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Income Tax Appellate Tribunal, ‘C‘ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the Revenue against order dated 10/10/2023 passed by NFAC, Delhi for the quantum of assessment passed u/s.143(3) for A.Y.2018- 19.
In the grounds of appeal, the Revenue has raised following grounds:-
M/s. Larsen Toubro Kamgar Sahakari Patpedhi Maryadit 1 Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT failed to appreciate the decision of the Hon'ble high court of Karnataka in the case of Pr. CIT vs Totagars co- operative sale society (2017) 395 ITR (Karn), which held that a co- operative society would not be entitled to claim of deduction u/s. 809(2)(d) when the interest income is not arising from business operations of assessee and the assessee being a housing co- operative society. Lending/depositing money is not the business of the assessee.
2. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT failed to appreciate that the questions of law in the case of pr.cit vs Totagars co-operative sale society (2017) 395 ITR 611 (karn) and pr.cit vs Totagars co-operative sale society (2017) 392 ITR 74 (Karn) are entirely different? 3. Whether on the facts and circumstances of the case in law, the Hon’ble ITAT erred in relying on k. Subramanian vs Siemens India Ltd. (1985) 156 ITR 11 (Bombay), without appreciating that there is no inherent conflict between the judgements of Hon'ble high court of Karnataka in cases pr.cit vs Totagars co-operative sale society (2017) 395 ITR 611 (Karn) and pr.cit vs Totagars co-operative (2017) 392 ITR (Karn) as different questions of law have been decided upon by the Hon'ble Karnataka court? 4 the appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary.
The brief facts are that assessee is an employee’s Co- operative Credit Society formed by the employees of Larsen & Toubro which is registered under Maharashtra Co-operative Society Act, 1960. Assessee has filed its return of income on 08/10/2018 declaring total income at Rs. Nil after claiming deduction of Rs.1,57,96,849/- u/s.80P. The case selected for complete scrutiny on the CASS system. The ld. AO noted that assessee has received loans and advances of Rs.80,56,06,553/- which caters to the need of 4,000 M/s. Larsen Toubro Kamgar Sahakari Patpedhi Maryadit employees of L & T. He further noted that assessee had claimed deduction of Rs.2,12,58,611/- u/s.80P(2)(d) on interest by the Co-operative society from its investments with other co-operative society which deals with such interest were as under:-
S.No Particulars Amount(Rs.) . 1 Interest on Shamrao Vithal Co-op 751- Bank Savings A/c 2 Interest on FOR with Mumbai 66.24 ,31 8/- District Central Co-op Bank Ltd. 3 Interest on FOR with Shamrao 53,94,353/- Vithal Co-op Bank Ltd. 4 Interest on FDR with Punjab & 46,53,859/- Maharashtra Co-op Bank Ltd. 5 Interest on FDR with Saraswat 7,10,018/- Co-op Bank Ltd. 6 Interest on Flexi Current A/c with 38,54,24 1/- Punjab & Maharashtra Co-op Bank Ltd. 7 Interest on Saraswat Co-op Bank 21,686/- Savings A/c 8 Dividend on Shares with Mumbai 61/- District Central Co-op Bank Ltd. Total 2,12,58,611/- M/s. Larsen Toubro Kamgar Sahakari Patpedhi Maryadit 4. Ld. AO has disallowed the claim of interest u/s.80P(2)(d)(4) holding that deduction is available in respect of income of co- operative societies and deduction is available in respect of any income by way of interest derived by the co-operative societies from its investment from any of the co-operative society. Since assessee declared gross total income of Rs.1,57,96,849/- which was claimed as deduction u/s.80P(2)(d) to disallow the entire claim. Ld. CIT(A) followed ITAT order for A.Y.2019-20 in in the case of the assessee after observing and holding as under:- 4. Decision: I have carefully considered the facts on records, assessment order circulars, relevant details/documents, the written submissions and cited case laws made by the appellant during appellate proceedings. The sole issue relates to allowability of interest income by the appellant being a Co- operative Society from its investments with Co-operative Banks namely