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Facts
The assessee, a consumer cooperative society engaged in wholesale trading, claimed deductions under Section 80P(2)(c) for Rs. 1 lakh and under Section 80P(2)(d) for interest and dividend income from investments in other cooperative banks across multiple assessment years. The Assessing Officer and CIT(A) disallowed these deductions, treating them primarily under 80P(2)(d) and considering the investee banks as engaged in banking business, thus not eligible for the said deductions.
Held
The Tribunal restored the claim for deduction under Section 80P(2)(c) to the Assessing Officer for fresh verification. For claims under Section 80P(2)(d), the Tribunal held that eligibility depends on whether the investee cooperative banks are carrying on banking business as defined under Section 5(b) of the Banking Regulation Act, and whether the income is business income, remanding this issue also to the Assessing Officer for verification.
Key Issues
Whether the assessee is eligible for deductions under Section 80P(2)(c) and 80P(2)(d) for interest and dividend income from cooperative banks, specifically depending on whether the investee banks are engaged in banking business as defined under the Banking Regulation Act.
Sections Cited
Section 80P(2)(c), Section 80P(2)(d), Section 80P, Section 143(3), Section 2(19) of Income Tax Act, Section 5(b) of Banking Regulation Act, 1949, Section 80P(4)
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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SUNIL KUMAR SINGH
In all these appeals, common In all these appeals, common grounds are permeating from set are permeating from set of identical facts and circumstances of identical facts and circumstances, therefore, all these appeals all these appeals were heard together and disposed off by way of this consolidated were heard together and disposed off by way of this consolidated were heard together and disposed off by way of this consolidated order for convenience order for convenience and avoid repetition of facts. Accordingly, Accordingly, the appeal of the assessee appeal of the assessee registered at for for assessment year 2014 assessment year 2014-15 is taken as a lead case. The grounds 15 is taken as a lead case. The grounds raised in appeal by the assessee are reproduced as under: by the assessee are reproduced as under: by the assessee are reproduced as under:
On the facts and circumstances of the case and in law, the Ld. 1. On the facts and circumstances of the case and in law, the Ld. 1. On the facts and circumstances of the case and in law, the Ld. Assessing Officer as well as the Assessing Officer as well as the Ld. CIT(A) erred in denying deduction of Ld. CIT(A) erred in denying deduction of INR 1,00,000/ INR 1,00,000/- claimed under Section 80P(2)(c) of the Income Tax Act, claimed under Section 80P(2)(c) of the Income Tax Act, 1961.
2. On the facts and circumstances of the case and in law, the Ld. 2. On the facts and circumstances of the case and in law, the Ld. 2. On the facts and circumstances of the case and in law, the Ld. Assessing Officer as well as the Ld. Assessing Officer as well as the Ld. CITA) erred in denying deduction of CITA) erred in denying deduction of INR 1,34,34,555/ 1,34,34,555/- claimed under Section 80P(2)(d) of the Income Tax Act, claimed under Section 80P(2)(d) of the Income Tax Act, 1961, on the interest income earned on fixed deposits in co 1961, on the interest income earned on fixed deposits in co 1961, on the interest income earned on fixed deposits in co-operative banks.
On the facts and circumstances of the case and in law, the Ld. 3. On the facts and circumstances of the case and in law, the Ld. 3. On the facts and circumstances of the case and in law, the Ld. Assessing Officer as well as the Ld. Assessing Officer as well as the Ld. CIT(A) erred in denying deduction of (A) erred in denying deduction of INR 2,03,970/ 2,03,970/- claimed under Section 80P(2)(d) of the Income Tax Act, claimed under Section 80P(2)(d) of the Income Tax Act, 1961, on dividend income earned from shares held in co 1961, on dividend income earned from shares held in co-operative banks operative banks by the Appellant. by the Appellant. 4. The Appellant craves leave to, add to or alter, by deletion, 4. The Appellant craves leave to, add to or alter, by deletion, 4. The Appellant craves leave to, add to or alter, by deletion, substitution, or otherwise, any or all of the foregoing grounds of appeal
at or before the or otherwise, any or all of the foregoing grounds of appeal at or before the or otherwise, any or all of the foregoing grounds of appeal at or before the hearing, and to submit such statements, documents, and papers as may hearing, and to submit such statements, documents, and papers as may hearing, and to submit such statements, documents, and papers as may be considered necessary either at or before the appeal hearing. be considered necessary either at or before the appeal hearing. be considered necessary either at or before the appeal hearing.
