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Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
ITA Nos.704 to 709/Bang/2015 (Assessment years: 2007-08 to 2012-13)
Income-tax Officer, Ward 1, Sirsi. … Appellant PAN: AACAT 0251D Vs. The Totgar’s Co-operative Sale Society Ltd. TSS Road, Sirsi. … Respondent AND Cross Objn.Nos.179 to 182/Bang/2015 (In ITA Nos.704 to 707/Bang/2015) (Assessment years: 2007-08 to 2010-11) (by the assessee) ***** Assessee by: Shri G.Venkatesh, Advocate Revenue by: Shri Sunil Kumar Agarwala, JCIT(DR).
Date of hearing : 05/01/2016 Date of pronouncement: 22/01/2016
O R D E R Per BENCH:
These six appeals by the revenue and four cross objections by assessee are directed against the respective orders of the CIT(A) for the assessment years 2007-08 to 2012-13.
ITA Nos.704 to 709 & CO Nos.179 to 182/Bang/2015 Page 2 of 12 2. The revenue has raised common issues/grounds in these six appeals. The grounds raised for the assessment year 2007-08 are as under: “1. The order of CIT(A) is opposed to law and facts of the case. 2. Whether, on facts & circumstances of the case, the learned CIT(A) is correct in allowing the claim of the assessee for deduction u/s 80P(2)(d) by relying on the judgment of the ITAT in the case of M/s.Markamba Mahila Co- operative Credit Society Ltd. in IT No.617/Bang/2014. 3. Whether, on facts & circumstances of the case, the learned CIT(A) is correct in not following the judgment of the Hon’ble Supreme Court in the assessee’s own case in Civil Appeal No.162 of 2010 (reported in 322 ITR 283(SC)/2010 dated 08.02.2010. 4. Any other ground that may be taken during the appeal. 5. The appellant craves leave to add, alter, amend and delete any of the grounds of leave.” 3. The assessee is a co-operative credit society providing credit facilities to its members and markets the agricultural products of its members, runs a Kirana section, Rice Mills, Van section, Medical shop, Arecanut trading section, lodging in name of Samrat Hotels in Sirsi and also involved in plying and hiring of goods carriage. The assessee filed its return of income after claiming deduction u/s 80P of Rs.4,09,34,404/- along with the deduction u/s 10(34) of the Act towards dividends received from mutual funds. The AO, while completing the assessment u/s 143(3) r.w.s 147, has disallowed the claim of deduction u/s
ITA Nos.704 to 709 & CO Nos.179 to 182/Bang/2015 Page 3 of 12 80P(2)(d) to the extent of Rs.3,34,970/- on the ground that the said amount of income earned by the assessee in the form of interest from deposits in the banks and therefore, it is to be brought to tax under the head ‘other sources’ and the assessee is not eligible for deduction u/s 80P(2)(d) on this amount. Thus the AO made an addition of the interest earned by the assessee from the co-operative bank by denying the deduction under section 80P(2)(d).
The assessee challenged the action of the AO before the CIT(A) and submitted that the assessee parked its funds with other co-operative societies engaged in carrying on business of banking and above referred amount represents the interest received by the assessee from such deposits with co-operative societies and accordingly the assessee claimed deduction under section 80P(2)(d) of the Act. Thus it was submitted that the provisions of sec. 80P(2)(d) are applicable on such income of interest from the deposits from another co-operative society and therefore the same will be excluded for the purpose of computing the total income. The assessee relied upon the decision of this Tribunal in case of Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha, in ITA Nos.609 & 610/Bang/2014 dated 6/2/2015, wherein it was held that restricting the scope of sec.80P(2)(d) only to co-operative society other than co- operative bank is not in accordance with law. Thus, the
ITA Nos.704 to 709 & CO Nos.179 to 182/Bang/2015 Page 4 of 12 contention of the assessee before the CIT(A) was that there is nothing in the section that would warrant exclusion of co- operative society from the genus of the term co-operative society. The CIT(A) allowed the claim of the assessee under section 80P(2)(d) by following the decision of this Tribunal in case of Shri Marikamba Mahila Co-operative Credit Society Ltd. in ITA No.617/Bang/2014 dated 20/3/2015 as well as the decision of this Tribunal in case of Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha (supra).
