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Facts
The assessee, a co-operative credit society, claimed a deduction of Rs. 13,65,307/- under Section 80P(2)(d) of the Income Tax Act for interest earned on surplus funds invested with a co-operative bank. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) disallowed this deduction. The appeal was filed with a delay of 79 days due to a medical emergency and accountant's inefficiency, which the tribunal condoned.
Held
The Tribunal held that interest income earned by a co-operative society from its investments with another co-operative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act. Relying on various judicial pronouncements, including decisions of the Karnataka and Gujarat High Courts, the Tribunal distinguished the Supreme Court's ruling in Totgars Co-operative Sale Society Ltd. The Tribunal found that the Pr. CIT erred in exercising revisional jurisdiction under Section 263 to disallow the deduction claimed by the assessee.
Key Issues
Whether interest income earned by a co-operative society on its investments with a co-operative bank is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, especially after the insertion of sub-section (4) to Section 80P.
Sections Cited
80P(2)(d), 143(3), 263
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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI KULDIP SINGH & SHRI AMARJIT SINGH
O R D E R Per : Kuldip Singh, Judicial Member: At the very outset it is brought to the notice of the Bench that the present appeal has been filed with a delay of 79 days, which the appellant, M/s. Sahyadri Co-operative Credit Society Limited (hereinafter referred to as ‘the assessee’) has sought to be condoned by moving an application supported with an affidavit on the grounds inter-alia that the impugned order passed by the National Faceless Appeal Centre(NFAC) [Commissioner of Income 2 M/s. Sahyadri Co-operative Credit Society Limited Tax (Appeals), Delhi] (hereinafter referred to as CIT(A)] was received by the assessee in email on 06.06.2023 and appeal was required to be filed till 05.08.2023; that due to medical emergency in the family of the chairman of the society as his wife suffered a severe medical emergency relating to terminal illness and there was no one else in the family to attend her; that due to inefficiency of the accountant delay also suffered; that the delay was neither willful nor international.
However, on the other hand, the Ld. D.R. for the Revenue opposed the application for condonation of delay on the ground that the late filing of appeals in this case is apparently malafide due to callous attitude of the assessee and prayed for dismissal of the application.
Keeping in view the facts inter-alia that the entire delay is due to the medical emergency happened in the family of the chairman of the society whose wife was terminally ill and due to the inefficiency of the accountant who could not handle the issue on his own, we find sufficient cause to condone the delay in view of the law laid down by the Honourable Supreme Court in case of Land Acquisition Collector vs. MST Katiji & Others 167 ITR 471 (SC) wherein it is held that “it is on contention of delay that when substantial justice and technical considerations are pitted against each other, the case of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non deliberate delay,” and present appeal is ordered to be registered and heard on merits today itself by the Bench. 3 M/s. Sahyadri Co-operative Credit Society Limited 4. The assessee by filing the present appeal, sought to set aside the impugned order dated 05.06.2023 passed by the Ld. CIT(A) qua the assessment year 2014-15 on the grounds inter-alia that :- “(1) On the facts and in law, the Ld. CIT (A) erred in denying deduction to the Appellant under Sec.80P (2) (d) of the Income Tax Act, when admittedly the Appellant is a Co-operative Credit Society and hence, cannot be treated as a Co-operative Bank. (2) On the facts and in law, the Ld. CIT (A) has misinterpreted provisions of Sec. 80P (2)(d) for referring the case back to A.O. when admittedly Appellant is providing credit facility to its Members and hence, there is no justification to deny deduction to the Appellant. (3) On the facts and in law, reliance placed by the Ld. CIT (A) on the decision of the various cases referred to in his order is totally misplaced as in the said case there was a serious violation of the provisions of Multi State Co-operative Society's Act, 2002 and that was the main reason for denying the deduction under Sec.80P (2) (d). (4) The Appellant craves leave to amend, to add, to modify or delete any of the grounds in the interest of justice. Prayer: It is therefore prayed that; a) The Appellant's appeal may be allowed and deduction under Sec * 0.8P(2)(d) may be given; b) any other relief in the interest of the Justice may be given.”
