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Income Tax Appellate Tribunal, ‘PANAJI’ BENCH, PANAJI
Before: SHRI CHANDRA MOHAN GARG & SHRI GIRISH AGRAWAL
IN THE INCOME TAX APPELLATE TRIBUNAL, ‘PANAJI’ BENCH, PANAJI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.10/PAN/2019 Assessment Year: 2015-16 M/S. KALIDAS CO- ITO, WARD-1, OPERATIVE CREDIT BAGALKOT SOCIETY LTD. Near Choudeshwari Vs. Temple, Kamatgi, Tal: Hungund, Dist: Bagalkot, Karnataka-587120. PAN: AAAAK 9788 L (Appellant) (Respondent) Present for: Appellant by : Shri Pramod Vaidhya, Advocate Respondent by : Shri Mayur Kamble, Sr. DR Date of Hearing : 17.06.2022 Date of Pronouncement : 30.08.2022 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal by the assessee is arising out of the order of Ld. CIT(A), Belagavi in ITA No.CIT(A)/BGM/10172/2017-18 dated 27.12.2018 against the order passed by ITO, Ward-1, Bagalkot u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’) dated 31.10.2017 for A.Y. 2015-16.
The grounds taken by the assessee in the present appeal are reproduced as under:
“1. On the facts and circumstances of the case and in law the ld. CIT(A) in an ex-parte order erred in disallowing the deduction u/s 80P(2)(a)(i) of the Act, in respect of income earned from Associate Member/Nominal Members. The CIT(A) erred in not appreciating that ….
2 ITA No.10/PAN/2019 M/s. Kalidas Co-Operative Credit Society Ltd. A.Y. 2015-16 i. the citizen’s case is distinguishable on facts as in the present case the dealing are with members and there are no dealings with public at large. ii. regular, associate are nominal members are recognized as valid as per The Karnataka Co-op societies Act, 1959 and as per bye-laws of the society and there is no violation of the governing law. iii. non-appearance on the day of hearing was due to non-receipt of notice on time and was unintentional. 2. The CIT(A) erred in not adjudicating on the issue of non-taxability and deduction u/s 80P(2)(a)(i)/80P(2)(d) in respect of interest income earned by the society. The CIT(A) erred in not appreciating that AO has erred in holding that ….. i. interest from a co-operative bank is entitled for deduction u/s 80P(2)(d) of the Act as a co-operative bank is a co-operative society. ii. The assessee is in the business of providing credit facilities to its members and interest on deposits arising out of regular activities with members is attributable to the business of providing credit facilities and entitled for deduction u/s 80P(2)(a)(i) of the Act. iii. Totagar’s Co-operative Sale Societies case is distinguishable on facts. 3. The appellant craves leave to add, alter, amend or modify any of the grounds of appeal.” 3. Before us, Shri Pramod Vaidhya, Advocate represented the assessee and Shri Mayur Kamble, Sr. DR represented the Department.
Ld. Counsel of the assessee placed on record a synopsis along with Paper Book containing 45 pages.
Brief facts as culled out from the records are that the assessee is a Co-operative Society registered under the Karnataka State Co-operative Societies Act, 1959. The assessee has derived income by providing credit facilities to the members which are of two categories namely regular and associate/nominal members. A copy of registration
3 ITA No.10/PAN/2019 M/s. Kalidas Co-Operative Credit Society Ltd. A.Y. 2015-16 certificate and bye laws reflects the objectives of the society as that of providing credit facilities to its members. Assessee filed its return of income on 30.10.2015 reporting total income at Nil after claiming deduction under Chapter VIA amounting to Rs. 1,08,95,715/-. The only issue in the present appeal is in respect of claim of deduction u/s 80P(2)(a)(i) and u/s 80P(2)(d) of the Act. In the course of assessment proceeding, ld. AO noted from the balance sheet that the assessee is providing credit facilities to two categories of members and thus by placing his reliance on the decision of Hon’ble Supreme Court in the case of Citizen Co-Operative Society Ltd. vs ACIT in Civil Appeal No. 10245 of 2017 dated 08.08.2017 held that deduction claimed by the assessee is not admissible since the assessee is earning income not only from the members but from associate/nominal i.e. non-members who are general public and the concept of mutuality is not satisfied. Further, ld. AO noted that the assessee has made investments in Bagalkot District Central Co-Operative Bank Ltd. (BDCC) on which interest income earned amounting to Rs. 7,40,798/- has been claimed as deduction u/s 80P(2)(a)(i)/80P(2)(d) of the Act. Ld. AO again placing his reliance on the decision of Hon’ble High Court of Karnataka in the case of CIT vs The Totagars Co-Op Sale Society in ITA No. 100066/2016 dated 16.06.2017 and similar other decisions, disallowed the claim of deduction in this respect.
Aggrieved, the assessee went in appeal before the Ld. CIT(A) who confirmed the addition so made by the ld. AO.
Aggrieved, the assessee is in appeal before the Tribunal.
