DEPUTY COMMISSIONER OF INCOME TAX, SHIMOGA vs. M/S. MALANAD ARECA MARKETING CO-OP SOCIETY (MAMCOS), SHIMOGA

PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :

2.1 The assessee, a co-operative society dealing as commission agent in arecanut and other allied agricultural goods filed its return for asst. year 2011-12 on 24/9/2011 declaring income of Rs.37,45,500/-.

The assessee’s main source of income is business from marketing of agricultural produce mainly grown by its members and apart from this, it also earned interest income of Rs.62,01,839/- from deposits made with other co-operative societies which it claimed as exempt as pre sec. 80P(2)(d) of the Act and also interest income of Rs.53,60,281/- from other non-cooperative institutions which it offered for tax. The case was taken up for scrutiny. While completing the assessment u/s 143(3) of the Act vide order dated 27/3/2014, the Assessing Officer (‘AO’) disallowed the assessee’s claim of deduction u/s 80P(2)(d), of the interest income earned from deposits with other co-operative banks/societies, on the ground that the said surplus funds not required for the business immediately would fall under the category of income from other sources and brought the aforesaid interest income of Rs.62,01,839/- to tax in the assessee’s hands by virtue of the provision of sec. 80P(4) of the Act under the head ‘income from other sources’.

2.2 Aggrieved by the order of assessment dated 27/3/2014 for asst. year 2011-12, the assessee preferred an appeal before the CIT(A), Davangere challenging the AO’s order in denying exemption/ deduction u/s 80P(2)(d) of the Act in respect of interest income earned by it from out of deposit of surplus funds with other co- operative banks/societies carrying on the business of banking. It was submitted that the provisions of sec. 80P(2)(d) are applicable on such interest income earned on deposits from other co-operative banks societies and, therefore, the same be excluded for the purpose of computing the total income. The assessee, inter alia, placed reliance on the decision of a co-ordinate bench of this Tribunal in the case of Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha in & 610/Bang/2014 dat. 6/2/2015, wherein it was held that restricting the scope of 80P(2)(d) of the Act only to co-operative society other than co-operative bank is not in accordance with law.

According to the assessee, there is nothing in the section that would warrant exclusion of co-operative bank from the genre of the term co- operative society. The ld CIT(A) in the impugned order dated 31/3/2016 allowed the assessee’s claim u/s 80P(2)(d) of the Act following the decision of the co-ordinate bench in the case of Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha (Supra). 3.2.1 Revenue, being aggrieved by the order of the CIT(A), Davanagere dated 31/3/2016 for asst. year 2011-12, has preferred this appeal wherein it has raised the following grounds:-

“1. The order of the Commissioner of Income Tax(Appeals), Davangere, is opposed to the law and not on the facts and circumstances of the case.

2. The CIT (Appeal) is not right in holding that the interest income from investments made in Co-op Bank is eligible for deduction U/s 80P(2)(d) of the I.T.Act.? 3. For these and other grounds that may be urged upon, the order of the CIT(A) may be reversed and that assessment order be restored.

4. The appellant craves leave to add, alter, amend or delete any other grounds on or before hearing of the appeal.”

3.1.2 Before us, the ld DR submitted that the interest income earned by the assessee from out of deposits made in co-operative banks does not fall within the ambit of the provisions of sec. 80P(2)(d) of the Act; but rather is exigible to tax under the head ‘income from other sources’ as held by the AO. In support of this contention, reliance was placed on the decision of the Hon’ble Apex Court in the case of Totgar’s, Co-operative Sale Society Ltd. (322 ITR 383) wherein the issue was decided against the assessee.

3.2 Per contra, the ld AR for the assessee submits that the issue before the Hon’ble Apex Court in the above referred case (Supra) was the allowability of deduction u/s 80P(2)(a)(i) and not u/s 80P(2)(d) of the Act. In this regard the ld AR referred to para 3 of the judgment of the Hon’ble Apex Court and submitted that the substantial question of law that arose for consideration of their Lordships was whether such interest would qualify for deduction as business income u/s 80P(2)(a)(i) of the Act and, therefore, the issue for consideration in the case of hand is entirely different as it pertains to the deduction claimed u/s 80P(2)(d) of the Act. It was further submitted that an identical issue has been considered by the co- ordinate benches of this Tribunal in the cases of Shri Marikamba Mahila Co-operative Credit Society Ltd, in and Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha (Supra). In view of the fact that the assessee’s claim is under sec. 80P(2)(d) of the Act in respect of interest income earned on deposits made with co-operative banks, therefore, the same cannot be considered as ‘income from other sources’ for the purpose of disallowance when the interest income from deposits and with co- operative banks is eligible for deduction u/s 80P(2)(d) of the Act. 3.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. The only issue in dispute, for consideration before us, is the disallowance in respect of the interest income on deposits made by the assessee with co-operative banks. From an appreciation of the facts on record, it is clear that the interest income in question was earned by the assessee on deposits made with co- operative banks. The AO was of the view that since co-operative banks are not co-operative societies, therefore the assessee is not eligible for deduction u/s 80P(2)(d) of the Act on this amount. The short point on this issue is whether for the purpose of sec. 80P(2)(d) of the Act, a co-operative bank is considered as a co-operative society. On appeal, the ld CIT(A) allowed the assessee’s claim following various decisions of the Tribunal, inter alia, the decision in the case of Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha ITA No.609 & 610/Bang/2014 dated 6/2/2015, holding that the co-operative bank cannot be excluded from the co-operative society engaged in the business of banking for the purposes of sec.

80P(2)(d) of the Act. Similar view was taken by another co-ordinate bench of this tribunal in the case of Shri Marikamba Mahila Co- operative Society Ltd. (Supra)

3.3.2 We also find that another co-ordinate bench of this Tribunal in the case of ITO Vs. The Totgar’s Ço-operative Sale Society Ltd., in to 709/Bang/2015 for asst. years 2007-08 to 2012-13, to which one of us is party, while considering the very same issue of deduction u/s 80P(2)(d) of the Act on account of deposits made by the assessee with co-operative banks, has decided the issue in favour of the assessee and against Revenue. In doing so, the co-ordinate bench followed the decision of other benches of this tribunal, inter alia, in the cases of Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha (Supra) and Shri Marikamba Mahila Co-operative Credit Society Ltd. Following the aforesaid decisions of the co-ordinate benches of this tribunal in the case of the Totgars Co-operative Sale Society Ltd., (Supra), Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha (Supra) and Shri Marikamba Mahila Co- operative credit society Ltd., (Supra), we decide the issue in favour of the assessee and against Revenue and, therefore, see no reason to interfere with the finding of the ld CIT(A) in the impugned order of the ld CIT(A) who has followed some of the decisions of the co- ordinate bench referred to (Supra) while coming to this finding.

Consequently, finding no merit in the grounds raised by Revenue, the same are dismissed.

Order pronounced in the open court on 7th June, 2017.