3. Briefly stated fact of the c Briefly stated fact of the case are that the assessee is ase are that the assessee is consumer co-operative society under the provisions of Multi operative society under the provisions of Multi operative society under the provisions of Multi-State operative Societies Act, 2002 and engaged in wholesale trading wholesale trading Co-operative Societies Act, 2002 and of ‘food grains’ and and ‘grocery goods’ and other ‘consumer goods consumer goods’. The assessee filed return of i The assessee filed return of income for the year under consideration ncome for the year under consideration on 20.09.2014 declaring total income at Rs.1,10,86,870/-. The on 20.09.2014 declaring total income at Rs.1,10,86,870/ on 20.09.2014 declaring total income at Rs.1,10,86,870/
Mumbai Kamgar Madhyawarti Grahak Mumbai Kamgar Madhyawarti Grahak 3 Sahakari Sanstha Maryadit Sahakari Sanstha Maryadit 2884, 2883 & 2884, 2883 & 2882/MUM/2024 return of income filed by the assessee was selected for scrutiny and return of income filed by the assessee was selected for scrutiny and return of income filed by the assessee was selected for scrutiny and statutory notices under the Income statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed u/s complied with. In the assessment completed u/s complied with. In the assessment completed u/s 143(3) of the Act, the Assessing Officer made disallowance including 143(3) of the Act, the Assessing Officer made disallowance including 143(3) of the Act, the Assessing Officer made disallowance including the the the disallowance disallowance disallowance u/s u/s u/s 80P(2)(d) 80P(2)(d) 80P(2)(d) of of of the the the Act Act Act amounting amounting amounting to to to Rs.1,37,38,461/-.
On further appeal before On further appeal before the Ld. CIT(A), the assessee preferred the assessee preferred sole issue of denial of deduction u/s 80P(2)(d) of the Act in respect sole issue of denial of deduction u/s 80P(2)(d) of the Act in respect sole issue of denial of deduction u/s 80P(2)(d) of the Act in respect of ‘interest on deposits interest on deposits’ held with the Cooperative banks the Cooperative banks and ‘dividend’ earned from co earned from co-operative banks. In the assessment year operative banks. In the assessment year under consideration i.e AY 2014 under consideration i.e AY 2014-15, disallowance include 15, disallowance include deduction u/s 80P(2)(c) of the Act amounting to Rs.1,00,000/-. The details of u/s 80P(2)(c) of the Act amounting to Rs.1,00,000/ u/s 80P(2)(c) of the Act amounting to Rs.1,00,000/ deduction claimed and and denied in respect of each assessment year denied in respect of each assessment year involved before us is is reproduced as follows:
Assessment Year 80P(2)(d) 80P(2)(d) 80P(2)(d) - 80P(2)(c) Total 80P Total 80P Interest - Interest Dividend disallowed disallowed AY 20 14- 15 1,34,34,555 1,34,34,555 2,03,970 1,00,000 1,37,38,461 1,37,38,461 AY 2017-18 1,40,83,003 1,40,83,003 2,05,857 - 1,42,88,860 1,42,88,860 AY 2018-19 1,52,87,554 1,52,87,554 2,08,529 - 1,54,96,083 1,54,96,083 AY 2020-21 1,08,86,372 1,08,86,372 1,79,319 - 1,10,65,691 1,10,65,691 6. We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record including the paper books filed by t on record including the paper books filed by the on record including the paper books filed by t Ld. counsel for the assessee along with request for admitting Ld. counsel for the assessee along with request for admitting Ld. counsel for the assessee along with request for admitting additional evidences consisting of registration certificate of investee additional evidences consisting of registration certificate of in additional evidences consisting of registration certificate of in cooperative banks as cooperative society. cooperative banks as cooperative society.
Mumbai Kamgar Madhyawarti Grahak Mumbai Kamgar Madhyawarti Grahak 4 Sahakari Sanstha Maryadit Sahakari Sanstha Maryadit 2884, 2883 & 2884, 2883 & 2882/MUM/2024 6.1 As far as ground No. 1 of the appeal of the assessee in relation As far as ground No. 1 of the appeal of the assessee in relation As far as ground No. 1 of the appeal of the assessee in relation to deduction u/s 80P(2)(c) of the Act is concerned, we find that to deduction u/s 80P(2)(c) of the Act is concerned to deduction u/s 80P(2)(c) of the Act is concerned before the Assessing Officer, the assessee never pointed out that the before the Assessing Officer, the assessee never pointed out before the Assessing Officer, the assessee never pointed out total deduction claimed u/s 80P otal deduction claimed u/s 80P of the Act include deduction u/s include deduction u/s 80P(2)(c) of the Act and therefore, the Assessing Officer treated the 80P(2)(c) of the Act and therefore, the Assessing Officer treated the 80P(2)(c) of the Act and therefore, the Assessing Officer treated the entire deduction as claimed claimed u/s 80P(2)(d) of the Act and accordingly u/s 80P(2)(d) of the Act and accordingly he disallowed the said deduction. he disallowed the said deduction.
