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Facts
The assessee, a co-operative credit society, claimed deductions under Section 80P(2)(d) for interest income from co-operative banks and Section 80P(2)(a)(i) for business income. The Assessing Officer disallowed both claims, and on appeal, the CIT(A) allowed the Section 80P(2)(a)(i) deduction but sustained the disallowance of Section 80P(2)(d) claim, citing the Bangalore Club case and stating that the banks were not proven to be co-operative societies.
Held
The Tribunal held that Section 80P(2)(d) specifically allows a co-operative society to deduct income from investments with other co-operative societies, and the Bangalore Club case is not applicable. The matter was remanded to the Assessing Officer to verify if the banks from which the assessee earned interest income were indeed co-operative societies to determine eligibility for deduction under Section 80P(2)(d).
Key Issues
1. Whether interest income derived by a co-operative society from deposits with co-operative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act. 2. Whether the principles from the Bangalore Club case are applicable to disallow such a deduction.
Sections Cited
Section 80P(2)(d) of the Income Tax Act, 1961, Section 80P(2)(a)(i) of the Income Tax Act, 1961, Section 143(3) of the Income Tax Act, 1961, Section 5(i)(ccv) of the Banking Regulation Act, 1949
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
This appeal by the assessee is directed against order dated 12.03.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2016-17, raising following grounds:
Murude Sahakari Patsanstha Maryadit Murude Sahakari Patsanstha
The Ld. Commissioner of income Tax (Appeals), The Ld. Commissioner of income Tax (Appeals), NFAC, Delhi has NFAC, Delhi has erred in confirming action of Ld AO of not following judicial erred in confirming action of Ld AO of not following judicial erred in confirming action of Ld AO of not following judicial discipline by not allowing the deduction u/s 80P (2)(d). discipline by not allowing the deduction u/s 80P (2)(d). discipline by not allowing the deduction u/s 80P (2)(d).
The Ld Commissioner of Income Tax (Appeals), NFAC, Delhi has 2. The Ld Commissioner of Income Tax (Appeals), NFAC, Delhi has 2. The Ld Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in confirming action of Ld AO not not allowing the erred in confirming action of Ld AO not not allowing the erred in confirming action of Ld AO not not allowing the deduction u/s 80P(2)(d) in respect of interest income received from Co u/s 80P(2)(d) in respect of interest income received from Co u/s 80P(2)(d) in respect of interest income received from Co- operative bank to the tune of Rs.50,50,068/ operative bank to the tune of Rs.50,50,068/- on the ground that on the ground that the co-operative bank is not a co operative bank is not a co-operative society. 2. Briefly stated, facts of the case are that the assessee Briefly stated, facts of the case are that the assessee Briefly stated, facts of the case are that the assessee , a co- operative credit society perative credit society , is engaged in the business of accepting is engaged in the business of accepting deposits from its members and lending the funds to its members embers and lending the funds to its members embers and lending the funds to its members only. There is no dispute on the issue that operations of the only. There is no dispute on the issue that operations of the only. There is no dispute on the issue that operations of the assessee were confined with its members during the year under assessee were confined with its members during the year under assessee were confined with its members during the year under consideration. The assessee filed its return of income for the year sideration. The assessee filed its return of income for the year sideration. The assessee filed its return of income for the year under consideration on 15.09.2016 declaring total income at Rs. under consideration on 15.09.2016 declaring total income at Rs. under consideration on 15.09.2016 declaring total income at Rs. Nil. The return of income filed by the assessee was selected for Nil. The return of income filed by the assessee was selected for Nil. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices scrutiny assessment and statutory notices under the Income under the Income-tax Act, 1961 (in short ‘the Act’) Act, 1961 (in short ‘the Act’) were issued and complied with. were issued and complied with. The assessment was completed u/s 143(3) of the on 04.12.2018, completed u/s 143(3) of the on 04.12.2018, completed u/s 143(3) of the on 04.12.2018, wherein , the Assessing Officer disallowed claim of the assessee for the Assessing Officer disallowed claim of the assessee for the Assessing Officer disallowed claim of the assessee for deduction u/s 80P(2)(d) of the Act deduction u/s 80P(2)(d) of the Act amounting to Rs.47,09,560/- along with claim for deduction of Rs.3,40,508/-, which was made which was made u/s 80P(2)(a)(i) of the Act. u/s 80P(2)(a)(i) of the Act.
