DHANVARSHA NAGARI SAHAKARI PATSANSTHA LIMITED,NAVI MUMBAI vs. ITO WARD 28(1)(3), NAVI MUMBAI

Treating the income of Rs.36,52,853/- as income from other sources u/s 56 of the Income Tax Act, 1961

CIT(A) has erred in confirming the disallowance made by the AO of Rs. 13,94,486/- paid to Pigmy Deposit Collectors u/s 40(a)(ia) for non-deduction of TDS u/s 194H without looking at the Juri ictional Bombay High Court's decision in case of CIT v. Sunil Vishwambharnath Tiwari (2016), 388 ITR 630(Bom), wherein appellant is entitled to claim deduction for enhancement of gross total income because of disallowance of expenditure u/s 40(a)(ia).

The appellant craves leave to add, alter, modify, amend, or substitute all or any of the above grounds of appeal.”

Since all the grounds are connected, the same are taken up for adjudication together.

The facts relevant for adjudication of the aforesaid grounds are that in the return of income filled for the Assessment Year 2014- 2015, the Appellant had claimed deduction under Section 80P of the Act. The Assessing Officer denied deduction claimed by the Appellant by placing reliance on the provisions contained in Section 80P(4) of the Act.

In appeal, the CIT(A) concurred with the Assessing Officer and declined to grant any relief on this issue. The CIT(A) further observed that the amount in respect of which deduction was claimed by the Appellant under Section 80P(2)(a)(i) of the Act was in the nature of interest income received from co-operative bank in respect of which neither deduction under Section 80P(2)(d) nor deduction under Section 80P(2)(a)(i) of the Act could have been granted.

Being aggrieved the Appellant is now in appeal before the Tribunal.

We have heard the rival submission, perused the material on record and examined the position in law.

Facts as emanating from records show that the Appellant was engaged in providing credit facilities to its members and had claimed deduction under Section 80P(2)(a)(i) of the Act in respect of income earned from the same. The Assessing Officer has made disallowance by invoking provisions of Section 80P(4) of the Act observing as under: "4.9 In view of the above discussion it is clear that the credit society assessee falls under the category of Primary Co- operative Bank. The assessee fulfills all the 3 conditions of a Primary Co-operative Bank and therefore, the provisions of sec. 80P(4) are applicable in this case.

10 Similar precedence laid down in Renuka Co-Operative 346/PNJ/2013 dated 14/08/2014 and ITO, Ward 1(3), Belgaum vs. Shri Dudundeshwar Urban Co-Opperative Credit Society Ltd. 53 taxann.com 165(Panji-Trib.).

11 The AR of the assessee also relied on the decision of the Hon'ble Bombay High Court (Goa Bench) in the case of Quepem Urban Co-operative Credit Society(In tax appeal No. 22,23 & 24 of 2015). In this regard, it has been found that against the order of the Hon'ble Bombay High Court, Department has filed SLP before the Hon'ble Supreme Court Of India vide SLP(C) No. 8296 of 2015 (Appeal Civil: 8296 of 2015). The said SLP is pending before the Hon'ble Supreme Court.”

Thus, Assessing Officer had not doubted that the income in respect of which deduction under Section 80P(2)(a)(i) of the Act has been claimed by the Appellant was income earned by the Appellant from providing credit facilities to its members. The Assessing Officer wanted to disallow the above deduction claimed by the Appellant by placing reliance on Section 80P(4) of the Act which provided that the provisions of Section 80P of the Act would not apply in relation to any co-operative bank (other than primary agricultural credit society or primary co-operative agricultural and rural development bank). It was contended on behalf of the Appellant that the provisions of Section 80P(4) of the Act barred a co-operative bank from claiming deduction under Section 80P of the Act and not a co-operative society engaged in providing credit to its members. Reliance in this regard, was placed by the Appellant upon the judgment of the Hon'ble Bombay High Court in the case of Quepem Urban Co-operative Credit Society (supra) The Assessing Officer noted that the issue stood decided in favour of the assessee in the aforesaid judgment. However, since the Revenue had not accepted the decision and preferred special leave petition before the Hon'ble Supreme Court, the Assessing Officer proceeded to make the disallowance invoking provisions of Section 80P(4) of the Act.

We find that the disallowance made by the Assessing Officer cannot be sustained in view of the judgment of the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. Commissioner of Income Tax, Calicut: [2021] 431 ITR 1 (SC)[12-01-2021], wherein it was held that the provision of Section 80P(4) of the Act are attracted only in case of co-operative society holding a banking license issued by the Reserve Bank of India (RBI). It is not the case of the Revenue that the Assessee is either registered with RBI under Banking Regulation Act, 1949 and/or holds banking license issued by RBI. Therefore, provisions of Section 80P(4) of the Act would not get attracted in the case of the Appellant. The relevant extract of the aforesaid judgment of the Hon'ble Supreme Court reads as under:

We now come to the judgment of this Court in Citizen Cooperative Society Ltd. (supra). This judgment was concerned with an assessee who was established initially as a mutually aided cooperative credit society, having been registered under section 5 of the Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995. As operations of the assessee began to spread over States outside the State of Andhra Pradesh, the assessee got registered under the Multi- State Cooperative Societies Act, 2002 as well. The question that the Court posed to itself was as to whether the appellant was barred from claiming deduction in view of Section 80P(4) of the Income-tax Act see paragraph 5. After setting out the findings of fact in that case, and the income tax authorities concurrent holding that the society is carrying on banking business and for all practical purposes acts like a co-operative bank, this Court then held as follows: XX XX

An analysis of this judgment would show that the question of law that was reflected in paragraph 5 of the judgment was answered in favour of the assessee. The following propositions may be culled out from the judgment: (I) That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee; (II)That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more of such activities mentioned in sub- section (2) of section 80P must be given by way of deduction; (III) That this Court in Kerala State Cooperative Marketing Federation Ltd. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied; (IV) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so which is not the case with section 80P(2)(a)(i); (V) That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee in that case was not so licenced, the assessee would not fall within the mischief of section 80P(4) XX XX

Applying the aforesaid decisions, it is clear that the ratio decidendi in Citizen Cooperative Society Ltd. (supra) would not depend upon the conclusion arrived at on facts in that case, the case being an authority for what it actually decides in law and not for what may seem to logically follow from it. Thus, the statement of the principles of law applicable to the legal problems disclosed by the facts alone is the binding ratio of the case, which as has been stated hereinabove, is contained in paragraphs 18 to 23 of the judgment. Paragraphs 24 to 26, being the judgment based on the combined effect of the statements of the principle of law applicable to the material facts of the case cannot be described as the ratio decidendi of the judgment. Nor can it be said that it would logically follow from the finding on facts that the assessing officer can go behind the registration of a society and arrive at a conclusion that the society in question is carrying on illegal activities. On this score alone, the Full Bench's understanding of this judgment has to be faulted and is set aside.

However, this does not conclude the issue in the present case. We now turn to the proper interpretation of section 80P of the Income-tax Act. Firstly, the marginal note to section 80P which reads "Deduction in respect of income of co-operative societies" is important, in that it indicates the general "drift" of the provision. This was so held by this Court in K.P. Varghese v. ITO [1981] 7 Taxman 13/131 ITR 597 as follows:

This interpretation of sub-section (2) is strongly supported by the marginal note to Section 52 which reads