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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI A.K. GARODIA
Per Sunil Kumar Yadav, Judicial Member
These appeals are preferred by the revenue against the order of CIT(Appeals) on common grounds and for the sake of reference, we extract the grounds in hereunder:-
“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 Commissioner of Income Tax (Appeals), Davangere, erred in deleting the additions made u/s. 80P(2)(a)(i) by deciding the Co-operative Societies are distinct from Co-operative Banks and deduction U/s 80P(2)(a)(i) is applicable to Co-operative Societies as well as deduction U/s 80P(2)(d). On similar issues, SLP filed in Supreme Court in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot and also in the case of M/s. Honnali Urban Co-operative Society, Honnali.
3. For these reasons, the order of the CIT(A) may be reversed and that of the AO may be restored. 4. 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. 5. The appellant craves leave to add, alter, amend or delete any other grounds on or before hearing of the appeal.”
During the course of hearing, the ld. counsel for the assessee has invited our attention to the fact that the impugned issue is squarely covered by the judgment of jurisdictional High Court in the case of CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot, 369 ITR 86 (Kar) and Tumkur Merchants Souharda Credit Co-operative Ltd. v ITO (ITA No.307 of 2014 dated 28.10.2014). This issue is also covered by the following orders of the Tribunal of Bangalore Bench:-
Menasi Group Gramagala Seva Sahakari Sangha Nyt v. CIT (ITA Nos. 609 & 610/Bang/2014 2. The Jamkhandi Minority Credit Co-op. Society Ltd. v. ITO (ITA No.958/Bang/2014) 3. The Adil Amanat Co-op. Society Ltd. v. ITO (ITA No.288/Bang/2014)
3. The ld. DR, on the other hand, has submitted that the revenue has also preferred SLP against the judgment of jurisdictional High Court and the SLP is admitted before the Hon’ble Supreme Court. Therefore, the issue can be re-examined.
Having carefully examined the orders of lower authorities in the light of rival submissions, we find that the assessee is a co-operative society dong business of extending credit facilities to its members. It claimed gross income as deduction u/s. 80P under Chapter VIA and declared Nil income The Assessing Officer was of the opinion that the assessee was not entitled for deduction u/s. 80P in view of amendments to Banking Regulation Act, according to which, co-operative societies engaged in providing credit facilities to its members will come under the purview of RBI and therefore are akin to co-operative banks, hence all the provisions of section 80P(4) of the Act apply to them also. The AO further held that provisions of section 80P(4) r.w.s. 2(24)(viiia) of the Act does not allow the co-operative society engaged in the business of banking (co-op. Banks) to claim deduction u/s. 80P from the AY 2007-08, except in the case of primary agricultural credit society or a primary co-operative agricultural and rural development bank. The AO accordingly held that assessee is not eligible for deduction u/s. 80P(2)(a)(i) of the Act and the entire income was added as income from other sources.
The assessee preferred appeal before the CIT(Appeals) and relied upon the various judgments of different High Courts and the Tribunal. The CIT(Appeals) re-examined the issue in the light of judgments referred to before him and following his earlier order, has allowed the deduction and deleted the addition. The relevant observations of the CIT(Appeals) is extracted hereunder for the sake of reference:-
“5. I have gone through the assessment orders, grounds of appeal for all the three assessment years and the written submissions made and discussion with the assessee's representative is held.
6. For all the three assessment years, the AO has in detail, touched upon the issue as to how the co-operative society is a co- operative bank by taking recourse to sec. 2(24)(viia) of IT Act 1961, Part V of Banking Regulation Act 1949 and definitions given in this Act about co-operative Bank and based on these they have disallowed the claim of the assessee that entire income is exempt u/ s. 80P(2) (a) (i) of the Act, keeping in view the provisions of sec. 80(P)(4) of the Act. I have gone through all the arguments of the AO. My predecessor in his order ITA No.CIT(A)No. 276/HBL/2010-11 dated. 25/01/2011 in the case of Bhavasara Kshatriya Co-operative credit society Ltd., has clearly held that Sec. 80P( 4) will not be applicable to Co- operative societies and they enjoy complete exemption of income u/ s. 80P(2)(a)(i). He has also made clear distinction between a Co-operative Society and a Co-operative Bank. Respectfully following this order, I hold that the income earned by co- operative societies are covered by exemption u/s. 80P(2)(a)(i) of the Act.
7. In this case, the assessee, a co-operative society, is providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore whether this interest is attributable to the business of providing credit facilities to its members is the question that requires to be decided or whether the interest earned on deposits kept with other banks is deductible u/s. 80P(2)(d).