6.2 Before us, the Ld. counsel for the assessee Ld. counsel for the assessee for the for the first time pointed out that said disallowance of pointed out that said disallowance of claim u/s 80P of the Act claim u/s 80P of the Act amounting to Rs.1,37,38,461/ Rs.1,37,38,461/- include deduction of Rs.1,00,000/ include deduction of Rs.1,00,000/- claimed u/s 80P(2)(c) of the Act claimed u/s 80P(2)(c) of the Act. In the circumstances, we are of the . In the circumstances, we are of the opinion that eligibility of deduction under section 80P(2)© of the Act hat eligibility of deduction under section 80P(2)© of the Act hat eligibility of deduction under section 80P(2)© of the Act remained verified by lower authorities, thus, remained verified by lower authorities, thus, the claim of deduction the claim of deduction u/s 80P(2)(c) of the Act need verification at the end of the Assessing u/s 80P(2)(c) of the Act need verification at the end of the Assessing u/s 80P(2)(c) of the Act need verification at the end of the Assessing Officer. Accordingly, we feel it appropriate to resto Officer. Accordingly, we feel it appropriate to restore this issue back re this issue back to the file of the Assessing Office for deciding afresh after to the file of the Assessing Office for deciding afresh after to the file of the Assessing Office for deciding afresh after verification claim of the assessee as per the provisions of the Act. verification claim of the assessee as per the provisions of the Act. verification claim of the assessee as per the provisions of the Act. The ground No. 1 of the appeal of the assessee is accordingly The ground No. 1 of the appeal of the assessee is accordingly The ground No. 1 of the appeal of the assessee is accordingly allowed for statistical purposes. allowed for statistical purposes.
The ground Nos s. 2 and 3 of the appeal of the assessee . 2 and 3 of the appeal of the assessee relate to deduction under the provisions of section 80P(2)(d) of the Act. The under the provisions of section 80P(2)(d) of the Act. The under the provisions of section 80P(2)(d) of the Act. The first part of deduction claimed is first part of deduction claimed is for interest income earned on fixed for interest income earned on fixed deposit in co-operative banks amounting to operative banks amounting to Rs.1,34,34,555/ Rs.1,34,34,555/- and Mumbai Kamgar Madhyawarti Grahak Mumbai Kamgar Madhyawarti Grahak 5 Sahakari Sanstha Maryadit Sahakari Sanstha Maryadit 2884, 2883 & 2884, 2883 & 2882/MUM/2024 second part of deduction deduction claimed relate to dividend income earned dividend income earned from shares held in co from shares held in co-operative banks amounting to operative banks amounting to Rs.2,03,970/- on.
7.1 The facts in brief qua the issue in dispute are that d The facts in brief qua the issue in dispute are that d The facts in brief qua the issue in dispute are that during year under consideration, , the assessee received interest from following terest from following co-operative banks:
Sr. No. Particulars Amt. A Interest received 1. Apna Sahakari Bank, naigaon 1,27,85,322/- 1,27,85, 2. Mumbai District Co-op Bank 2,43,595/- 2,43,595/ 3. Apna Sahakari Bank, 54,678/ 678/- 4. Apna Sahakari Bank, Charkop 73,537/- 73,537/ 5. Janta Sahakari Bank 55,879/- 55,879/ 6. Punjab and Maharashtra Bank 1,48,453/- 1,48,453/ Abhudya Bank 7. 74,091/- 74,091/ Total 1,34,34,555/- 1,34,34,555/ 7.2 The Assessing Officer relying on the decision of the Hon’ble The Assessing Officer relying on the decision of the Hon’ble The Assessing Officer relying on the decision of the Hon’ble Supreme Court in the case of Totgar Co Supreme Court in the case of Totgar Co-operative Sale Society Ltd. operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282 and v. ITO [2010] 188 Taxman 282 and ITAT Bangalore decision in the ITAT Bangalore decision in the case of Shri Sri Basaveshwara Credit Co Sri Basaveshwara Credit Co-operative Society Ltd. operative Society Ltd. [2014] 47taxmann.com189 (Bangalore [2014] 47taxmann.com189 (Bangalore - Trib.) held that assessee held that assessee received interest from banks received interest from banks, which were not primary agricultural primary agricultural credit society or a primary co credit society or a primary co-operative agricultural and rural operative agricultural and rural development bank, therefore, the assessee was not entitled not entitled for deduction u/s 80P(2) (2)(d) of the Act. The Ld. CIT(A) relying on Kalidas relying on Kalidas Udhyog Bhavan Premises Co Udhyog Bhavan Premises Co-operative Socierty Ltd Vs ITO (2018) operative Socierty Ltd Vs ITO (2018) 94 taxmann.com 15 ( Mumbai 94 taxmann.com 15 ( Mumbai-Tribunal) held that cooperative Tribunal) held that cooperative society, which are scheduled bank , then interest from deposits society, which are scheduled bank , then interest from deposit society, which are scheduled bank , then interest from deposit