Aggrieved by the impugned order of the CIT(A) the revenue has filed these appeals before this Tribunal. Before us, the learned DR has submitted that the income of interest earned by assessee from the deposits made in the bank does not fall under the ambit of the provisions of sec.80P(2)(d) of the Act. The AO has assessed this income as ‘income from other sources’ and therefore, this income is not eligible for deduction under section 80P(2)(d). In support of his contention, he has relied upon the judgment of Hon’ble Supreme Court in case of Totgar Co- operative Sale Society Ltd. vs. ITO (322 ITR 383) and submitted that in the case of the assessee, the Hon’ble Supreme court has decided this issue against the assessee. He has relied upon the order of the AO.
On the other hand, learned authorized representative of the assessee has submitted that the issue before the Hon’ble Supreme Court was allowability of deduction under section
ITA Nos.704 to 709 & CO Nos.179 to 182/Bang/2015 Page 5 of 12 80P(2)(a)(i) and not under section 80P(2)(d). He has referred to para.3 of the judgment of Hon’ble Supreme Court and submitted that the substantial question of law which arises for consideration of their lordships was whether such interest income would qualify for deduction as business income under section 80P(2)(a)(i) of the IT Act. Therefore, the issue for the assessment years under consideration in the appeals filed by the revenue is entirely different and pertains to the deduction u/s 80P(2)(d). He has referred the assessment order and submitted that that the AO has not understood the facts as the interest income in question. Thus the learned authorized representative of the assessee has submitted that the issue involved in these appeals of the revenue is quite different from the issue before the Hon’ble Supreme Court in 322 ITR 283. He has further submitted that an identical issue has been considered by the co-ordinate benches of this Tribunal in case of Shri Marikamba Mahila Co-operative Credit Society Ltd. dated 20/3/2015 in ITA No.617/Bang/2014 as well as in case of Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha (supra). Since the claim of the assessee is under section 80P(2)(d) with regard to the interest income on deposits made with the co-operative bank, therefore, the same cannot be considered as ‘income from other sources’ for the purpose of disallowance when the interest income from the deposits with the co-operative society is eligible for deduction under section
ITA Nos.704 to 709 & CO Nos.179 to 182/Bang/2015 Page 6 of 12 80P(2)(d). He has strongly relied upon the decisions of the co- ordinate benches of this Tribunal supra.
We have considered the rival submissions as well as the relevant material on record. The solitary issue involved in these appeals is the disallowance in respect of the assessment year 2007-08 to 2012-13 is made by the assessee in respect of the interest income on deposits made by the assessee with co- operative bank. The AO was of the view that the co-operative banks cannot be treated as co-operative society for the purpose of sec.80P(2)(d). The relevant finding of the AO at page 3 of the assessment order is hereunder:
“Hence, it was proposed to disallow the deduction claimed u/s 80P(2)(d) on interest and dividend earned from Co-op Banks amounting to Rs.1,87,03,157/- out of total claim of Rs.1,90,29,167/- since the same is not earned from Co-op Societies. The AR was asked to substantiate the deduction claimed and why the same should not be disallowed for reasons stated as above. After verification of nature of receipt i.e. other than interest and dividend earned from Non Co-op Societies like Co-op. Banks etc., is to be brought to tax under the head ‘Other Sources’ and the assessee (society) is not eligible for deduction u/s 80P(2)(d) on this amount.”
