai Bench in the case of Income Tax Officer, Ward- 21(1)91), Mumbai vs. M/s. Abhaylaxmi Co-op. Society Ltd., in ITA.No.1525/ Mum/2017 and ITA.No.1614/Mum./2017, Dated 31.07.2017, in which the Tribunal following the decision of Hon’ble Karnataka High Court in the case of Pr. CIT vs. Totagars Cooperative Sale Society (supra) held that “amount of interest earned by the assessee from deposits with other Cooperative Banks is eligible for exemption under section 80P(2)(d) of the I.T. Act.” The assessee-society on the same proposition relied upon the Order of ITAT, Delhi Bench in the case of ACIT vs. Jawala Cooperative Urban Thrift and Credit Society Ltd., New Delhi in ITA.No.2607/Del./2012, Dated 19.12.2014 and Order of ITAT, Bangalore Bench in the case of Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha vs. CIT ITA.No.609 & 610/Bang/2014, Dated

8 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. 05.02.2015 reported in 2015-(2) TMI-1094-ITAT-Bangalore. The assessee, therefore, prayed that assessee is eligible for deduction under section 80P(2)(d) of the I.T. Act.

5.1. The Assessee further submitted that on making the above additions, A.O. has not allowed deduction of Rs.50,000/- in accordance with the provisions of Section 80P(2)(c)(ii) of the I.T. Act. According to the above provision, ‘any Cooperative Society, which is not engaged in the business as specified in any of the clauses to this Section, shall be allowed deduction to the tune of Rs.50,000/- from total income so computed’. The A.O. however, did not allow even the same benefit. The assessee-society relied upon the Judgment of Hon’ble Supreme Court in the case of CIT vs. Mahalakshmi Sugar Mills Co., Ltd., (1986) 160 ITR 920 (SC) in which it was held that that “it is the duty of the A.O. to apply the relevant provisions of the Act for the purpose of determining the true figure of assessee’s total income and consequential tax liability.” The assessee also relied upon Board Circular

9 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. No.14(XL-35), Dated 11.04.1955 in which it was directed that responsibility is upon the A.O. to draw attention of the assessee to all the claims/deductions for which they are entitled. The assessee-society also relied upon the decision of Hon’ble Bombay High Court in the case of CIT, Central-1 vs. M/s. Pruthvi Brokers & Shareholders Private Limited (2011) 349 ITR 336 (Bom.) in which it was held that “the appellate authorities are entitled to consider the claim and to adjudicate the same even if claim made without filing the revised return.” The Assessee, therefore, submitted that deduction of Rs.50,000/- may also be allowed separately.

11 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi.

8. The issue whether a Co-operative Bank is considered to be a Co-operative Society is no longer res integra. For the said issue has been decided by the IT AT itself in different cases. Moreover the word

12 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. “Cooperative Society” are the words of a large extent, and denotes a genus, whereas the word “Co-operative Bank” is a word of limited extent, which merely demarcates and identifies a particular species of the genus Co - operative Societies. Co-Operative Society can be of different nature, and can be involved in different activities; the Co-operative Society Bank is merely a variety of the Co-operative Societies. Thus, the Co - operative Bank which is a species of the genus would necessarily be covered by the word “Co-operative Society”.

9. Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primary Co-Operative Society bank as the meaning of Co-Operative Society. Therefore, a Co-operative Society Bank would be included in the words ‘Co-operative Society’.

13 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi.

10. Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the IT. Act, the said amount of interest earned from a Cooperative Society Bank would be deductable from the gross income of the Co-operative Society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent.

8.1. In the above decision, Hon’ble Karnataka High Court has clearly provided that the Co-operative Society Banks are merely a variety of Co-operative Societies and are covered under the term ‘Cooperative Society’. This further clarifies the provision as laid down in section 80P(2)(d) that ‘any interest income earned from the investments made in Co- operative Bank shall be allowed as deduction on account of interest income received from Cooperative Societies’. The Ld. CIT(A) in his decision has relied upon the judgment of Apex

14 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. Court in the case of M/s. The Totgars' Cooperative Sale Society Limited vs., income Tax Officer. Karnataka, [2010] 322 ITR 283 (SC) which deals with the interpretation of the deduction under section 80P(2)(a)(i) of the I.T. Act, 1961. However, Ld. CIT(A) has erred in applying the provisions, on the decision by Apex Court, as the facts of such case and the decision given by Karnataka High Court relied upon by the assessee-society are on totally different parameters and involve different questions of law.

8.2. In order to avoid any confusion between the said two judgments of Hon’ble Karnataka High Court and Hon’ble Apex Court, the Karnataka High Court in the case of The Pr. CIT v. Totagars Cooperative Sale Society (supra) made clear distinction between the two judgments as under :

“11. The learned counsel has relied on the case of The Totgars Co-operative Sale Society Ltd. Vs. Income Tax Officer, (supra). However, the said case dealt with the interpretation, and the deduction, which would be 15 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. applicable under Section 80P(2)(a)(i) of the I. T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case. ”

8.3. Thus, from the above position, it is clear that the present case of the assessee-society relates to the provisions as laid down under section 80P(2)(d) and not under 80P(2)(a)(i) and the issue under consideration has been wrongly dealt by Ld. CIT(A). The Learned Counsel for the Assessee placed further reliance on the following cases i. ITO-21 (1) (1) , Mumbai vs., M/s. Abhaylaxmi Co-op. Credit Society Ltd. And Vice-Versa, And ITA NO. 1614/MUM/2017, dt. 31.07.2017

