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Facts
The assessee, a co-operative society, declared Nil income after claiming a deduction of Rs. 1,13,46,490/- under section 80P of the Act. The Assessing Officer disallowed this deduction, as did the CIT(A). The assessee appealed to the Tribunal.
Held
The Tribunal noted that the NFAC/CIT(A) had not considered recent Supreme Court decisions regarding section 80P(2)(d) deductions, specifically in the cases of Mavilayi Service Co-operative Bank Ltd. and Kerala State Co-operative Agricultural and Rural Development Bank Ltd. Therefore, the Tribunal decided to remand the case.
Key Issues
Whether interest/dividend income earned from investments in cooperative banks is eligible for deduction under section 80P of the Income Tax Act, considering recent Supreme Court pronouncements.
Sections Cited
80P, 80P(2)(a)(i), 80P(2)(d), 80P(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of order passed by the NFAC, Delhi dated 30.11.2023 for A.Y. 2018-19 on following grounds of appeal:
Page 2 of “1. The Order of the learned Commissioner passed under section 250 of the Act is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant's case.
2. The Appellant denies to be assessed to tax on total income as determined by the learned AO of Rs. 1,13,46,490/- as against the total income reported by the Appellant of Rs. NIL on the facts and circumstances of the case.
3. The learned Commissioner of Income-tax (Appeals) erred in applying the principles laid down by the Supreme Court in case of Totgar's Co-Operative Sale Society Ltd. v. ITO [2010] 322 ITR 283 distinguishable on facts in so far as the interest/dividend income earned from Co-operative Banks are not attributable to business operations, hence not eligible for deduction u/s 80P(2)(a)(i) of the Act.
The learned Commissioner of Income-tax (Appeals) erred in not considering the judgment of the Karnataka High Count in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income tax officer Ward-V, Tumkur reported in 55 taxmann.com 447 and Honnali credit Co- operative Society Ltd., Honnal Vs ITO,Ward-2, Shivamoga in and 2753/Bang/2017 dated 31.01.2018 wherein interest income earned from investment in co- operative Bank by a primary agricultural credit co- operative society is held to be eligible for deduction u/s 80P(1) of the Act.
The learned Commissioner of Income-tax (Appeals) erred in not considering that investment made in Co-operative Banks is statutorily required under the Karnataka Co- operative Societies Act, 1959; hence it is attributable to carrying on the business of society eligible for deduction u/s 80P(1) of the Act.
The learned Commissioner of Income-tax (Appeals) erred in considering interest income earned by the Appellant from investment into other cooperative societies being co- operative Banks as taxable under the head "Other sources" and not "Business income"; thus rendering deduction u/s 80P(2)(d) not applicable relying on judgement of CIT, Hubballi vs The Totagars Co-Op Sale Society, Sirisi in ITA No.100066/2016 dated 16.06.2017.
The learned Commissioner of Income-tax (Appeals) failed to appreciate that the cooperative bank with which the investment was made i.e., SCDCC Bank is a co- operative Society which is registered under Karnataka State Cooperative Societies Act, 1959, and it does not constitute a bank that is governed by RBI, and therefore the interest income earned from deposits with SCDCC Bank is eligible for deduction u/s 80P(2)(d) of the Act.
The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 9. 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.”
Brief facts of the case are as under: 2.1 Assessee is a co-operative society registered under Karnataka Co-operative Societies Act, 1959 and is engaged in the business of acceptance of deposits from members and lending loans to members. It is also involved in providing public distribution services. During the year under consideration, assessee filed return of income on 20.10.2018 declaring total income of Rs. Nil after claiming deduction of Rs.1,13,46,490/- u/s. 80P of the act. The case was selected for scrutiny and notice u/s. 143(2) was issued. Various details were called for by the Assessing Officer and after considering the same, disallowance u/s. 80P of the act was made amounting to Rs.1,13,46,490/- which includes interest / dividend income earned by the assessee during the relevant year.
2.2 Aggrieved by the order of the Ld.AO, assessee preferred appeal before the Ld.CIT(A).
Page 4 of 2.3 The CIT(A) adjudicated the matter by holding that insofar as deduction under section 80P of the Act, the same was allowed based on Hon’ble Supreme Court decision in the case of in re Mavilayi Service Co-operative Bank Ltd as the concept of mutuality was satisfied.
2.4 The Ld.CIT(A) further held that interest/dividend income of Rs. 22,69,288/- from Co-operative Bank is ineligible for deduction u/s 80P(2)(a)(i) and 80P(2)(d) of the Act relying on the decision of Hon'ble Supreme Court in re Totgar's Co-Operative Sale Society Ltd. v. ITO [2010] 322 ITR 283 and Hon'ble High Court of Karnataka in the case of Principal Commissioner of Income-tax, Hubballi Vs Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka).
2.5 Aggrieved by the order of the Ld.CIT(A), assessee is in appeal before this Tribunal.
The Ld.AR submitted that the NFAC did not consider the decisions of Hon’ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT reported in 431 ITR 1 and various other decisions which has been passed subsequent to the impugned orders by Hon’ble Supreme Court in case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum & Ors. in Civil Appeal Nos. 10069 of 2016 dated 14.09.2023. He therefore submitted that the issue needs to be readjudicated based on the Page 5 of Hon’ble Supreme Court in the above referred cases.
3.1 On the contrary, the Ld.DR relied on the orders passed by the authorities below.
We have considered the arguments advanced by both sides in the light of the records placed before us.
4. Coming to the merits of the case, as rightly submitted by the Ld.AR that the directions of Hon’ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT (supra) is not considered by the NFAC. Further in a subsequent decision of Hon’ble Supreme Court in case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum & Ors. (supra), Hon’ble Supreme Court analysed applicability of section 80P(2)(d) deduction to an assessee in great detail. The NFAC / Ld.CIT(A) is directed to consider the claims by the assessee in the light of the aforestated decisions by Hon’ble Supreme Court. In the interest of justice, we remand these appeals back to NFAC / Ld.CIT(A) for readjudication on merits. The Ld.AR is directed to fill all relevant documents / decisions available on these issues before the NFAC / Ld.CIT(A) and the NFAC/Ld.CIT(A) shall pass a detailed order on merits. Accordingly, the appeal filed by the assessee stands allowed for statistical purposes.
Page 6 of In the result, the appeal filed by the assessee stands allowed for statistical purposes. Order pronounced in the open court on 22nd March, 2024.