Shamrao Vithal co-operative Bank, Mumbai District Central Co-operative Bank Ltd., Punjab & Maharashtra Co- operative Bank Ltd. & Saraswat Co-operative Bank Ltd u/s 80P(2)(d) of the Act. 4.1.1 In this case, it is a matter of fact that the appellant is a Co-operative Society registered under the Maharashtra Co- operative Society Act, 1960 and the main objects of the society are to encourage thrift self help and mutual co-operation amongst members, to accept deposits of money from its members and to lend or to advance loans based on guarantee and to recover the same from members. In the assessment order the AO denied the deduction on the ground that the appellant is engaged in the business of providing credit facilities to its members and interest received from its members on credit facilities. The AO stating in the assessment order that the appellant is not eligible for deduction u/s 80P(2) (d) from interest earned from co-operative Banks in view of the decision of the Hon'ble High Court of Karnataka, Dharwad Bench in the case of CIT Hubbalill vs The Totagars Co- operative Sale Society, Sirisi in ITA No. 100066/2016, dated 16.06.2017 On M/s. Larsen Toubro Kamgar Sahakari Patpedhi Maryadit verification of the appellant's submission, it reveals that the Hon'ble ITAT Mumbai Bench vide (A.Y 2019-20) dated 05. 08. 2022 has decided the similar and identical issue in appellant's own case, which is as under:- "7 We have heard the submissions made by rival sides. It is an undisputed fact that the assessee is a Co-operative Society registered under Co-operatives Societies Act, 1912. The assessee has earned interest income during the period relevant to the assessment year under appeal from the investments made in the Co-operative Banks. We find that there are conflicting decisions by Hon'ble Non Jurisdictional High Courts on the issue of allowability of deduction u/s. 80(P) in respect interest Income earned from Co-operative Banks 8. The Hon'ble Karnataka High court in the case of PCIT vs. Totagars, Cooperative Sale Society 392 ITR 74 has held that for the purpose of section 80P(2)(d) of the Act, co-operative bank should be considered as cooperative society hence, interest income from Co-operative Bank is eligible for deduction u/s 80P of the Act. Similar view has been taken by the Hon'ble Gujarat High court in the case of Surat VankarSahakariSangh Ltd. vs. ACIT, 421 ITR 134.
9. However, on the same issue Hon'ble Karnataka High court subsequently in the case of PCIT vs. Tolagars, Co- operative Sale Society 395 ITR 611 (Karnataka) has taken a contrary view holding that interest income earned from deposit with the cooperative bank does not qualify for deduction under section 80P(2) (d) of the Act. It would be relevant to mention here that the Hon'ble High Court while rendering the later judgement has not considered the earlier decision rendered in the case of Totagars, Co-operative Sale Society (supra).
10. No judgement by the Hon'ble Jurisdictional High Court on this issue was brought to our notice. The Hon'ble Bombay High Court in the case of K Subramanian vs. Siemens India Ltd. 156 ITR 11 has held that when two conflicting decisions of non-jurisdictional High Courts are available, the view that favours the assessee is to be preferred. Accordingly, following the first decision of Hon'ble Karnataka High Court in the case of Totagars Co-operative Sale Society (supra) and the decision in the case of Hon'ble Gujarat High Court in the case of Vankar Sahakari Sangh (supra), the deduction claimed by the assessee under section 80P(2)(d) of the Act in respect interest derived from investments with the cooperative banks M/s. Larsen Toubro Kamgar Sahakari Patpedhi Maryadit has to be allowed. Thus, in the light of above decisions, the appeal by the Revenue is dismissed." 4.1.2 Respectfully considering the decision of the Hon'ble ITAT in appellant's own case being an identical issue, I hereby direct the AO to allow the deduction u/s 80P(2)(d) of the Act on interest income received from co-operative banks. Thus, the sole ground of appeal
is allowed. 5.In the result, the appeal of the appellant is allowed.