At the outset, the ld. counsel of the assessee strongly submitted that the present issue is squarely covered by the latest decision of Hon’ble Supreme Court in the case of Mavilayi Service Co-operative
4 ITA No.10/PAN/2019 M/s. Kalidas Co-Operative Credit Society Ltd. A.Y. 2015-16 Bank Ltd. vs CIT [2021] 123 taxmann.com 161 (SC) wherein it is held that full bench judgement in the case of Citizen Co-op Society Ltd. (supra) is fully incorrect in its reading and loans given to nominal members would qualify for the purpose of deduction u/s 80P(2)(a)(i) of the Act. The relevant portion is extracted below:
“45. To sum up, therefore, the ratio decidendi of Citizen Co-Operative Society Ltd. (supra), must be given effect to Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word ‘agriculture’ into Section 80P(2)(a)(i) when it is not there. Further, Section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a license in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgement is wholly incorrect in its reading of Citizen Co- operative Society Ltd. (supra). Clearly, therefore, once Section 80P(4) is out of harm’s way, all the assessees in the present case are entitled to the benefit of the deduction contained in Section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case, it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.” 9. Further, ld. counsel pointed out that Hon’ble Supreme Court also held in the same decision that amendment to section 80P(4) is not applicable to co-operative societies providing credit facilities to its members. Section 80P of the Act is a benevolent provision, which was acted by the Parliament in order to encourage and promote the growth of co-operative section generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee. The
5 ITA No.10/PAN/2019 M/s. Kalidas Co-Operative Credit Society Ltd. A.Y. 2015-16 relevant portion extracted from the said decision is reproduced as under:
“39. The above material would clearly indicate that the limited object of Section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from Section 3 read with Section 56 is that a primary co- operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by Section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. Likewise, under Section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, no co-operative society shall carry on banking business in India, unless it is a co-operative bank and holds a license issued in that behalf by the RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes connected with agricultural activities.” 10. Ld. Counsel further placed reliance on the decision of Hon’ble Madras High Court in the case of CIT vs Ammapet Primary Agricultural Co-operative Bank Ltd. [2017] 395 ITR 55 wherein it was held that deduction u/s 80P could not be denied merely on the ground that some of its members were not entitled to receive any dividend or having any voting right as they were admitted as associate members for availing of loan only and were also being charged a higher rate of interest. In the course of proceedings before us, ld. counsel also placed on record the decision of Co-ordinate Bench of ITAT Panaji in ITA No. 84/PAN/2018 dated 27.05.2022 in the case of The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs ITO wherein it was held that interest income derived from investments made by the assessee with any other co-operative society is eligible for deduction u/s 80P(2)(d) of the Act. The relevant portion of the decision is extracted below:
6 ITA No.10/PAN/2019 M/s. Kalidas Co-Operative Credit Society Ltd. A.Y. 2015-16 “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 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.” 11. The ld. Sr. DR placed reliance on the order of Ld. CIT(A) and Ld. AO.
We have heard rival contentions, perused the material and gone through the submission made before us. We note that the assessee is a Co-operative Credit Society registered under the Karnataka State Co- operative Societies Act, 1959 having two categories of members i.e. regular members and associate/nominal members. We also note that the objective of the society is that of providing credit facilities to its members. The assessee has claimed deduction of Rs. 1,08,95,715/- u/s 80P(2)(a)(i)/80P(2)(d) of the Act which has been disallowed by the ld. AO and confirmed by the ld. CIT(A).
The basis adopted by the ld. AO for the purpose of making disallowance relates to credit facilities provided to the category of members which are associate/nominal members. Further in respect of
7 ITA No.10/PAN/2019 M/s. Kalidas Co-Operative Credit Society Ltd. A.Y. 2015-16 making disallowance u/s 80P(2)(d) of the Act, the ld. AO disallowed it by holding that the investments by the assessee are made with BDCC Bank Ltd. which is co-operative Bank whereas it is first a Co-operative Society and then a Co-operative Bank. We note that the issue in the present appeal before us has been concluded by the decision of Hon’ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd. (supra) wherein the Hon’ble Supreme Court has considered the decision of Co-ordinate Bench of Supreme Court in the case of Citizen Co-operative Bank Ltd. (supra) and Hon’ble Supreme Court has laid down certain principles which are culled out from the judgment as under:-
i. That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee; ii. That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in subsection (2) of section 80P must be given by way of deduction; iii. That this Court in Kerala State Cooperative Marketing Federation Ltd. and Ors. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied; iv. This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so – which is not the case with section 80P(2)(a)(i); v. That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a license from the RBI to do banking business. Given the fact that the assessee is not so licensed, the assessee would not fall within the mischief of section 80P(4).
8 ITA No.10/PAN/2019 M/s. Kalidas Co-Operative Credit Society Ltd. A.Y. 2015-16 13.1. Thus, respectfully following the said decision of Hon’ble Supreme Court in the given facts and circumstances of the case, we direct the ld. AO to delete the addition made and allow the deduction claimed by the assessee u/s 80P(2)(a)(i)/80P(2)(d) of the Act. Accordingly, the grounds of appeal of the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced under Rule 34(4) of the IT (AT) rules, 1963 on 30.08.2022.
Sd/- Sd/- (CHANDRA MOHAN GARG) (GIRISH AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30.08.2022. Biswajit, Sr. P.S. Copy to: 1. The Appellant: M/s. Kalidas Co-Operative Credit Society Ltd. 2. The Respondent: ITO, Ward-1, Bagalkot. 3. The CIT, Concerned, 4. The CIT (A) Concerned, 5. The DR Concerned Bench //True Copy// [ By Order
Sr. Private Secretary ITAT, Panaji (on tour)