On further appeal, the Ld. CIT(A) allowed the claim of On further appeal, the Ld. CIT(A) allowed the claim of On further appeal, the Ld. CIT(A) allowed the claim of deduction u/s 80P(2)(a)(i) of the deduction u/s 80P(2)(a)(i) of the Act amounting to Rs.3,40,508/ Act amounting to Rs.3,40,508/-, however, sustained the disallowance o owever, sustained the disallowance of claim u/s 80P(2)(d) of the u/s 80P(2)(d) of the Act amounting to Rs.47,09,560/ Rs.47,09,560/-.
Murude Sahakari Patsanstha Maryadit Murude Sahakari Patsanstha
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. We find that the assessee computed its relevant material on record. We find that the assessee computed its relevant material on record. We find that the assessee computed its income from business and income from business and claimed deduction in the return of deduction in the return of income, details of which has been filed in , details of which has been filed in chart submitted submitted by the assessee before the Ld. CIT(A), which is available on page 5 of the assessee before the Ld. CIT(A), which is available o assessee before the Ld. CIT(A), which is available o impugned order. Fore ready reference, said chart impugned order. Fore ready reference, said chart is reproduced as is reproduced as under:
A) Income from Business : A) Income from Business : Amount (Rs.) Amount (Rs.) As per computation submitted during the assessment computation submitted during the assessment 50,50,068 50,50,068 Less: Income chargeable under Income from Other Sources Less: Income chargeable under Income from Other Sources 47,09,560 47,09,560 Income(Loss) from Business Income(Loss) from Business 3,40,508 3,40,508 B) Income from Other Sources : B) Income from Other Sources : Interest on bank deposits Interest on bank deposits 47,09,560 47,09,560 Gross Total Income 50,50,068 50,50,068 Less: Deductions under Chapter VI Less: Deductions under Chapter VI-A Deductions u/s.80P(2)(a)(i) Deductions u/s.80P(2)(a)(i) (3,40,508) (3,40,508) Deductions u/s 80P(2)(d) Deductions u/s 80P(2)(d) (47,09,560) (47,09,560) 4.1 We find that deduction u/s 80P(2)(a)(i) of the Act amounting to We find that deduction u/s 80P(2)(a)(i) of the Act amounting to We find that deduction u/s 80P(2)(a)(i) of the Act amounting to Rs.3,40,508/- has already been allowed by the Ld. CIT(A) and only has already been allowed by the Ld. CIT(A) and only has already been allowed by the Ld. CIT(A) and only dispute is in respect of deduction u/s 80P(2)(d) of the Act. As per in respect of deduction u/s 80P(2)(d) of the Act. As per in respect of deduction u/s 80P(2)(d) of the Act. As per the provisions of the Act the provisions of the Act, whole of income by way of inter whole of income by way of interest or dividend derived by a co dividend derived by a co-operative society from its investment with operative society from its investment with any other co-operative society is eligible for deduction operative society is eligible for deduction. The Ld. operative society is eligible for deduction CIT(A) has though referred to the decision of the Income-tax CIT(A) has though referred to the decision of the Income CIT(A) has though referred to the decision of the Income Appellate Tribunal ( in short the Tribunal ) ( in short the Tribunal )in the cas in the case of the assessee for assessment year 2010 assessee for assessment year 2010-11 in 11 in ITA No. 1058/Mum/2017 but did not follow for the reason that no details whether the interest for the reason that no details whether the interest for the reason that no details whether the interest income from various banks were falling for the category of the co- income from various banks were falling for the category of the co income from various banks were falling for the category of the co
Murude Sahakari Patsanstha Maryadit Murude Sahakari Patsanstha operative society were filed were filed. The relevant finding of the Ld. CIT(A) is ng of the Ld. CIT(A) is reproduced as under: reproduced as under:
“5.2 The case laws as relied upon by the assessee are not completely 5.2 The case laws as relied upon by the assessee are not completely 5.2 The case laws as relied upon by the assessee are not completely acceptable, as in the case of PCIT v. Totagars Co acceptable, as in the case of PCIT v. Totagars Co-operative Sale Society operative Sale Society {2017] 78 taxmann.com 169 (Karnataka) order dated 05.01.2017, the {2017] 78 taxmann.com 169 (Karnataka) order dated 05.01.2017, the {2017] 78 taxmann.com 169 (Karnataka) order dated 05.01.2017, the Hon'ble Court has held that even Section 56(i)(ccv) of the Banking 'ble Court has held that even Section 56(i)(ccv) of the Banking 'ble Court has held that even Section 56(i)(ccv) of