5. Further, in the case of Premium Tower Co-operative Housing Society Ltd, Tribunal has analysed the judgments of the Hon’ble Karnataka High Court as cited by the department in the grounds of appeal after observing and holding as under:-
“4. After hearing both the parties and on perusal of the impugned order, we find that the only issue is with respect of allowability of deduction of Rs.13,85,628/- claimed u/s. 80 P(2)(d) on account of interest received by the assessee from various cooperative banks. The ld. CIT(A) has held that the provision of Section 80 P(2)(d) and Section 80 P(2)(a)(i) only extend the benefit of deduction towards income earned by cooperative society engaged in the business of providing banking facility to its members and does not extend to the interest received from the investments made in the cooperative banks. The ld. AO has invoked Section 80P (4) holding that since investments have been made in the cooperative banks and therefore, deduction is to be denied. Here, we are not dealing with, whether assessee can be treated as cooperative bank or not. Here the issue is, assessee had made investment in the cooperative banks, whether interest earned from such investment falls in the category of interest earned from cooperative society or not so as to get benefit u/s 80 P(2)(d)? 5. Section 80P provides that in case of assessee being a cooperative society, the gross total income which includes any income referred to sub-section 2 shall be deducted in accordance with subject to provision of this section. Sub-section M/s. Larsen Toubro Kamgar Sahakari Patpedhi Maryadit 2 of section 80P Clause (a) states that, “in the case of cooperative society engaged in cooperative business of banking and providing credit facilities to its members or ………, the whole of amount of profit and gains of the business attributable to anyone or more or such activity.” Clause (d) of Sub-section 2 of Section 80P reads as under:- (d) In respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income; 6. Sub section 4 of section 80P carves out of exception that the provision of this section will not apply in relation to any cooperative bank. Further explanation provides that the definition of cooperative bank and primary cooperative bank. The said provision reads as under:- (4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation. For the purposes of this sub-section- (a) co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949) (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.] 7. Thus, assessee being a cooperative society cannot be reckoned as cooperative bank carrying out banking business. The Hon’ble Jurisdictional High court in the case of Quepem Urban Co-operative Credit Society Ltd. vs. ACIT reported in (2015) 377 ITR 272 (Bom), after analyzing the relevant provision of Section 80P including Sub-section (4) had categorically held that cooperative banks are to be treated as cooperative society. In so far as deduction of interest earned on investment made in cooperative bank, Clause (d) of section 80P(2) provides that any income by way of interest on dividend derived from cooperative societies from its investment with any M/s. Larsen Toubro Kamgar Sahakari Patpedhi Maryadit other cooperative societies, the whole of such income is deductable u/s 80P. The cooperative bank has been defined in part 5 of the Banking Regulation Act 1949. Section 56(ccv) provides that primary cooperative bank means cooperative societies other than a primary agriculture society. This view had come up for the Hon’ble Karnataka High Court in the case of PCIT vs. Totagars Co-operative Sale Society (2017) 392 ITR 74 (Kar.) dated 5th Jan. 2017, wherein the Hon’ble High Court had observed as under:-
1.
Whether the learned Tribunal was justified in deleting the additions made by the Assessing Authority being the disallowed deduction claimed u/S 80P(2)(d) of the Income Tax Act and in the light of the decision of the Supreme Court with regard to the same exact assessee as the present one, namely, The Totgars Co-operative Sale Society Ltd., Vs. Income Tax Officer in Civil Appeal Nos.1622 to 1629/2010 decided by the Apex Court on 08.02.2010 or not? 2. Whether, in the facts and circumstances of the case, the Tribunal is justified in not following the decision rendered by the Hon'ble Supreme Court in Civil Appeal No. 1622 of 2010, wherein the Apex Court has to be held that the words used in Section 80P "the whole of the amount of profits and gains of business" emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society and as such interest earned on funds which are not required for business purposes falls under the category of "other income" taxable under the Income Tax Act? 6. According to the learned counsel, the present appeal should be admitted on these two substantial questions of law.
7. However, the contention being taken by the learned counsel is untenable. For the issue that was before the ITAT, was a limited one, namely whether for the purpose of Section 80P(2)(d) of the Act, a Co- operative Bank should be considered as a Co-operative Society or not? For, if a Co- operative Bank is considered to be a Co-operative Society, then any interest earned by the Co-operative Society from a M/s. Larsen Toubro Kamgar Sahakari Patpedhi Maryadit Co- operative Bank would necessarily be deductable under Section 80P(1) of the Act.