From the above finding of the AO, it is clear that the interest income in question was earned by the assessee on the deposits made with the co-operative banks and the AO held that the co- operative banks are not co-operative societies and therefore the assessee is not eligible for deduction u/s 80P(2)(d) on this amount. The issue, therefore, is limited only to the point whether
ITA Nos.704 to 709 & CO Nos.179 to 182/Bang/2015 Page 7 of 12 for the purpose of sec.80P(2)(d), a co-operative bank is considered as a co-operative society. The CIT(A) allowed the claim of the assessee, by following the decision of the co-ordinate benches of this Tribunal, at page 25 to 27 of the impugned order as under:
“The Hon'ble ITAT, Bangalore, Bench 'A' in the case of ITO, W-9(3), Bangalore Vs. M/s. Yeshwanthpur Credit Cooperative Society Ltd. where it is held that "we are of the considered view that the facts, observations and findings of the Tribunal in the case of M/s. Bangalore Commercial Transport Credit Cooperative Society Ltd. (supra) are identical with those of the instant case and that the assessee, being credit cooperative society is entitled to the deduction under section 80P(2)(a)(i) claimed by it." It is pertinent to mention here that the Hon'ble ITAT Bangalore Bench 'B', Bangalore in the case of Shri Marikamba Mahila Cooperative Credit Society Ltd. Vs. Income Tax Officer, W-1, Sirsi for AY 2009-10 vide ITA No. 617/Bang/2014 where it is held that "learned counsel for the assessee, submitted that the Tribunal in the case of Bagalkot District Central Cooperative Bank Vs. JCIT (ITA No. 1572/Bang/2013 dated 30.05.2014) had unequivocally held that it was not possible to exclude a cooperative society engaged in business of banking from being considered as a cooperative society, perse. As per the learned AR, though the said decision was given in the context of section 194A(3)(v) it would squarely apply here also. Reliance was also placed on judgements of Hon'ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Cooperative Society Vs ITO (ITA No. 307(B)/2014 dated 28.10.2014) and of a coordinate bench of this Tribunal in the case of Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha, Sirsi Vs. CIT in ITA No. 609 & 610/Bang/2014 dated 06.02.2015. Per contra, learned DR strongly supported the order of the CIT and also submitted that the AO had not applied or considered section 80P(2)(d), in accordance with the wordings of the said section. Hence, according to him there was an error which was prejudicial to the interest of the revenue.
ITA Nos.704 to 709 & CO Nos.179 to 182/Bang/2015 Page 8 of 12 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited (supra). The question for our consideration and adjudication is as to whether the interest on deposits earned by a cooperative society, where such deposits were with a cooperative Bank, are allowable as a deduction under Section 80P(2)(d) of the Act. We are of the opinion that restrictive interpretation given by the learned CIT(A) to section 80P(2)(d) was not warranted, by its wordings. The provisions of Section 80P(2)(d) are reproduced hereunder : "in respect of any income by way of interest or dividends derived by the cooperative society from its investment with any other cooperative society, the whole of such income", A coordinate bench of this Tribunal in the case of Bagalkot District Central Cooperative Bank (supra) had held that a cooperative bank which is also a cooperative society cannot be excluded from the purview of benefits available to a cooperative society, unless the provisions of the Act so stipulate. No doubt in the said decision, the Tribunal was considering the application of section 194A(3)(v) of the Act, wherein it was mandated that a cooperative society was not required to deduct tax at source if the interest credit were paid to any cooperative society. It had unequivocally held that the said provision applied to all cooperative societies including a cooperative society engaged in the business of the bank or in other words, a cooperative bank. Therefore, the view taken by the AO that income by way of interest or dividends earned by the assessee society from the cooperative bank namely Kanara District Central Cooperative Bank which has also a cooperative society was eligible for deduction cannot be faulted’ In view of the facts explained and discussed above, that assessee is registered under Karnataka Cooperative Societies Act, 1959 and assesses has not applied and obtained permission from Reserve Bank of India as a Bank, therefore, activity of the assessee cannot be equated as defined under the Banking Regulation Act and respectfully following the jurisdictional Hon'ble ITAT, Bangalore Bench 'B' in the case of Shri Marikamba Mahila Cooperative Credit
ITA Nos.704 to 709 & CO Nos.179 to 182/Bang/2015 Page 9 of 12 Society Ltd. Vs. Income Tax Officer, W-1, Sirsi mentioned supra, the assessee is entitled to claim the deduction u/s 80P(2)(d) of the IT Act. Hence the disallowance made by the AO is dismissed and assesses this ground of appeal is allowed.
