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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. These two appeals are filed by the assessee against the common order of the Learned Commissioner of Income Tax (Appeals)–33, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 12.03.2018 for the A.Ys. 2013-14 & 2014-15.
2 & 3647/MUM/2018 Kshatriy Gadkari Maratha Cooperative Credit Society Ltd., 2. The assessee in both these appeals challenged the order of the Ld.CIT(A) in denying the deduction u/s. 80P(2)(d) of the Act in respect of its income.
The Assessing Officer while completing the assessments u/s.143(3) of the Act denied the deduction u/s. 80P(2)(a)(i) of the Act for the assessee, holding that the assessee is engaged in the banking activities and therefore assessee is not a cooperative society but is a cooperative bank. He also observed that in view of the provisions of Sec. 80P(4) of the Act since assessee is a cooperative bank assessee is not entitled for deduction u/s. 80P of the Act. However, Ld.CIT(A) considering the activities of the assessee and referring to various judicial pronouncements held that assessee cannot be treated as a cooperative bank. Ld.CIT(A) deleted the disallowance made by the Assessing Officer in respect of the income earned from the activities of providing credit facilities to its members. In other words, the Ld.CIT(A) allowed deduction u/s.80P(2)(a)(i) of the Act in respect of the income earned by the assessee in providing credit facilities to its members as cooperative society and not a cooperative bank. No appeal by the Revenue challenging this finding of the Ld.CIT(A). He quantified the deduction to be allowed at ₹.8,07,963/- and ₹.10,34,063/- for the A.Ys. 2013-14 and 2014-15 respectively. However, the Ld.CIT(A) held that the assessee is not entitled for 3 & 3647/MUM/2018 Kshatriy Gadkari Maratha Cooperative Credit Society Ltd., deduction u/s.80P(2)(d) of ₹.15,38,417/- and ₹.17,72,197/- for A.Ys. 2013- 14 and 2014-15 respectively on the interest income earned by the assessee from cooperative banks and in coming to such conclusion the Ld.CIT(A) referred to the decision of the Coordinate Bench and also the decision of the Hon'ble Apex court in the case of The Totgar Cooperative Sales Society Limited v. ITO [322 ITR 283]. He also relied on the Coordinate Bench decision in the case of Vaibhav Cooperative Credit Society v. ITO in ITA.No. 5819/Mum/2014 dated 17.03.2017.
Ld. DR vehemently supported the orders of the authorities below.
Heard rival submissions, perused the orders of the authorities below. The issue in the case of The Totgar Cooperative Sales Society Limited v. ITO (supra) is as to whether the interest on surplus funds is eligible for deduction u/s. 80P(2)(a)(i) of the Act or is it assessable to tax under the head other sources. It was not the question as to whether the assessee a cooperative society engaged in the business of providing credit facilities to its members is entitled for deduction u/s. 80P(2)(d) of the Act on the interest income from cooperative Banks or cooperative societies. The facts in the case before the Hon'ble Supreme Court were that assessee which was engaged in providing credit facilities to its members also marketing the agricultural produce of its members had surplus funds from the sale proceeds of the produce. Assessee earned
4 & 3647/MUM/2018 Kshatriy Gadkari Maratha Cooperative Credit Society Ltd., interest income on deposits from such surplus funds which were parked in the banks and government securities as short term deposits. The Hon'ble Supreme Court held that the interest earned on such deposits not being attributable to the business of providing credit facilities to the members or marketing of agricultural produce of the members is assessable as “other income” and not as “business profits”. Therefore, this decision has no application to the facts of the assessee case.
In the case before me, the issue is, whether the assessee is entitled for deduction u/s. 80P(2)(d) of the Act on the interest earned from investments in cooperative banks/cooperative societies.
7. Provisions of section 80P(2)(d) reads as under: - “(d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society, the whole of such income.”