Briefly stated facts necessary for consideration and adjudication of the issues at hand are : assessee being a co- operative credit society engaged in the business of accepting deposits and providing credit facilities to members only filed the return of income by claiming deduction of Rs.13,65,307/- under section 80P(2)(d) of the Income Tax Act, 1961 (for short ‘the Act’) on account of interest received from parking its funds with Mumbai District Cooperative Central Bank, which has been disallowed by the Assessing Officer (AO) by framing assessment under section 143(3) of the Act. 4 M/s. Sahyadri Co-operative Credit Society Limited 6. The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has confirmed the addition by dismissing the appeal. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.
8. The assessee is engaged in the business of accepting deposits and providing credit facilities to its members only and its entire business is being transacted with its members only. It is also not in dispute that the assessee has invested its surplus funds with co- operative bank and earned the interest income to the tune of Rs.13,65,307/-.
9. In the backdrop of the aforesaid facts and circumstances the AO as well as the Ld. CIT(A) have disallowed the deduction claimed by the assessee under section 80P(2)(d) of the Act by relying upon the decision rendered by the Honourable Supreme Court in case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC). However now the issue in question is no longer res-integra having already been decided by the coordinate bench of the Tribunal in the light of the decision rendered by Honourable Supreme Court in case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) in favour of the assessee. 5 M/s. Sahyadri Co-operative Credit Society Limited
The co-ordinate Bench of the Tribunal in case of Palm Court M Premises Co-operative Society Ltd. in order dated 09.09.2022 decided the issue in favour of the assessee by distinguishing the judgment rendered by Hon’ble Supreme Court in case of Totgar’s Co-operative Sale Society Ltd. (supra) and by discussing the decision rendered by Hon’ble Bombay High Court and Hon’ble Gujarat High Court wherein it is held that interest income earned by the Co-operative Society on its investment made with co-operative bank would be eligible for claim of deduction under section 80P(2)(d) of the Act by returning following findings: “8. We have given a thoughtful consideration to the contentions advanced by the ld. Authorized representatives for both the parties in context of the aforesaid issue under consideration. As stated by the ld. A.R, and rightly so, the issue that interest received by a co-operative society on its deposits with co-operative banks would be eligible for deduction u/s 80P(2)(d) of the Act is covered in assessee’s favour by orders of the various coordinate benches of the Tribunal in the following cases : (i). M/s Solitaire CHS Ltd. Vs. Pr.CIT-26, Mumbai, ITA No.3155/Mum/2019, dated 29.11.2019 (ii). Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum.) (iii). M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017. (iv). Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITO-Range 20(2)(2), Mumbai (ITA NO. 6139/Mum/2014, dated 27.09.2017. (v). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai. In the aforesaid orders, it has been held by the Tribunal that though the cooperative banks pursuant to the insertion of sub-section (4) to Sec. 80P of the Act would no more be entitled for claim of deduction u/s 80P of the Act, but as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912) or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a cooperative society from its investments held with a co-operative bank would be entitled for claim of deduction u/s 6 M/s. Sahyadri Co-operative Credit Society Limited
80P(2)(d) of the Act. We find that the aforesaid issue had exhaustively been looked into by the ITAT, „G‟ bench, Mumbai in the case of M/s Solitaire CHS Ltd, Vs. Pr.CIT-26, Mumbai dated 29.11.2019, wherein the Tribunal had observed as under :
“6. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether the claim of the assessee for deduction under section 80P(2)(d) in respect of interest income earned from the investments/deposits made with the co-operative banks is in order, or not. In our considered view, the issue involved in the present appeal revolves around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by the Pr. CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of sub-section (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with co-operative banks, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Observing, that the co-operative banks from where the assessee was in receipt of interest income were not co-operative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act.