the Banking Regulation Act, 1949, defines a primary co Regulation Act, 1949, defines a primary co-operative bank as the meaning operative bank as the meaning of cooperative society, therefore a co of cooperative society, therefore a co-operative society bank would be operative society bank would be included in the words Cooperative Society'. Acco included in the words Cooperative Society'. Accordingly he submitted that rdingly he submitted that The Mysore and Chamarajanagar District Co The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. is op. Central Bank Ltd. is primarily registered as a co primarily registered as a co-operative society and obtained licence from operative society and obtained licence from RBI for carrying on banking activities, therefore as per para RBI for carrying on banking activities, therefore as per para RBI for carrying on banking activities, therefore as per para-9 of the said judgment, it is to be termed as a co s to be termed as a co-operative society and section 80P(2)(d) operative society and section 80P(2)(d) clearly states that interest received from co clearly states that interest received from co-operative society is eligible for operative society is eligible for deduction u/s.80P(2)(d) of the Act. deduction u/s.80P(2)(d) of the Act. However, in the instant case the However, in the instant case the assessee has received interest income from assessee has received interest income from various Banks and it is various Banks and it is not proved that all these Banks are obtained licence from RBI and not proved that all these Banks are obtained licence from RBI and not proved that all these Banks are obtained licence from RBI and termed as co termed as co-operative society and, therefore, the contentions of operative society and, therefore, the contentions of the appellant are hereby rejected.” the appellant are hereby rejected.” (emphasis supplied externally) (emphasis supplied externally) 4.2 It is settled law settled law that deduction u/s 80P(2)(d) of the Act is ion u/s 80P(2)(d) of the Act is available in respect of investment made in respect of investment made by a cooperative society by a cooperative society with other co-operative society operative society. In the case of assessee in AY 2010 In the case of assessee in AY 2010- 11 (supra), the Tribunal 11 (supra), the Tribunal, following the finding of Hon’ble Karnataka following the finding of Hon’ble Karnataka High Court in the cas High Court in the case of PCIT v. Totagars Co-operative Sale Society operative Sale Society (2017) 78 taxmann.com 169 (Karnataka), (2017) 78 taxmann.com 169 (Karnataka), has held that cooperative has held that cooperative banks are primarily cooperative society banks are primarily cooperative society and and deposits with cooperative banks by a cooperative society are eligible for deduction cooperative banks by a cooperative society are eligible for deduction cooperative banks by a cooperative society are eligible for deduction u/s 80P(2)(d) of the Act. In the year under consideration , ld CIT(A) f the Act. In the year under consideration , ld CIT(A) f the Act. In the year under consideration , ld CIT(A) has observed that details of investment/deposit with cooperative has observed that details of investment/deposit with cooperative has observed that details of investment/deposit with cooperative banks (who are primarily cooperative society ) corresponding to banks (who are primarily cooperative society ) corresponding to banks (who are primarily cooperative society ) corresponding to interest income has not been filed , interest income has not been filed , therefore, we feel it appropriate therefore, we feel it appropriate to restore this matter back to the file of the Assessing Officer for o restore this matter back to the file of the Assessing Officer for o restore this matter back to the file of the Assessing Officer for Murude Sahakari Patsanstha Maryadit Murude Sahakari Patsanstha examining whether the interest income claimed u/s 80P(2)(d) of the examining whether the interest income claimed u/s 80P(2)(d) of the examining whether the interest income claimed u/s 80P(2)(d) of the Act has been derived from the deposits with co Act has been derived from the deposits with co-operative banks operative banks which are primarily co primarily co-operative society as held by the Ho as held by the Hon’ble Karnataka High Court in the case of PCIT v. Totagars Co-operative Karnataka High Court in the case of PCIT v. Totagars Co Karnataka High Court in the case of PCIT v. Totagars Co Sale Society (2017) 78 taxmann.com 169 (Karnataka). Sale Society (2017) 78 taxmann.com 169 (Karnataka). Sale Society (2017) 78 taxmann.com 169 (Karnataka).