Mumbai Kamgar Madhyawarti Grahak Mumbai Kamgar Madhyawarti Grahak 6 Sahakari Sanstha Maryadit Sahakari Sanstha Maryadit 2884, 2883 & 2884, 2883 & 2882/MUM/2024 into those cooperative would be eligible for deduction u/s 80P(2)(d) into those cooperative would be eligible for deduction u/s 80P(2)(d) into those cooperative would be eligible for deduction u/s 80P(2)(d) of the Act. The Ld. CIT(A) further observed that the assessee did not The Ld. CIT(A) further observed that the assessee did not The Ld. CIT(A) further observed that the assessee did not file evidence in support that co file evidence in support that co-operative bank from whom the operative bank from whom the assessee received interest are not scheduled bank. The relevant assessee received interest are not scheduled bank. Th assessee received interest are not scheduled bank. Th finding of the Ld. CIT(A) is reproduced as under: finding of the Ld. CIT(A) is reproduced as under:
“5.4 The appellant has relied on many case laws, the recent one being 5.4 The appellant has relied on many case laws, the recent one being 5.4 The appellant has relied on many case laws, the recent one being "Kaliandas Udyog Bhavan Premises Co "Kaliandas Udyog Bhavan Premises Co-operative Society Ltd Vs. I.T.O operative Society Ltd Vs. I.T.O (2018) 94 taxmann.com 15 (Mumbai (2018) 94 taxmann.com 15 (Mumbai - Tribunal). The appella Tribunal). The appellant contented that from the above judgement it is understood that" what is relevant for that from the above judgement it is understood that" what is relevant for that from the above judgement it is understood that" what is relevant for claim of deduction under section 80P(2)(d) is that the interest income claim of deduction under section 80P(2)(d) is that the interest income claim of deduction under section 80P(2)(d) is that the interest income should have been derived from the investments made by assessee co should have been derived from the investments made by assessee co should have been derived from the investments made by assessee co- operative society with any other operative society with any other co-operative society. As long as it is operative society. As long as it is proved that the interest income is being derived by a co proved that the interest income is being derived by a co-operative society operative society from its investments made with any other co from its investments made with any other co-operative society, the claim of operative society, the claim of deduction under the aforesaid statutory provision, viz. section 8 deduction under the aforesaid statutory provision, viz. section 8 deduction under the aforesaid statutory provision, viz. section 80P(2)(d) would be duly available. The term Co would be duly available. The term Co-operative society had been defined operative society had been defined u/s 2(19) of the I.T.Act. From the aforesaid provisions of section 2(19) of u/s 2(19) of the I.T.Act. From the aforesaid provisions of section 2(19) of u/s 2(19) of the I.T.Act. From the aforesaid provisions of section 2(19) of the Act, it is quite clear that "co the Act, it is quite clear that "co-operative society" means a co operative society" means a co-operative society registered unde society registered under the Co-operative Societies Act, 1912 or under any operative Societies Act, 1912 or under any other law for the time being in force in any State for the registration of co other law for the time being in force in any State for the registration of co other law for the time being in force in any State for the registration of co- operative societies. Going by the contention of the Appellant for a while, operative societies. Going by the contention of the Appellant for a while, operative societies. Going by the contention of the Appellant for a while, then in that case, In the present context, the rele then in that case, In the present context, the relevant provisions of The vant provisions of The Maharashtra Cooperative Societies Act, 1960 are relevant. In this context it Maharashtra Cooperative Societies Act, 1960 are relevant. In this context it Maharashtra Cooperative Societies Act, 1960 are relevant. In this context it is important to note that the appellant has not submitted that the relevant is important to note that the appellant has not submitted that the relevant is important to note that the appellant has not submitted that the relevant co-operative banks are registered under the Maharashtra Cooperative operative banks are registered under the Maharashtra Cooperative operative banks are registered under the Maharashtra Cooperative Societies Act, 1960 and its status is that of "co t, 1960 and its status is that of "co-operative Society". The operative Society". The Appellant has parked its money in the cooperative banks. If these co Appellant has parked its money in the cooperative banks. If these co Appellant has parked its money in the cooperative banks. If these co- operative banks are to be treated as co operative banks are to be treated as co-operative societies for claiming