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Income Tax Appellate Tribunal, PANAJI BENCH : PANAJI
Before: SHRI SATBEER SINGH GODARA & SHRI G.D. PADMAHSHALI
2 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020 Bagewadi Krishi Seva Sahakari Sangh Bellad Bagewadi, Belagavi.” The assessee’s former three appeals ITA.Nos.11, 89 & 116/PAN./2022 are directed against the National Faceless Appeal Centre [in short “NFAC”] Delhi’s Din and Order No. ITBA/NFAC/S/250/2021-22/1040779868(1), dated 15.03.2022, Din and Order No.ITBA/NFAC/S/250/2022-23/1045397221(1), dated 12.09.2022 and Din and Order No. ITBA/NFAC/S/ 04.11.2022, involving 250/2021-22/1046925421(1), dated proceedings u/s. 143(3) of the Income Tax Act, 1961 (in short “the Act”); whereas the latter twin appeals ITA.Nos. 05 & 06/PAN./2020 arise against CIT(A), Belagavi’s separate orders in case nos.CIT(A), Belgaum/10126/ 2018-19 and 10127/2018-2019, both dated 29.11.2019, involving proceedings u/sec.143(3) r.w.s.260A of the Income Tax Act, 1961 (in short "the Act"), respectively.
Heard both the parties at length in the above stated stay application nos.1 to 3/PAN./2023 as well as all these five main appeals. Case files perused.
The assessee’s “lead” appeal ITA.No.05/PAN./2020 raise the following substantive grounds :
“The Assessment Order passed by Assessing Officer is not in accordance with the facts of the case and hence improper and unjust.
3 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020 2. The assessing authority has erred in not considering the Vishwanath Sugar Limited as a regular member though he is a nominal member. The nominal member is also considered as regular member of the Society as per the definition of Member in the Karnataka Co- operative Societies Act.
The assessing authority has erred in not considering the interest received from VSL as the regular business income of the assessee society.
4. The assessing authority has erred in not considering the advance given to the VSL as loan and considering the same as call deposit. However, he has further erred in not considering the provision of income tax act wherein any income of the society attributable to the main activity of the society is also to be considered as the regular business income of the society.
5. The assessing authority has erred in applying the ratio of Supreme Court decision in the case of TOTAGAR SALES CO-OP SOCIETY, SIRSI which is not applicable to the facts of the society.
The assessing authority has erred in giving proportionate expenses only in respect of interest paid on borrowed funds and deposits against
4 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020 interest income from VSL and instead of giving proportionate deduction in respect of all the expenses incurred by the society.
On the above grounds and any other grounds that may be urged at the time of hearing the interest received by the society from VSL shall be considered as regular business income eligible for deduction under Section 80P(2)(a)(i) in the interest of justice.”
3. Both the learned representatives next invited our attention to the CIT(A)'s detailed discussion upholding the Assessing Officer’s action making sec.80P(2)(a)(i) deduction disallowance as under :
“9. The Assessing Officer after verifying the details as enumerated in the case of M/s Totgar Co-operative Sale Society Ltd. V/s Income Tax Officer has held that the assessee society is found to be ineligible for claim of deduction u/s 80P(2)(a)(i) on the interest income received on deposit with Vishwanath Sugars Ltd. as it is not out of any business activity of 5 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020
6 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020
7 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020
Learned DR vehemently supported the CIT(A)'s foregoing detailed discussion that the impugned interest income derived from deposits made in a similar cooperative institutions is not entitled for sec.80P deduction. And also that the assessee has been having nominal members, not entitled for voting and therefore, both the learned lower authorities have rightly held it as not eligible for sec.80P deduction.
We find no merit in the Revenue’s foregoing arguments. We first of all make it clear that hon’ble apex court’s recent landmark decisions in Mavilayi Service Co- operative Bank Ltd. vs. CIT [2021] 431 ITR 1 (SC) and PCIT vs.
8 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020 Annasaheb Patil Mathadi Kamgar Sahakari Pattapedi Ltd., [2023] 150 taxmann.com 173 (SC) have settled the law that a co- operative society could not be treated as a co-operative bank. So far as the issue of sec.80P deduction qua interest income derived from similar cooperative institutions is concerned, this tribunal’s recent order in ITA.No.84/PAN./2018 The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society, Belgaum vs. ITO dated 27.05.2022 has also decided the instant issue of sec.80P(2)(a)(i) deduction against the department as under :
“5. First, we shall reproduce the ground of appeal no.3 filed by the assessee in appeal, which reads as under :-
3. (a) The Learned CIT(A) further erred in denying the deduction of Rs. 284,574 claimed u/s. 80P (2)(d) in respect of interest received on the reserve fund FD kept with Belgaum Dist. Central Co-Operative Bank Ltd (BDCC Bank) (b) The Learned CIT (A) ought to have taken into consideration the fact that as per the Karnataka Co- Operative Societies Act, 1956, a society has to invest 25% of its net profit into a reserve fund. This is an obligatory regulation to be followed by a Society to carry on its activities. As such the CIT (A) should have refrained from disallowing the claim of the 9 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020 appellant U/s. 80P(2)(d). Alternatively, since the said interest income is attributable to carrying on the business of the appellant society, the same qualifies for deduction U/s. 80P (2)(a)(i) of the Income Tax Act, 1961. (c) The ratio of Totgar Cooperative Sales Society Ltd Vs ITO cannot be applied to the appellant’s case as the interest income derived is attributable to carrying on of business of providing credit facilities to its members whereas the business of Totgar Cooperative Sales Society didn’t include business of providing credit facilities to its members.”