The issue whether a Co-operative Bank is considered to be a Co-operative Society is no longer res integra. For the said issue has been decided by the ITAT itself in different cases. Moreover the word "Co- operative Society" are the words of a large extent, and denotes a genus, whereas the word "Co- operative Bank" is a word of limited extent, which merely demarcates and identifies a particular species of the genus Co- operative Societies. Co-Operative Society can be of different nature, and can be involved in different activities; the Co-operative Society Bank is merely a variety of the Co- operative Societies. Thus the Co- operative Bank which is a species of the genus would necessarily be covered by the word "Co-operative Society".
9. Furthermore, even according to Section 56(i)(ccv) of the Banking Regulations Act, 1949, defines a primary Co- Operative Society bank as the meaning of Co- Operative Society. Therefore, a Co-operative Society Bank would be included in the words 'Co-operative Society'.
Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said amount of interest earned from a Co- operative Society Bank would be deductable from the gross income of the Co- operative Society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent.
11. The learned counsel has relied on the case of The Totgars Co-operative Sale Society Ltd. Vs. Income Tax Officer, (supra). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case.
M/s. Larsen Toubro Kamgar Sahakari Patpedhi Maryadit 8. This view has further been reiterated by the judgment of Hon’ble Kerala High Court in the case of PCIT vs. Percoorkada Service Co. Bank Ltd. (2022) 442 ITR 141 (Kerala) dated 01.11.2021, wherein one of the question before the Hon’ble High Court was, whether the interest income earned from deposits with the banks is eligible for deduction u/s 80P(2). The Hon’ble Kerala High Court has also considered the judgment of Hon’ble Supreme Court in the case of Totagars Cooperative Societies Ltd. 322 ITR 323, wherein the Hon’ble High Court has held that interest income earned from district cooperative bank or state cooperative bank, come within the ambit of section 80P (2)(d), therefore the income constitutes income from other sources and it is eligible for deduction covered u/s 80P(2)(d). Otherwise section 80P(2)(d) specifies any income by way of interest or dividend which is otherwise taxable under the head income from other sources, deduction is allowable if the same is derived from investment made with any other cooperative societies.
In contravention, section 80P (2)(a) provides income from carrying out various activities which is in the nature of business. Irrespective whether the interest income derived from activities as provided in section 80P (2)(a) which is otherwise the business income for which deduction is allowable, if there is any interest income which is earned on deposits or investment made with cooperative societies, the same must fall in the category activity or the business, but still is eligible for deduction under the specific provision of section 80P(2)(d). Thus, the interest derived by the assessee from cooperative bank is eligible for deduction u/s 80P(2)(d) because as noted above, cooperative are also cooperative societies for this purpose. This has been held so by the Hon’ble Karnataka High Court and latest judgment of Hon’ble Kerala High Court.
10. Lastly, in so far as judgment of Hon’ble Karnataka High Court in the case of Totagars Cooperative Sale Society (395 ITR 611), which has been referred and relied upon by the Ld. CIT(A), the Hon’ble High Court has held against and observed that income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or cooperative bank. Therefore, section 80P(2)(d) would not apply on the facts of that case.
M/s. Larsen Toubro Kamgar Sahakari Patpedhi Maryadit However, as noted above in one of the judgment, the Hon’ble Karnataka High Court has held the same issue in favour of the assessee.
Therefore, following the judgment of Hon’ble Karnataka High Court in the case of Totagars Cooperative Sale Society (2017) 392 ITR 74 (Kar.) dated 5th Jan. 2017 and judgment of Hon’ble Kerala High Court in the case of PCIT vs. Percoorkada Service Co. Bank Ltd. (supra), we hold that assessee is eligible for deduction of interest income earned from cooperative bank. 12.Thus, claim of deduction u/s.80P(2)(d) is allowed to the assessee
Since in assessee’s own case Tribunal has allowed claim in the interest derived from investment made in the property u/s.80P(2)(d) and therefore, we do not find any infirmity in the order of the ld. CIT(A) in following the order of the ITAT in assessee’s own case. Accordingly, the grounds raised by the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced on 14th May, 2024.