16 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. ii. Merwanjee Cama Park Co-op Housing society Ltd. vs., Income Tax Officer- Range, Mumbai, dt. 27.09.2017 iii. ACIT, Circle 38(1), New Delhi vs. Jawala Cooperative Urban Thrift & Credit Society Ltd., New Delhi, dt. 19.12.2014 iv. Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha vs., CIT, and 610/Bang/2014, dt. 06.02.2015

17 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. CIT vs. Totagars Cooperative Sale Society (supra) held that “the Cooperative Bank which is a species of genesis would necessarily be covered by the word “Cooperative Society”. The ITAT, Mumbai Bench in the case of ITO-21(1)(1), Mumbai vs., M/s. Abhaylaxmi Co-op. Credit Society Ltd. & Vice-Versa (supra) held as under :

“Claim for exemption u/s 80P(2)(d) with respect to interest on deposits with other co-operative banks - Held that:- In view of the clear phraseology of Sec. 80P(2)(d) of the Act and the judgment of the Hon’ble Karnataka High Court in the case of M/s. The Totgars' Cooperative Sale Society Limited (2017)-(1)-TMI-1100-Karnataka-High Court, the amount of interest earned by the assessee from deposits with other Co-operative Banks is eligible for exemption. Accordingly, on this aspect also, order of CIT(A) is set-aside and the Assessing Officer is directed to allow the claim of the assessee.”

18 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. 10.1. The ITAT, Delhi Bench in the case of ACIT, Circle 38(1), New Delhi vs. Jawala Cooperative Urban Thrift & Credit Society Ltd., New Delhi, (supra) held as under :

“Therefore it is held that fixed deposits placed with Bombay Mercantile Bank falls within the exemption granted by Section 80P(2)(d) of the Act. The assessee was also eligible under the provisions of Section 80P(2)a(i) as the funds placed by assessee in the form of fixed deposits can be said to be kept for the purpose of business of the assessee as the assessee had availed credit facilities also against such fixed deposits which were again used for the purpose of business of assessee - Decided against revenue.”

10.2. The ITAT, Bangalore Bench in the case of Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha vs., CIT (supra) in Reference Proceedings under section 263 of the I.T. Act held as under :

19 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. “Now coming to the question as to whether the interest on deposits earned by a Co-operative Society, where such deposits were with a Co-operative Bank, we are of the opinion that restrictive interpretation given by the learned CIT(A) to section 80P(2)(d) was not warranted by it wordings. This Tribunal in the case of Bagalkot District Central Co-operative Bank [2015 (1) TMI 1005 - ITAT BANGALORE] had held that a Co- operative bank which is also a Co-operative Society cannot be excluded from the purview of benefits available to a Cooperative Society, unless the provisions of the Act so stipulate. No doubt in the said decision, the Tribunal was considering the application of Section 194A(3)(v) of the Act, wherein it was mandated that a Cooperative Society was not required to deduct tax at source if the interest credit were paid to any Co-operative Society. It had unequivocally held that the said provision applied to all Cooperative Society including a Cooperative Society engaged in the 20 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. business of the bank or in other words, a Co-operative Bank. Therefore, the view taken by the AO that income by way of interest or dividends earned by the assessee society from the Cooperative bank namely Kanara Dist. Central Co-operative bank which was also a Co-operative Society was eligible for deduction cannot be faulted. We cannot say that the order of the AO was erroneous and prejudicial to the interest of the revenue - Decided in favour of assessee.”

21 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. Benches of the Tribunal referred to above. In this view of the matter, we set aside the Orders of the authorities below and delete the addition of Rs.6,63,611/-.

22 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. for the Assessee, however, submitted that assessee-society is entitled for such deduction and that there is no bar on the powers of the appellate authorities to allow such claim. Learned Counsel for the Assessee reiterated the submissions made before the Ld. CIT(A).

23 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. only then, assessee made an alternative claim before Ld. CIT(A). The Ld. CIT(A) accepted the claim of assessee-society in principle, but, denied the claim because no such claim was made in the return of income or no claim was raised in the revised return. However, there is no prohibition on the powers of the appellate authority to consider the claim of assessee, if assessee is entitled for such relief in accordance with law. The assessee-society relied upon decision of Hon’ble Supreme Court in the case of CIT Mahalaxmi Sugar Mills Co. Ltd., (1986) 160 ITR 920 and CBDT Circular No.14(XL-35) Dated 11.04.1995 above, which provides that it is the duty of the A.O. to apply relevant provision of the Act for the purpose of determining the true figure of assessee’s total income and consequently, tax liability. Therefore, Ld. CIT(A) should not have refuse to exercise his discretionary power in the matter. The assessee-society is entitled for deduction of Rs.50,000/-. We, accordingly, set aside the orders of the authorities below and direct the A.O. to allow deduction of Rs.50,000/- out of 24 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. interest income in favour of the assessee-society. This ground of appeal of assessee is allowed.

ITA.No.2788/Del./2018 - A.Y. 2014-2015 :

25 ITA.Nos.2787 & 2788/Del./2018 M/s. The Veer Cooperative Group Housing Society Limited, New Delhi. both the claims of the assessee-society as is directed in A.Y. 2013-2014.

Order pronounced in the open court.