Thus, the CIT(A) has allowed the claim of the assessee by holding that the co-operative bank cannot be excluded from the co-operative society engaged in the business of banking for the purpose of sec.80P(2)(d). We find that the co-ordinate bench of this Tribunal in case of Menasi Seemeya Group Gramagala Seva Sahakari Sanga Niyamitha (supra) had the occasion to consider an identical issue and held in para.5 & 6 as under: “5. We have perused the orders and heard the rival contentions. A reading of the computation part of the assessment, do show that AO had considered the claim of deduction made by the assessee u/s 80P(2)(d) of the Act. Out of the total claim of Rs.9,77,821/- AO had disallowed Rs.4,770/- being interest of TDS for the assessment year 2009-10. Therefore, it is not a case where AO failed to apply his mind at all. 6. Now coming to the question as to whether the interest on deposits earned by a Co-operative Society, where such deposits were with a Co-operative Bank, we are of the opinion that restrictive interpretation given by the learned CIT(A) to section 80P(2)(d) was not warranted by it wordings. Section 80P(2)(d) is reproduced hereunder: in respect of any income by way of interest or dividends derived by the C-operative Society from its investments with any other Co-operative society, the whole of such income'. This Tribunal in the case of Bagalkot District Central Co- operative Bank had held that a Co-operative bank which is also a Co-operative Society cannot be excluded from the purview of benefits available to a Cooperative Society , unless the provisions of the Act so stipulate. No doubt in the said decision, the Tribunal was considering the application of Section 194A(3)(v) of the
ITA Nos.704 to 709 & CO Nos.179 to 182/Bang/2015 Page 10 of 12 Act, wherein it was mandated that a Cooperative Society was not required to deduct tax at source if the interest credit were paid to any Co-operative Society. It had unequivocally held that the said provision applied to all Co-operative Society including a Cooperative Society engaged in the business of the bank or in other words, a Co-operative Bank. Therefore, the view taken by the AO that income by way of interest or dividends earned by the assessee society from the Cooperative bank namely Kanara Dist.Central Co-operative bank which was also a Co-operative Society was eligible for deduction cannot be faulted. We cannot say that the order of the AO was erroneous and prejudicial to the interest of the revenue. Order of the learned CIT, therefore, stand quashed and appeals of the assessee are allowed.”
The Tribunal has held that this provision applies to all co- operative society including a co-operative society engaged in the business of banking or in other words, a co-operative bank. A similar view has been taken by this tribunal in case of Cc Shri Marikamba Mahila Co-operative Credit Society Ltd. (supra) in para.7 as under:
“7. A co-ordinate bench of this Tribunal in the case of Bagalkot District Central Co-operative Bank (supra) had held that a Cooperative bank which is also a Co- operative Society cannot be excluded from the purview of benefits available to a Cooperative Society , unless the provisions of the Act so stipulate. No doubt in the said decision, the Tribunal was considering the application of Section 194A(3)(v) of the Act, wherein it was mandated that a Cooperative Society was not required to deduct tax at source if the interest credit were paid to any Co-operative Society. It had unequivocally held that the said provision applied to all Cooperative Societies including a Cooperative Society engaged in the business of the bank or in other words, a Co-operative Bank. Therefore, the view taken by the AO that income by way of interest or dividends earned by the assessee society from the Cooperative bank namely Kanara Dist. Central Co-operative bank which was also a Co-operative Society was eligible for
ITA Nos.704 to 709 & CO Nos.179 to 182/Bang/2015 Page 11 of 12 deduction cannot be faulted. We cannot say that the order of the AO was erroneous and prejudicial to the interest of the revenue. In this view of the matter, we cancel the impugned order of the learned CIT, and consequently the appeal of the assessee is allowed. ”
Thus by following the decisions of the co-ordinate benches and to maintain the rule of consistency, we decide this issue in favour of the assessee and against the revenue and therefore, we do not find any reason to interfere with the impugned order of the CIT(A) who has followed the decisions of the co-ordinate bench. Accordingly, the appeals of the revenue are dismissed.
Cross Objection Nos.179 to 182/Bang/2015 for assessment years 2007-08 to 2010-11 raise the issue of validity of reo-opening. Since we have dismissed the appeals of the revenue and the issue on merits has been decided in favour of the assessee, therefore, the issue of validity of reopening as raised in the cross objections filed by the assessee becomes academic in nature and therefore, we do not propose to go into the said issue.
In the result, the appeals of the revenue as well as the cross objections of the assessee are dismissed.
Pronounced in the open court on 22nd January, 2016.
sd/- sd/- (Inturi Rama Rao) (Vijay Pal Rao) ACCOUNTANT MEMBER JUDICIAL MEMBER eksrinivasulu,sps
ITA Nos.704 to 709 & CO Nos.179 to 182/Bang/2015 Page 12 of 12 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order
Assistant Registrar Income-tax Appellate Tribunal Bangalore