6. Before us, it is submitted that the interest income was received by the assessee on the surplus deposited with BDCC Bank Ltd. and also investments of statutory reserve funds etc. The ld. AR submits that the appellant is not a cooperative bank but a cooperative society and eligible for deduction u/s 80P(2)(a)(i) of the Act.
On the other hand, ld. Sr. DR placed reliance on the orders of the lower authorities. 8. We heard the rival submissions and perused the material on record. The only issue in the present appeal is pertaining to the allowability of deduction under the provisions of section 80P(2)(d) of the Act. On perusal of provisions of section 10 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020 80P(2)(d), it is clear that the income derived by a cooperative society from its investment held with other cooperative societies shall be exempt from the total income of a cooperative society. Therefore, what is relevant for claiming of deduction u/s 80P(2)(d) is that interest income should have been derived from the investment made by the assessee cooperative society with any other cooperative society. In the present case, the reasoning given by the lower authorities for denial of exemption u/s 80P(2)(d) of the Act is that interest was received from cooperative bank has no legs to stand as a cooperative bank is also a cooperative society. This issue was considered by the Hon’ble Karnataka High Court in the case of CIT vs. Totagars Cooperative Sale Society, 392 ITR 74 (Karn) wherein the Hon’ble High Court referring to the Hon’ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. (supra) held that the ratio of decision of the Hon’ble Supreme Court in the aforesaid case (supra) not to be applicable in respect of interest income on investment as same falls under the provisions of section 80P(2)(d) and not u/s 80P(2)(a)(i) of the Act.
Even the decision of Pune Bench of the Tribunal in the case of Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. vs. ITO, 120 taxmann.com 10 wherein the Tribunal after making reference to the decisions of the Hon’ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. (supra) and 11 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020 having noticed the divergent views of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. vs. ITO, 55 taxmann.com 447 and the Hon’ble Delhi High Court in the case of Mantola Cooperative Thrift Credit Society Ltd. vs. CIT, 50 taxmann.com 278, decision of the Hon’ble Delhi High Court in the case of Mantola Cooperative Thrift Credit Society Ltd. (supra) had not been preferred to view of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. (supra). The relevant observation of the Pune Bench of the Tribunal in the case (supra) is as under :- “9. The Pune Benches of the Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITA No.713/PUN/2016, dated 9-4-2019) decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO (ITA No.604/PN/2014, dated 19-8-2015) has allowed similar deduction. In the said case, the Tribunal discussed the contrary views expressed by the Hon'ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 Taxman 309 (Kar.) allowing deduction u/s. 80P on interest income and that of the Hon'ble Delhi High Court in Mantola 12 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020 Cooperative Thrift Credit Society Ltd. Vs. CIT (2014) 110 DTR 89 (Delhi) not allowing deduction u/s.80P on interest income earned from banks. Both the Hon'ble High Courts took into consideration the ratio laid down in the case of Totgar's Cooperative Sale Society Ltd. (2010) 322 ITR 283 (SC). There being no direct judgment from the Hon'ble jurisdictional High Court on the point, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred to go with the view in favour of the assessee by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra).
Insofar as the reliance of the ld. DR on the case of Pr. CIT and Another Vs. Totagars Cooperative Sales Society (2017) 395 ITR 611 (Kar.) is concerned, we find that the issue in that case was the eligibility of deduction u/s.80P(2)(d) of the Act on interest earned by the assessee co-operative society on investments made in co-operative banks. In that case, the assessee was engaged in the activity of marketing agricultural produce by its members; accepting deposits from its members and providing credit facility to its members; running stores, rice mills, live stocks, van section, medical shops, lodging, plying and hiring of goods and carriage etc. It was in that background 13 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020 of the facts that the Hon'ble High Court held that the assessee could not claim deduction u/s.80P(2)(d) of the Act. When we consider the impact of this decision, it turns out that the same is not germane to case under consideration in view of the position that the claim of the instant assessee is directly about the eligibility of deduction u/s.80P(2)(a)(i) of the Act and not u/s.80P(2)(d). Moreover, so many decisions relied on by the ld. AR amply go to prove that the view taken by the AO, cannot by any standard, be construed as not a possible view. We, therefore, hold that the ld. Pr. CIT was not justified in exercising the revisional power anent to interest income of Rs.22,34,270/- earned on investments made with co- operative banks.”
10. In the light of the above legal position of law and the reasoning adopted by the Assessing Officer as well as the ld. CIT(A) cannot be accepted. This ground of appeal no.3 stands allowed.”
6. Faced with the situation, we accept the assessee’s instant sole substantive grounds raised in this “lead” appeal ITA.No.05/PAN./2020 for assessment year 2007-2008.
7. Same order to follow in assessee’s remaining four appeals ITA.No.06/PAN./2020 and ITA.Nos.11, 89 &
14 ITA.Nos.11, 89 & 116/PAN./2022 S.A.Nos.01, 02 & 03/PAN./2023 & ITA.Nos.05 & 06/PAN./2020 116/PAN./2022 raising identical issue of sec.80P disallowance(s) involving varying sums.
9. The assessee’s three stay application nos.01, 02 and 03/PAN./2023 (supra) stand rendered infructuous.
ITA.Nos. 10. This assessee’s instant five appeals ITA.Nos.05 & 06/PAN./2020 and ITA.Nos.11, 89 & 116/PAN./ 2022 are allowed in above terms. A copy of this common order be placed in the respective case files.
Order pronounced in the open court on 13.07.2023.