BASAVESHWARANGARA COOPERA ,BANGALORE vs. INCOME TAX OFFICER, WARD-6(2)(1) , BENGALURU

The learned Commissioner of Income-tax (Appeals) erred in not considering Karnataka High Count in the case of Tumkur Merchan Souharda Credit Cooperative Ltd. v. Income tax officer Ward-V, Tumkur reported in 120151 55 taxmann.com447 and M/S Honnalli Credit Co-operative Society Ltd dated 31/01/2018 where interest income earned from investment in co-operative Bank by a primary agricultural credit co-operative society is eligible for deduction u/s 80P(1) of the Act in the facts and circumstances of the case.

The learned Commissioner of Income-tax (Appeals) erred in considering interest income earned by the Appellant from investment into Co-operative Banks of Rs. 81,60,055/- as taxable under the head "Other sources" and not "Business income", thus rendering deduction u/s 80P(2)(d) not applicable in the facts and circumstances of the case.

The learned Commissioner of Income-tax (Appeals) failed to appreciate that SCDCC Bank is a co-operative Society which is registered under Karnataka State Co-operative Societies Act, 1959, then it is no a bank per-se governed by RBI, then interest income earned from deposits with SCDCC Bank is eligible for deduction u/s 80P(2)(d) of the Act in the facts and circumstances of the case. 9. Without prejudice, the Appellant is entitled to cost of funds u/s 57 of the Act if interest income is taxed u/s 56 of the Act as "Income from Other Source" in the facts and circumstances of the case.

The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above.

In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.

First, we will take up the grounds relating to section 80P(2)(a)(i) of the Act in all these assessment years. This is the second round of litigation in assessment year 2011-12. Facts as narrated in assessment year 2011-12 on this issue are as follows. 2.1 The assessee claimed deduction on interest received on investment with banks and co-operative banks under section 80P(2)(a)(i) of the Act. Similar is the position in other assessment years, which is as follows: Sl.No. Assessment Interest year received on investment with banks and co- operative banks 1. 2011-12 81,60,055/- 2. 2012-13 1,24,94,050/- 3. 2013-14 1,68,28,561/- 4. 2017-18 2,34,70,800/- 5. 2018-19 2,67,08,210/- 2.2 The same has been denied. Against this assessee is in appeal before us.

We have heard the rival submissions and perused the materials available on record. The Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (123 taxman.com 161) had held that the co-operative societies providing credit facilities to its members is entitled to deduction u/s 80P(2)(a)(i) of the Act. The Hon’ble Apex Court after considering the judicial pronouncements on the subject, had stated the term “member” has not been defined under the Income-tax Act. It was, therefore, stated by the Hon’ble Apex Court that the term “member” in the respective to 333/Bang/2024 Basaveshwaranagara Coopera, Bangalore Page 4 of 6 State Co-operative Societies Acts under which the societies are registered have to be taken into consideration. The Hon’ble Apex Court held that if nominal / associate member is not prohibited under the said Act, for being taken as a member, the income earned on account of providing credit facilities to such member also qualify for deduction u/s 80P(2)(a)(i) of the Act. It was further held by the Hon’ble Apex Court that section 80P(4) of the I.T. Act is to be read as a proviso. It was stated by the Hon’ble Apex Court that section 80P(4) of the Act now specifically excludes only co-operative banks which are co-operative societies engaged in the business of banking i.e. engaged in lending money to members of the public, which have a license in this behalf from the RBI. The Hon’ble Apex Court had enunciated various principles in regard to deduction u/s 80P of the Act. On identical factual situation, the Bangalore Bench of the Tribunal in the case of M/s. Ravindra Multipurpose Cooperative Society Ltd. v. ITO in ITA No.1262/Bang/2019 (order dated 31.08.2021) had remanded the issue to the files of the A.O. for de novo consideration. The Tribunal directed the A.O. to follow the dictum laid down by the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (supra). The relevant finding of the Co-ordinate Bench of the Tribunal in the case of M/s. Ravindra Multipurpose Cooperative Society Ltd. v. ITO (supra), reads as follows:-