operative societies for claiming deduction u/s 80P(2)(d), the appellant must submit t deduction u/s 80P(2)(d), the appellant must submit t deduction u/s 80P(2)(d), the appellant must submit the relevant registration proof. This is not submitted. Categorisation of co registration proof. This is not submitted. Categorisation of co registration proof. This is not submitted. Categorisation of co-operative banks as cooperative societies can be considered as per the above case banks as cooperative societies can be considered as per the above case banks as cooperative societies can be considered as per the above case law relied by the appellant only when it is registered. Mere categorisation law relied by the appellant only when it is registered. Mere categorisation law relied by the appellant only when it is registered. Mere categorisation is not sufficient.On pe is not sufficient.On perusal of interest certificates submitted by the rusal of interest certificates submitted by the appellant (pertaining to A.Y. 2018 appellant (pertaining to A.Y. 2018-19 for that relevant appeal under 19 for that relevant appeal under consideration) it is noticed that the Apna Sahakari Bank Ltd, consideration) it is noticed that the Apna Sahakari Bank Ltd, consideration) it is noticed that the Apna Sahakari Bank Ltd, JankalyanSahakari Bank Ltd are stated as scheduled banks in the JankalyanSahakari Bank Ltd are stated as scheduled banks in the JankalyanSahakari Bank Ltd are stated as scheduled banks in the interest certificate.As a result the disallowance of Interest Income from co ificate.As a result the disallowance of Interest Income from co- ificate.As a result the disallowance of Interest Income from co operative bank stands correct. operative bank stands correct. 5.5 In conclusion, the stand taken by the Assessing Officer is hereby 5.5 In conclusion, the stand taken by the Assessing Officer is hereby 5.5 In conclusion, the stand taken by the Assessing Officer is hereby confirmed. Reliance is placed on (i) The Hon'ble Supreme Court in Totgars Reliance is placed on (i) The Hon'ble Supreme Court in Totgars Reliance is placed on (i) The Hon'ble Supreme Court in Totgars Co-operative Sales Sales Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282. (ii) The Hon'ble jurisdictional High Court of Gujarat in the case of 282. (ii) The Hon'ble jurisdictional High Court of Gujarat in the case of 282. (ii) The Hon'ble jurisdictional High Court of Gujarat in the case of State Bank of India Vs CIT 389 ITR 578, (iii) The Hon'ble High Court of State Bank of India Vs CIT 389 ITR 578, (iii) The Hon'ble High Court of State Bank of India Vs CIT 389 ITR 578, (iii) The Hon'ble High Court of Mumbai Kamgar Madhyawarti Grahak Mumbai Kamgar Madhyawarti Grahak 7 Sahakari Sanstha Maryadit Sahakari Sanstha Maryadit 2884, 2883 & 2884, 2883 & 2882/MUM/2024
Karnataka in Principal Commissioner of Income Karnataka in Principal Commissioner of Income-Tax, Hubbali vs. Totagars bali vs. Totagars Co-operative Sale Society(2017) and (iv) The Hon ble High Court of Gujarat operative Sale Society(2017) and (iv) The Hon ble High Court of Gujarat operative Sale Society(2017) and (iv) The Hon ble High Court of Gujarat in the case of Katlary Kariyana Merchant SahkariSarafiMandali Ltd Vs in the case of Katlary Kariyana Merchant SahkariSarafiMandali Ltd Vs in the case of Katlary Kariyana Merchant SahkariSarafiMandali Ltd Vs Assistant Commissioner of Income Tax [2022) Assistant Commissioner of Income Tax [2022) 140.taxmann.com 602 140.taxmann.com 602 (Gujarat) and hence interest e (Gujarat) and hence interest earned from scheduled or cooperative bank is arned from scheduled or cooperative bank is not allowed under 80P(2)(d) of the Act. not allowed under 80P(2)(d) of the Act.” 7.3 Before us, the Ld. counsel for the assessee filed proof of Before us, the Ld. counsel for the assessee filed proof of Before us, the Ld. counsel for the assessee filed proof of registration of the investee co registration of the investee co-operative banks as co operative banks as co-operative societies along with an application under Ru societies along with an application under Rule 29 of the ITAT Rules, le 29 of the ITAT Rules, 1963 and submitted that matter may be restored to the file of the 1963 and submitted that matter may be restored to the file of the 1963 and submitted that matter may be restored to the file of the lower authorities for examining the registration of the investee co- lower authorities for examining the registration of the investee co lower authorities for examining the registration of the investee co operative banks of the co operative banks of the co-operative societies. Alternatively, the Ld. operative societies. Alternatively, the Ld. counsel for the assessee su counsel for the assessee submitted that under the provisions of bmitted that under the provisions of Maharashtra Co-operative Society Act all the Co operative Society Act all the Co-operative banks operative banks are registered