4.3 Further, the Ld. CIT(A) has considered the assessee as Further, the Ld. CIT(A) has considered the assessee as Further, the Ld. CIT(A) has considered the assessee as analogues to a club and rejected the deduction following the club and rejected the deduction following the club and rejected the deduction following the decision of the Hon’ble Supreme Court in the case of Bangalore the Hon’ble Supreme Court in the case of Bangalore the Hon’ble Supreme Court in the case of Bangalore Club v. CIT (2013) 29 taxmann.com 29 (SC) observing as under: Club v. CIT (2013) 29 taxmann.com 29 (SC) observing as under: Club v. CIT (2013) 29 taxmann.com 29 (SC) observing as under:
“5.3 The present case of co 5.3 The present case of co-operative society is more close to the facts of operative society is more close to the facts of the Bangalore Club case. The Hon'ble Supreme Court's decision in t the Bangalore Club case. The Hon'ble Supreme Court's decision in t the Bangalore Club case. The Hon'ble Supreme Court's decision in the case of Bangalore Club Vs. CIT of Bangalore Club Vs. CIT (2013) 29 taxmann.com 29 (SC), wherein it was (2013) 29 taxmann.com 29 (SC), wherein it was held that "unlike the surplus amount itself, held that "unlike the surplus amount itself, which is exempt from tax under which is exempt from tax under the doctrine of mutuality, the amount of interest earned by the assessee the doctrine of mutuality, the amount of interest earned by the assessee the doctrine of mutuality, the amount of interest earned by the assessee from the member banks will from the member banks will not fall within the ambit of the mutuality not fall within the ambit of the mutuality principle and will therefore be eligible to Income principle and will therefore be eligible to Income-tax in the hands of the tax in the hands of the assessee". In view of the facts of the case and following the decision of the assessee". In view of the facts of the case and following the decision of the assessee". In view of the facts of the case and following the decision of the Hon'ble Supreme Court in the case of Bangalore Club case (su Hon'ble Supreme Court in the case of Bangalore Club case (su Hon'ble Supreme Court in the case of Bangalore Club case (supra), the interest income of Rs.47,09,560/ interest income of Rs.47,09,560/- was rightly brought to tax by AO on was rightly brought to tax by AO on which deduction u/s.80P(2)(a)(i)/ 80P(2)(d) of the I.T. Act was disallowed. which deduction u/s.80P(2)(a)(i)/ 80P(2)(d) of the I.T. Act was disallowed. which deduction u/s.80P(2)(a)(i)/ 80P(2)(d) of the I.T. Act was disallowed. In view of the above discussion, the appellant is eligible for deduction In view of the above discussion, the appellant is eligible for deduction In view of the above discussion, the appellant is eligible for deduction u/s.80P(2)(a)(i) of the I.T u/s.80P(2)(a)(i) of the I.T. Act to the extent of Rs.3,40,508/ . Act to the extent of Rs.3,40,508/- only (Rs.50,50,068 - - Rs.47,09,560) and remaining amount of Rs.47,09,560/ Rs.47,09,560) and remaining amount of Rs.47,09,560/- is hereby confirmed. Hence, the grounds of appeal are partly allowed. hereby confirmed. Hence, the grounds of appeal are partly allowed. hereby confirmed. Hence, the grounds of appeal are partly allowed.” 4.4 In our opinion, the co In our opinion, the co-operative society has been made operative society has been made specifically eligible for igible for deduction u/s 80P(2)(d) of the Act and deduction u/s 80P(2)(d) of the Act and therefore, claim of said deduction has to be examined in the therefore, claim of said deduction has to be examined in the therefore, claim of said deduction has to be examined in the relevant provisions only and decision in the case of Bangalore Club relevant provisions only and decision in the case of Bangalore Club relevant provisions only and decision in the case of Bangalore Club (supra) cannot be imported into the facts of the case of the (supra) cannot be imported into the facts of the case of the (supra) cannot be imported into the facts of the case of the assessee. Accordingly, we reject the finding of the Ld. CIT(A) on this dingly, we reject the finding of the Ld. CIT(A) on this dingly, we reject the finding of the Ld. CIT(A) on this issue.
Murude Sahakari Patsanstha Maryadit Murude Sahakari Patsanstha
In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on nced in the open Court on 21/06 /06/2024.