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Income Tax Appellate Tribunal, “A ” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI JASON P BOAZ
O R D E R Per Shri Jason P Boaz, A.M. :
This appeal by the Revenue is directed against the order of the CIT(A)-2, Bangalore, dated 15.06.2017 for Assessment Year 2014-15.
Briefly stated, the facts of the case are as under:
Page 2 of 6 2.1 The assessee is a co-operative society, engaged in acquiring land, developing the same into sites and transferring them to its Members. For Assessment Year 2014-15, the assessee filed its return of income on 11.03.2015 declaring NIL income; after claiming deduction of Rs.2,14,13,128/- u/s. 80P(2)(d) of the Income Tax Act, 1961 (in short ‘the Act’). The case was taken up for scrutiny and the assessment was concluded u/s 143(3) of the Act vide order dated 08.12.2016, wherein the assessee’s income was determined at Rs.2,14,13,128/- in view of the rejection of the assessee’s claim for deduction u/s 80P(2)(d) of the Act. The Assessing Officer (AO) was of the view that the assessee was functioning on par with other commercial Banks which did not enjoy the benefit of deduction u/s 80P of the Act due to the insertion of sub section (4) thereto and also relied on the Explanatory Notes on provisions relating to Direct Taxes Circular No.14/2006 dated 28.12.2006.
Aggrieved by the order of assessment dated 08.12.2016 for Assessment Year 2014-15, the assessee preferred an appeal before the CIT(A)-2, Bangalore, challenging the AO’s action in denying it the deduction claimed u/s 80P(2)(d) of the Act. Before the CIT(A), the assessee contended that the income earned by it was primarily from other co-operative societies and co-operative banks only; which is claimed as deduction u/s 80P(2)(d) of the Act and that it is not a bank as concluded by the AO. The CIT(A), following the decisions of the Hon’ble Karnataka High Court in the case of Totagars Co-operative Sale Society in (2017) 392 ITR 74 (Kar) and of the co-ordinate bench of this Tribunal in the case of Menasi Seemeya Group Gramagala Seva Sahakari Sangha Niyamitha in and 610/Bang/2014; which was on similar facts; allowed the assessee’s claim for deduction u/s 80P(2)(d) of the Act.
Revenue, being aggrieved by the order of the CIT(A)-2, Bangalore, dated 15.06.2017 for Assessment Year 2014-15 has preferred this appeal before the Tribunal wherein it has raised the following grounds:
Page 3 of 6 1. Whether on the facts and in the circumstances of the case, and in law, the Ld. CIT(A) was right in holding that the assessee society is entitled to deduction u/ s 80 P(2)(d) of the IT Act even when the assessee-society is mainly involved in extending credit facilities to its members which is in the nature of a bank transaction, treated on par with the new clause introduced in the definition of income in section 2(24)(viia) of the Act and comes under the purview of section 80P(4) wef 01.04.2007? 2. Any other grounds that may arise at the time of hearing.
The sum and substance of the grounds of appeal raised by the Revenue challenge the finding of the CIT(A) that the assessee is entitled to the benefit of deduction u/s 80P(2)(d) of the Act in respect of interest income earned from other co-operative societies and co-operative banks.
We have heard the rival submissions and carefully considered the material on record. The learned AR relied on the decision of the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. Vs. ITO 230 taxman 309 (Kam) wherein the Hon'ble Karnataka High Court considered the decision of the Hon'ble Apex Court in the case of The Totgar's Co- operative Sales Society Ltd., in 322 ITR 283 (SC) and held that interest income in respect of temporary parking of own surplus funds not immediately required is eligible for deduction u/s.80P(2)(a)(i) of the Act. The learned 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 perused the judgment relied by the learned DR. The facts of the case before the Hon'ble Karnataka High Court in the decision cited by the learned DR was that the Hon'ble Court was considering a case relating to Assessment Years 2007-2008 to 2011- 2012. In case decided by the Hon'ble Supreme Court in the case of the very same Assessee, the Assessment years involved were AY 1991-92 to 1999-2000. The nature of interest income for all the Page 4 of 6 AYs 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 co- operative 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
Page 5 of 6 of Tumukur Merchants Souharda Co-operative Ltd. (supra:). We also make it clear that the examination of claim for deduction in respect of interest income of Rs.2,14,13,128/- received on deposits from other Co-operative Societies and with Co-operative banks will be made only u/s.80P(2)(a)(i) of the Act and in so far as deduction u/s.80P(2)(d) of the Act is concerned, the same becomes not allowable in view of the decision of Karnataka High Court in the case of PCIT Vs. Totgars Cooperative Sale Society Ltd. 395 ITR 611 (Karn.).
The AO will afford reasonable opportunity of being heard to the Assessee and filing appropriate evidence, if desired, by the Assessee to substantiate its case, which shall be duly considered before deciding the issue.
In the result, appeal by the Revenue for Assessment Year 2014-15 is treated as allowed for statistical purposes.
Order pronounced in the open court on this 11th day of January, 2019.