as co are registered as co-operative society and therefo operative society and therefore relying on section 2(10) of the Act of Maharashtra section 2(10) of the Act of Maharashtra Co-operative Society Act, operative Society Act, 1960, therefore, the Co he Co-operative Bank registered in Maharashtra perative Bank registered in Maharashtra are primarily co-operative society and therefore, even without operative society and therefore, even without operative society and therefore, even without considering the additional evidence considering the additional evidences, the assessee is entitled for assessee is entitled for deduction u/s 80P(2)(d) of the Act. In this regard, the Ld. counsel deduction u/s 80P(2)(d) of the Act. In this regard, the Ld. counsel deduction u/s 80P(2)(d) of the Act. In this regard, the Ld. counsel for the assessee relied on the decision of the Co elied on the decision of the Co-ordinate Bench of ordinate Bench of the Tribunal in the case of the Tribunal in the case of Ashok Tower “D” Co Op Housing Society Ashok Tower “D” Co Op Housing Society Ltd. [2024] 163taxmann.com 2024] 163taxmann.com 598 (Mumbai - Trib.). The Ld. counsel . The Ld. counsel for the assessee relied on the decision of the Division Bench of the for the assessee relied on the decision of the Division Bench of the for the assessee relied on the decision of the Division Bench of the Principal Commissioner of Income pal Commissioner of Income-tax, Hubballi v. v. Totagars Co- operative operative Sale Sale Society Society [2017] [2017] 83 83 taxmann.com taxmann.com 140 140 (Karnataka)/[2017] 395 ITR 611 (Karnataka)/[2017] 395 ITR 611. The Ld. counsel also relied on the . The Ld. counsel also relied on the Mumbai Kamgar Madhyawarti Grahak Mumbai Kamgar Madhyawarti Grahak 8 Sahakari Sanstha Maryadit Sahakari Sanstha Maryadit 2884, 2883 & 2884, 2883 & 2882/MUM/2024 CIT v. Vegetable Products Ltd. [1973] 88 ITR 193 (SC), State Bank CIT v. Vegetable Products Ltd. [1973] 88 ITR 193 (SC), State Bank CIT v. Vegetable Products Ltd. [1973] 88 ITR 193 (SC), State Bank of India v. CIT, Katlari Karyana Merchant Sahkari Sarafi Mandali atlari Karyana Merchant Sahkari Sarafi Mandali atlari Karyana Merchant Sahkari Sarafi Mandali Ltd. v. ACIT, PCIT v. Peroorkada Service Co Ltd. v. ACIT, PCIT v. Peroorkada Service Co-operative Bank Ltd. operative Bank Ltd. [2022] 442 ITR 141 (Kerala). [2022] 442 ITR 141 (Kerala).
7.5 The Ld. Departmental Representative (DR) on the other hand The Ld. Departmental Representative (DR) on the other hand The Ld. Departmental Representative (DR) on the other hand relied on the decision of the Co relied on the decision of the Co-ordinate Bench in th ordinate Bench in the case of ITO v. Ms/ Ms/ Ms/ Brahmavara Brahmavara Brahmavara Vyavasaya Vyavasaya Vyavasaya Seva Seva Seva ITA ITA ITA Nos. Nos. Nos. 656, 656, 656, 667, 667, 667, 668/Bang/2024.
We have heard rival submission of the parties and perused th We have heard rival submission of the parties and perused th We have heard rival submission of the parties and perused the relevant material on record. The s relevant material on record. The section 80P(2)(d) of the Act ection 80P(2)(d) of the Act prescribe out of gross total income of co of gross total income of co-opera operative society, deduction in respect of in respect of the whole of income by way of interest or by way of interest or dividend derived by the co dividend derived by the co-operative society from its investment operative society from its investment with any other co-operative society operative society. The Hon’ble Supreme Court in . The Hon’ble Supreme Court in the case of Totgars, Co Totgars, Co-operative Sale Society Ltd. (supra) however (supra) however held that for eligibility of deduction u/s 80P(2)(d) of the Act, the held that for eligibility of deduction u/s 80P(2)(d) of the Act held that for eligibility of deduction u/s 80P(2)(d) of the Act whole of the income referred to the business income and not any whole of the income referred to the business income and not any whole of the income referred to the business income and not any interest income which is earned from surplus money deposited with interest income which is earned from surplus money deposited with interest income which is earned from surplus money deposited with co-operative societies. Thus operative societies. Thus the interest income which is eligible income which is eligible under the head ‘profit and gains of the business profit and gains of the business’ of co-operative society only becomes eligible for deduction u/s 80P(2)(d) of the Act. society only becomes eligible for deduction u/s 80P(2)(d) of the Act. society only becomes eligible for deduction u/s 80P(2)(d) of the Act. Further, the Hon’ble Supreme Court in the case of Further, the Hon’ble Supreme Court in the case of Kerala State Co Kerala State Co- Operative Agricultural & Rural Development Bank Ltd. ultural & Rural Development Bank Ltd. [2023] 154 ultural & Rural Development Bank Ltd.