7. After necessary deliberations, we are unable to persuade ourselves to be in agreement with the view taken by the Pr. CIT. Before proceeding any further, we may herein reproduce the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. “80P(2)(d) (1). Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assessee. (2). The sums referred to in sub-section (1) shall be the following, namely :-
(a)............................................................................................ (b)............................................................................................ (c)............................................................................................ (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;”
7 M/s. Sahyadri Co-operative Credit Society Limited
On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other co-operative society shall be deducted in computing its total income. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other co-operative society. We are in agreement with the view taken by the Pr. CIT, that with the insertion of sub- section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. However, at the same time, we are unable to subscribe to his view that the aforesaid amendment would jeopardise the claim of deduction of a co- operative society under Sec. 80P(2)(d) in respect of its interest income on investments/deposits parked with a co-operative bank. In our considered view, as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find that the term „cooperative society‟ had been defined under Sec. 2(19) of the Act, as under:-
“(19) “Co-operative society” means a cooperative society registered under the Cooperative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;”
We are of the considered view, that though the co-operative banks pursuant to the insertion of subsection (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a co-operative bank continues to be a co- operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a co- operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act.
We shall now advert to the judicial pronouncements that have been relied upon by the ld. A.R. We find that the issue that a co- operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co-operative bank is covered in favour of the assessee in the following cases:
8 M/s. Sahyadri Co-operative Credit Society Limited
(i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum) (ii) M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITO-Range-20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. (iv). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai. We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon‟ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had held, that the interest income earned by the assessee on its investments with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co-operative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Insofar the reliance placed by the Pr. CIT on the judgment of the Hon‟ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) is concerned, we are of the considered view that the same being distinguishable on facts had wrongly been relied upon by him. The adjudication by the Hon‟ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a co-operative society towards deduction under Sec. 80P(2)(d) on the interest income on the investments/deposits parked with a co-operative bank. Although, in all fairness, we may herein observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), had concluded that a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we find, that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon‟ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had observed, that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. We find that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985)
9 M/s. Sahyadri Co-operative Credit Society Limited 156 ITR 11 (Bom), where there is a conflict between the decisions of non-jurisdictional High Court’s, then a view which is in favour of the assessee is to be preferred as against that taken against him. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon‟ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon‟ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a cooperative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.
9. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and therein concluded that the assessee would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with cooperative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 for dislodging the same. In fact, as observed by us hereinabove, the aforesaid view taken by the A.O at the time of framing of the assessment was clearly supported by the order of the jurisdictional Tribunal in the case of Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum). Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we “set aside” his order and restore the order passed by the A.O under Sec. 143(3), date 14.09.2016.”
As the facts and the issue involved in the present case before us remains the same as were there before the Tribunal in the case of M/s Solitaire CHS Ltd. (supra), wherein the order passed by the Pr. CIT u/s 263 of the Act was quashed, we, thus, respectfully follow the same. Backed by our aforesaid deliberations, we are unable to uphold the view taken by the Pr. CIT that the failure on the part of the A.O to be disallow the assessee’s claim for deduction u/s 80P(2)(d) had rendered the assessment order passed by him u/s 143(3) of the Act, dated 31.08.2017 as erroneous in so far it was prejudicial to the interest of the revenue.
Accordingly, on the basis of our aforesaid observations, we herein not finding favor with the view taken by the Pr. CIT that the order passed by the A.O u/s 143(3), dated 31.08.2017 was erroneous in so far it was prejudicial to the interest of the revenue within the meaning of Sec. 263 of the Act set-aside the 10 M/s. Sahyadri Co-operative Credit Society Limited same and restore the order passed by the A.O u/s 143(3) of the Act, dated 31.08.2017.”
Hon’ble High Court of Karnataka in case of Pr. CIT & Anr. Vs. Totgar’s Co-operative Sale Society Ltd. (2017) 292 ITR 74 (Kar.) and Hon’ble Gujarat High Court in case of State Bank of India vs. CIT (2016) 389 ITR 578 (Guj.) had held that interest income earned by a co-operative society on its investment held with co-operative bank would be eligible for claim of deduction under section 80P(2)(d) of the Act.
So following the decision rendered by Hon’ble Karnataka High Court (supra) and Hon’ble Gujarat High Court (supra), we are of the considered view that assessee society who has earned an amount of Rs.13,65,307/- from its investment of surplus fund with co-operative banks is entitled for deduction under section 80P(2)(d) of the Act. So in view of the matter, we are of the considered view that the Ld. CIT(A) has erred in upholding the denial of deduction by the AO to the assessee under section 80P(2)(d) of the Act. Accordingly, the impugned order passed by the Ld. CIT(A) is set aside and the AO is directed to allow the same.
Resultantly, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 07.03.2024.