For this purpose it is necessary to go through the provisions of sec. 80P which are short listed as below. 8OP (2) (d) ..... In the case of co-operative society engaged in, I. Carrying on business of banking or providing credit facilities to its members or. II. -------------------------- or III. ---------------------------- or IV. ---------------------------- or V. ---------------------------- or VI. ----------------------------·or VII. ---------------------------- or The whole of the amount of profits and gains attributable to anyone or more of such activities ............." The word "attributable to" used in the said section is of great importance.
From the above discussion, the whole gamut of provisions of sec. 80P2(a)(i), 80P(2)(d) and the various pronouncements mentioned above, it can be analysed that, 1. The object of keeping or investing the surplus funds of co- operative society is intended to meet any unforeseen losses.
2. The amount that is eligible for deduction under this section is the amount of profit attributable to the activity mentioned in sec. 80P(2)(d) and the activity of the assessee falls under sub-clause (i) viz, providing credit facilities to members.
It is the activity that is the condition precedent for claiming deduction u/ s. 80(P) of the Act and once it is proved beyond doubt that a particular income is "attributable" to only the activities mentioned u/ s. 80P(2) (a) of the Act, the whole or such income is eligible for deduction u/ s. 80P of the Act.
4. The interest income stems from the deposits made by a mandatory requirement for carrying on the activity of providing credit facilities to the members.
5. If such deposits are not made as required as per the statute then it would be an offence under the law and it would not be in a position to carry on its business.
6. The interest income earned from deposits are thus incidental to and inextricable to and inextricably linked with the activity of providing credit to its members and consequently the interest thereon can't be considered as a source of income having distinct identity for itself.
7. The word "attributable to" is much wider than the word "derived from" and as such the legislature used this word to cover receipts from sources other than the actual conduct of the business, as held by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd., Vs. CIT Gujrat -II reported in 113 ITR (1978) 842 page 93. Without prejudice to the above findings that the interest income from deposits are eligible for deduction u/ s. 80P(Z) (a) (i), it is to be noticed that the interest earned on deposits with co-operative banks would be eligible for deduction u/ s. 80P(2)(d) of the Act. Sec. 80P(2) (d) says: "Interest or dividend in respect of any income by way of \ deposit with any cooperative society from its investments with any other co-operative society, the whole of such income is eligible for deduction.
As per sec. 2(19) of the Act, a co-operative society means a co-operative society registered under the co-operative societies Act 1912 or under any law for the time being in force in any state for the registration of co-operative societies. The provisions of the IT Act 1961 either in sec. 2(19) or u/ s. 80P do not make any discrimination between the co-operative societies carrying on banking business and other co-operative societies. Co-operative banks are primarily co-operative societies by constitution and "banks" by the nature of business. In the case of Menasi Seemeya Group Gramagala Seva Sahakari Sangha Niyamita in & 601(BNG)/2014 dt. 06-02-2015 it was held that the restrictive interpretation given to co-operative society u/ s. 80P(2) (d) was ·not warranted. The ITAT B'lore Bench in this case through a detailed reasoning came to conclusion that the interest and dividend earned by the appellant from co-operative bank was eligible for deduction u/ s. 80P(2) (d) of the Act.
In conclusion it is held that the interest income earned on deposits made with other co-operative banks/society are fully deductible u/s. 80P(2)(a)(i) from the income liable to tax though the assessee has claimed the same as exempt u/ s. 80P(2) (d) and the same is also exempt u/ s. 80P(2)(d) as stated above.
In the result the appeals for the three assessment years viz, 2010-11, 2012-13 & 2012-13 are allowed in favour of the assessee and additions and disallowances made in the assessment orders are hereby deleted.”
It is also brought to our notice that the issue is also squarely covered by the judgment of jurisdictional High Court in the case of CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot, 369 ITR 86 (Kar) as well as in the case of Tumkur Merchants Souharda Credit Co- operative Ltd. v ITO (ITA No.307 of 2014 dated 28.10.2014) and other orders of the Tribunal referred to in the foregoing paragraphs. In the light of these judicial pronouncements, we are of the considered view that the CIT(Appeals) has rightly adjudicated the issue and we find no infirmity therein because filing of SLP does not amount to stay of operation of the order of the Hon’ble High Court. Therefore, we are supposed to follow the judgments of jurisdictional High Court so long as it holds the field. Accordingly, the appeals of the revenue stand dismissed.
In the result, the appeals of the revenue are dismissed.
Pronounced in the open court on this 3rd day of March, 2017.