Mumbai Kamgar Madhyawarti Grahak Mumbai Kamgar Madhyawarti Grahak 9 Sahakari Sanstha Maryadit Sahakari Sanstha Maryadit 2884, 2883 & 2884, 2883 & 2882/MUM/2024 taxmann.com 305 (SC) taxmann.com 305 (SC) held that if the co-operative bank is operative bank is carrying out business of banking as defined u/s 5(b) of the business of banking as defined u/s 5(b) of the Banking business of banking as defined u/s 5(b) of the regulation Act, then only such co then only such co-operative bank shall be barred for operative bank shall be barred for deduction u/s 80P(2)(d) of the Act /s 80P(2)(d) of the Act, in view of prohibition u/s in view of prohibition u/s 80P(2)(4) of the Act, otherwise the co otherwise the co-operative bank not falling u/s operative bank not falling u/s 5(b) of the Banking regulation Act anking regulation Act, shall be considered as co shall be considered as co- operative society eligible for deduction u/s 80P(2)(d) of the Act. The operative society eligible for deduction u/s 80P(2)(d) of the Act. The operative society eligible for deduction u/s 80P(2)(d) of the Act. The Co-ordinate Bench of the Tribunal in the case of ordinate Bench of the Tribunal in the case of GSSS Credit Co GSSS Credit Co- operative Society Ltd. v. ITO in 249 & 250/Bang/2024 operative Society Ltd. v. ITO in ITA No. 248, 249 & 250/Bang/2024 operative Society Ltd. v. ITO in ITA No. 248, 249 & 250/Bang/2024 held similar finding. For ready reference, said finding is reproduced held similar finding. For ready reference, said finding is reproduced held similar finding. For ready reference, said finding is reproduced as under:
“12. Regarding the interest income earned from 12. Regarding the interest income earned from the Co-operative Bank, in operative Bank, in this regard, we are of the opinion that we have to see whether the Co this regard, we are of the opinion that we have to see whether the Co this regard, we are of the opinion that we have to see whether the Co- operative Bank is carrying on the business of bank as provided ITA operative Bank is carrying on the business of bank as provided ITA operative Bank is carrying on the business of bank as provided 249 & 250/Bang/2024 under the Bank Regulation Act. In simple No.248, 249 & 250/Bang/2024 under the Bank Regulation Act. In simple No.248, 249 & 250/Bang/2024 under the Bank Regulation Act. In simple words, if the Co words, if the Co-operative Bank is not carrying out any banking business, ve Bank is not carrying out any banking business, then in our considered view, the deduction on account of interest on the then in our considered view, the deduction on account of interest on the then in our considered view, the deduction on account of interest on the investment made in such Co investment made in such Co-operative Bank cannot be denied for the operative Bank cannot be denied for the reason that such Co reason that such Co- operative Bank is not a bank as per the judgm operative Bank is not a bank as per the judgment of Hon'ble Supreme Court in the case of Hon'ble Supreme Court in the case of Kerala State Co Kerala State Co-operative Agricultural and Rural Bank Ltd., Vs. ACIT Agricultural and Rural Bank Ltd., Vs. ACIT reported in 154 taxmann.com reported in 154 taxmann.com 305, wherein it was observed that the assessee was a state 305, wherein it was observed that the assessee was a state 305, wherein it was observed that the assessee was a state-level agricultural and rural development bank and governed under the agricultural and rural development bank and governed under the agricultural and rural development bank and governed under the Kerala Co-operative Societies Act, 1969 operative Societies Act, 1969 as a co-operative society. The activity of operative society. The activity of the assessee was to provide credit facilities to its members. Accordingly, the assessee was to provide credit facilities to its members. Accordingly, the assessee was to provide credit facilities to its members. Accordingly, the assessee claimed a deduction under the assessee claimed a deduction under Section 80P(2)(a)(i) Section 80P(2)(a)(i) of the Act in the return of income. But the AO disallowed the same on the reasoning of income. But the AO disallowed the same on the reasoning of income. But the AO disallowed the same on the reasoning that the assessee was a cooperative bank and, therefore, it was hit by the that the assessee was a cooperative bank and, therefore, it was hit by the that the assessee was a cooperative bank and, therefore, it was hit by the provisions of section 80P(4) section 80P(4) of the Act and thus would not be eligible of the Act and thus would not be eligible for claiming deduction under claiming deduction under section 80P(2) of the Act. Finally, the issue of the Act. Finally, the issue reached the Hon'ble Apex Court where it was held that banking is defined reached the Hon'ble Apex Court where it was held that banking is defined reached the Hon'ble Apex Court where it was held that banking is defined under section 5(b) section 5(b) of the Banking Regulation Act, 1949 to mean accepting, of the Banking Regulation Act, 1949 to mean accepting, for the purpose of lending or investment, deposits of money from the public, for the purpose of lending or investment, deposits of money from the public, for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, repayable on demand or otherwise, and withdrawal by cheque, draft, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. Therefore, a banking order or otherwise. Therefore, a banking company must transact banking company must transact banking business with the public. If a co business with the public. If a co-operative society would not transact the operative society would not transact the business of banking as defined in business of banking as defined in Section 5(b), it would not be a co , it would not be a co-
Mumbai Kamgar Madhyawarti Grahak Mumbai Kamgar Madhyawarti Grahak 10 Sahakari Sanstha Maryadit Sahakari Sanstha Maryadit 2884, 2883 & 2884, 2883 & 2882/MUM/2024 operative bank within the mean operative bank within the meaning of section 56 of Banking Regulation Act of Banking Regulation Act and would be entitled to the benefit of deduction under and would be entitled to the benefit of deduction under Section 80P(2) Section 80P(2) of the Act. Since, the assessee socie the Act. Since, the assessee society was an apex co- operative society operative society within the meaning of Kerala State Co within the meaning of Kerala State Co-Operative Agricultural Development Operative Agricultural Development Banks Act, 1984 Banks Act, 1984 (State Act, 1984) whose primary object was to provide ) whose primary object was to provide financial financial accommodation accommodatio n to to its its members members ITA No.248, 249 249 & & 250/Bang/2024 who were all other co 250/Bang/2024 who were all other co-operative societies and not operative societies and not members of the public, it was not a co members of the public, it was not a co-operative bank within the meaning operative bank within the meaning of section 5(b) read with read with Section 56 of Banking Regulation Act. Accordingly, of Banking Regulation Act. Accordingly, the deduction under Section 80P could not be denied to the assessee by the deduction under Section 80P could not be denied to the assessee by the deduction under Section 80P could not be denied to the assessee by invoking Section 80P(4) Section 80P(4) of the Act.
