THE ANDALURU LARGE SIZE CO-OPERATIVE SOCIETY ANADALURU,ANDALURU vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, RAJAHMUNDRY

Briefly stated the facts of the case are that the assessee is a Primary Agricultural Cooperative Credit Society engaged in the business of providing credit facilities to its members, supply of inputs and marketing of agricultural produce grown by its members. The assessee filed its return of income for the AY 2018- 19 admitting a total income of Rs. 81,870/- after claiming deduction of Rs. 42,07,008/- U/s. 80P(2) of the Act. Thereafter, the assessee’s case was taken up for scrutiny to verify the investments / advances / loans made by the assessee and the deduction claimed under Chapter VI A of the Act. Accordingly, notices U/s. 143(2) and 142(1) of the Act were issued and served on the assessee wherein the assessee was called for to furnish certain information mentioned therein. In response, the assessee submitted its reply and on perusal of the information furnished by the assessee the Ld. AO noticed that the assessee received an interest and dividend income aggregating to Rs. 15,04,982/- from the investments made with District Cooperative Central Bank (DCCB). The Ld. AO further observed that the assessee is not eligible for deduction U/s. 80P(2)(d) of the Act since the assessee 3 made the investments with Cooperative Bank and accordingly, the Ld.AO proposed to disallow the deduction U/s. 80P to the extent of Rs. 15,04,982/- received from the DCCB. Before the Ld.AO, it was the submission of the assessee that the investments were made with DCCB as per the cooperative society’s norms and that the DCCB in turn caters to the requirements of the cooperative societies in the District. The assessee further submitted that since the transactions are between cooperative societies only and hence the income received from DCCB is eligible for deduction U/s. 80P(2) of the Act. Further, the assessee also submitted before the Ld. AO that the net interest income from the impugned investments has to be taxed and not the gross income of Rs. 15,04,982/- as the assessee has already paid interest on deposits and loans received from the members which were utilized for the impugned investments. However, the Ld. AO did not consider the submissions of the assessee and observed that as per the Act, the interest income derived from any other Cooperative Society is eligible for deduction and not from Co-operative Bank as in the case of the assessee. Thus, the Ld. AO denied the assessee’s claim of deduction U/s. 80P(2)(a)(i) of the Act and made addition of Rs.15,04,982/- on account of interest income earned from cooperative bank as chargeable income under the head ‘income 4 from other sources’. While making the addition, the Ld. AO relied on the decision of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd vs. ITO [2010] 322 ITR 283 (SC). Accordingly, the Ld.AO determined the total income at Rs. 15,86,850/- and passed the assessment order U/s. 143(3) r.w.s 143(3A) & 143(3B) of the Act, dated 30/03/2021. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A)-NFAC. Before the Ld. CIT(A)-NFAC, the assessee also made various submissions. However, the Ld. CIT (A)-NFAC did not consider the submissions and explanations of the assessee and confirmed the disallowance made by the Ld. AO. Further, the Ld. CIT(A)-NFAC also held that the assessee is eligible to get benefit of deduction in respect of proportionate cost, administrative and other expenses which are incurred in order to earn such interest income and the accordingly directed the Ld. AO. Thus, the Ld. CIT(A)-NFAC partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee is in appeal before the Tribunal by raising the following grounds of appeal:

The Ld. CIT(A) ought to have held that the interest income and dividends are received from cooperative society and therefore eligible for deduction both U/s. 80P(2)(a) and section 80P(2)(d) of the Act. Any other ground that may be urged at the time of hearing.” 4. 3. The only issue involved in this appeal relates to disallowance of deduction claimed u/s 80P of the Act. At the outset, the Ld.AR submitted that the assessee society, being a cooperative society, makes deposits in its regular course of business and accordingly the deposits were made in District Cooperative Central Bank [in short DCCB] in compliance with the statutory regulation of AP Cooperative Societies Act. The assessee is not having any intention to gain any benefit from other sources. The Ld.AR further submitted that the facts relied on by the Ld. Revenue Authorities in the case of M/s. Totgars Cooperative Sale Society Ltd reported in 322 ITR 283 are entirely different from that of the instant case. The Ld. AR also submitted that as per Para-11 of the judgment in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) it is clearly mentioned that “this judgment is confined to the facts of the present case” and therefore it cannot be applied in the assessee’s case, hence, eligible for deduction u/s 80P of the Act. He, therefore, pleaded to quash the order passed by the Ld.CIT(A)-NFAC and allow deduction u/s 80P of the Act.

I have heard both the sides and perused the material placed on record as well as the orders of the Ld. Revenue Authorities. Now the question before me is to decide whether the assessee is eligible for 7 deduction u/s 80P with respect to the interest income earned on deposits parked with District Cooperative Central Bank, or not? It is an admitted fact that the assessee has claimed deduction u/s 80P of the Act. The contention of the Ld. AO and the Ld. DR is that any income by way of interest or dividends derived the Co-operative Society from its investments with any other cooperative society is eligible for deduction. The Ld. Revenue Authorities have also placed relied on the decision of Hon’ble Supreme Court of India in Civil Appeal No.1622 of 2010 in the case of M/s Totgars Cooperative Sale Society Ltd., wherein it was held that “investment of surplus on hand not immediately required in Short Term deposits and securities by a co-operative society providing credit facilities to members or marketing agriculture produce to member”. However, in the instant case, the facts are distinguishable and hence, in my view, the ratio laid down in the case of M/s Totgars Cooperative Sale Society Ltd.(supra) shall not be applied to the instant case. On similar set of facts, coordinate Bench of this Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society held in favour of the assessee vide I.T.A.No.107/Viz/2022, CO No.07/Viz/2022 dated 30.08.2023. For the sake of reference, relevant paragraphs of the order are extracted as under:

Further, we also extract below the provisions of section 80P2(d) and (e) of the Act for reference:

From the plain reading of section 80P(2)(a)(i) of the Act, the whole of amount of profits and gains of the business attributable to one or more of such activities shall be allowed as a deduction. Further, section 80P(2)(d) and 80P(2)(e) of the Act also allows similar deductions. It is clear that the deductions available under clauses (a) to (e) of section 80P(2) are activity based whereas clauses (d) and (e) are investment based. The distinction between clauses (a) and clauses (d) & (e) on the other hand is that the benefit under clause (a) is restricted to only into those activities of a cooperative society enlisted in sub-clause (a) whereas the benefit of clauses (d) & (e) are available to all cooperative societies without any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be limited only to the profits & gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such activities listed in sub- clauses (i) to (vii) of clause-(a), the same may go out of the purview of clause (a) but still the cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression “attributable to” and not any one of the expressions viz., “derived from” or “directly attributable to”. The Hon’ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, we extract the relevant para 34 of the judgment of the Hon’ble Andhra Pradesh and Telangana High Court herein below:

Further, the Hon’ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another (supra) held that the cooperative society is eligible for deduction U/s. 80P(2)(a)(i) of the Act on the interest income received from investment in banks. The Hon’ble High Court in paras 35 to 37 of its judgment held as under:

But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalized banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be.

The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to". 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.”

In the result, appeal of the Revenue is dismissed.”

In the result, appeal of the assessee is allowed.