8. As could be seen from the above, the provisions of section 80P(2)(d) of the Act are very clear and assessee is entitled for deduction u/s.80P(2)(d) of the Act in respect of interest or dividends received from investments made with any other cooperative societies. The decision on which the Ld.CIT(A) placed reliance i.e. The Totgar Cooperative Sales Society Limited v. ITO (supra), is not on the issue of whether the assessee is entitled for exemption u/s. 80P(2)(d) of the Act vis-à-vis the interest income earned by the cooperative society from investments in other
5 & 3647/MUM/2018 Kshatriy Gadkari Maratha Cooperative Credit Society Ltd., cooperative societies. Hence the decision of Hon'ble Supreme Court in the case of The Totgar Cooperative Sales Society Limited v. ITO (supra) has no application to the facts of the assessee’s case.
9. At this stage it is relevant to note that in the case of Pr.CIT v. Totgar Cooperative Sales Society Limited [392 ITR 74] the Hon'ble Karnataka High Court considered the meaning of the word “cooperative society” within the provisions of section 80P(2)(d) and held that cooperative society includes cooperative bank for the purpose of deduction u/s.80P(2)(d) of the Act. Therefore, it has been held that interest received by the cooperative society from the cooperative bank is eligible for deduction u/s. 80P(2)(d) of the Act. While holding so, the Hon'ble High Court also considered the decision of the Hon'ble Supreme Court in the case of the very same assessee reported in 322 ITR 283 as The Totgar Cooperative Sales Society Limited v. ITO. The Hon'ble High Court held as under: - “5. The learned counsel for the Revenue has pleaded that two substantial questions of law are raised in the present appeal, namely, 1. Whether the learned Tribunal was justified in deleting the additions made by the Assessing Authority being the disallowed deduction claimed u/S 80P(2)(d) of the Income Tax Act and in the light of the decision of the Supreme Court with regard to the same exact assessee as the present one, namely, The Totgars Co-operative Sale Society Ltd., Vs. Income Tax Officer in Civil Appeal Nos.1622 to 1629/2010 decided by the Apex Court on 08.02.2010 or not? 2. Whether, in the facts and circumstances of the case, the Tribunal is justified in not following the decision rendered by the Hon’ble Supreme Court in Civil Appeal No. 1622 of 2010, wherein the Apex Court has to be held that the words used in Section 80P “the whole of the amount of profits and gains of business” emphasise that the income in respect of which deduction is sought must constitute the operational income and not the 6 & 3647/MUM/2018 Kshatriy Gadkari Maratha Cooperative Credit Society Ltd., other income which accrues to the society and as such interest earned on funds which are not required for business purposes falls under the category of “other income” taxable under the Income Tax Act? 6. According to the learned counsel, the present appeal should be admitted on these two substantial questions of law.
However, the contention being taken by the learned counsel is untenable. For the issue that was before the ITAT, was a limited one, namely whether for the purpose of Section 80P(2)(d) of the Act, a Cooperative Bank should be considered as a Co-operative Society or not? For, if a Co-operative Bank is considered to be a Co-operative Society, then any interest earned by the Co-operative Society from a Cooperative Bank would necessarily be deductable under Section 80P(1) of the Act.
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 ITAT itself in different cases. Moreover the word “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 Cooperative 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 Cooperative Bank which is a species of the genus would necessarily be covered by the word “Co-operative Society”.
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 CoOperative Society. Therefore, a Co-operative Society Bank would be included in the words ‘Co-operative Society’.
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 I.T. 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.
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 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.”
10. Following the above said decision, similar view has been taken by the Coordinate Bench in the cases of ITO v. Abhylaxhmi Co-op Credit Society Ltd in ITA.No. 1525/Mum/2017 dated 31.07.2017 and Kalindas Udyog Bhavan Premises Co-op Society Ltd., v. ITO in ITA.No.
6547/Mum/2017 dated 25.04.2018.
7 & 3647/MUM/2018 Kshatriy Gadkari Maratha Cooperative Credit Society Ltd., 11. Therefore, respectfully following the above said decisions, I hold that the assessee is a cooperative society engaged in the business of providing credit facilities to its members is eligible for deduction u/s.80P(2)(d) of the Act in respect of interest income earned by the assessee from either any other cooperative society or from a cooperative bank. Grounds raised by the assessee on this issue are allowed.
In the result, appeals of the assessee are allowed.
Order pronounced in the open court on the 26th April, 2019