In view of the above, we hold that if the Co 13. In view of the above, we hold that if the Co-operative Bank is not operative Bank is not functioning the business of banking as defined functioning the business of banking as defined u/s 5(b) u/s 5(b) of Banking Regulation Act, then such Co Regulation Act, then such Co-operative Bank shall be considered a operative Bank shall be considered as Co- operative Society for the purpose of the deduction claimed operative Society for the purpose of the deduction claimed u/s 80P(2)(d) u/s 80P(2)(d) of the Act. Therefore, in our considered view, such interest income will be the Act. Therefore, in our considered view, such interest income will be the Act. Therefore, in our considered view, such interest income will be eligible for deduction eligible for deduction u/s 80P(2)(d) of the Act.
However, if the Co 14. However, if the Co-operative Bank is carrying out banking activities as operative Bank is carrying out banking activities as defined u/s 5(b) of the Bank Regulation Act, then the assessee shall not be defined u/s 5(b) of the Bank Regulation Act, then the assessee shall not be defined u/s 5(b) of the Bank Regulation Act, then the assessee shall not be entitled for the deduction with respect to the inte entitled for the deduction with respect to the interest earned on the rest earned on the investments made with such bank under the provisions of investments made with such bank under the provisions of sec. 80P(2)(d) sec. 80P(2)(d) of the Act. However, corresponding interest cost incurred by the assessee the Act. However, corresponding interest cost incurred by the assessee the Act. However, corresponding interest cost incurred by the assessee shall be eligible to be adjusted against shall be eligible to be adjusted against such interest income at par with such interest income at par with nationalized bank. nationalized bank.” 8.1 In view of the above for above for eligibility of deduction u/s 80P(2)(d) of eligibility of deduction u/s 80P(2)(d) of the Act, the two conditions are the Act, the two conditions are required to be satisfied satisfied , firstly, whether the interest income or dividend income claimed by the whether the interest income or dividend income claimed by the whether the interest income or dividend income claimed by the assessee for deduction is part of the business income or income assessee for deduction is part of the business income or income assessee for deduction is part of the business income or income from other sources. from other sources. Secondly, the Assessing Officer has to verify , the Assessing Officer has to verify whether the interest received from co whether the interest received from co-operative banks are operative banks are registered under section 5(b) of Banking Regulation Act under section 5(b) of Banking Regulation Act or not . Before us, the Ld. counsel of the assessee has filed an application under Rule 29 Ld. counsel of the assessee has filed an application under Rule 29 Ld. counsel of the assessee has filed an application under Rule 29 of ITAT Rules, 1963 of ITAT Rules, 1963 along with the copy of the registration of the along with the copy of the registration of the said co-operative banks operative banks, therefore, we feel it appropriate to restore appropriate to restore
Mumbai Kamgar Madhyawarti Grahak Mumbai Kamgar Madhyawarti Grahak 11 Sahakari Sanstha Maryadit Sahakari Sanstha Maryadit 2884, 2883 & 2884, 2883 & 2882/MUM/2024 this issue back to the file of the Assessing Officer for verification this issue back to the file of the Assessing Officer for verification this issue back to the file of the Assessing Officer for verification and decide in accordance with law and decide in accordance with law.
8.2 As far as, the grounds related to section 80P(2)(d) of the Act As far as, the grounds related to section 80P(2)(d) of the Act As far as, the grounds related to section 80P(2)(d) of the Act raised in other appeals raised in other appeals are concerned, identical grounds ha identical grounds have been raised in other years, , therefore, following our finding in assessment therefore, following our finding in assessment year 2014-15, the grounds raised in other assessment year he grounds raised in other assessment year he grounds raised in other assessment years are also allowed for statistical purposes. also allowed for statistical purposes.
In the result, all the appeals of the assessee are allowed for In the result, all the appeals of the assessee are allowed for In the result, all the appeals of the assessee are allowed for statistical purposes.
Order pronounced in the open Court on nounced in the open Court on 30/08/2024. /08/2024.