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TMI Blog2016 (2) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... ce act, 2006, w.e.f. 1/4/2007, sub section (4) was inserted in section 80P which provides as follows- "(4) The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation- For the purposes of this sub-section,- -(a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949) ; (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities." 3. The Assessing Officer (AO) was of the view that after the amendment inserted by Finance Act, 2006 w.e.f. 1/4/2007, by which sub section (4) was inserted in section 80P of the Act, the assessee which is a co-operative society carrying on banking business was not entitled to deduction u/s. 80P(2)(a)(i) of the Act. According to the Assessing Officer , the assessee was a co-operative bank and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Jafari Momin Vikas Co -op. Credit Society Ltd.(2004) (362 ITR 331) (Guj.) held that the assessee is entitled to deduction u/s. 80P(2)(a)(i) of the Act claimed by it in respect of the profits of its business of providing credit facilities to its members. However, with respect to interest of Rs. 5,63,180/- received on Secured Redeemable Non-convertible Debentures of Maharashtra Co -op. Development Corporation Ltd. and interest of Rs. 1,49,500/- earned from Government Security Bonds, the ld. Commissioner of Income tax(Appeals) following the decision of the Hon'ble Apex Court in the case of Totgar's Co -operative Sale Society Ltd.(2010)(322 ITR 283)(SC) held that the same are not entitled to deduction u/s. 80P(2) of the Act as they are not part of the assessee's business income and are to be taxed under the head income from other sources. 5. Both the revenue and the assessee are aggrieved by the order of the CIT(A)-33, Mumbai and have preferred appeals against this order before the Tribunal . Revenue's Appeal in ITA No.3462/Mum/2014: 6. In this appeal, Revenue has raised the following grounds :- "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efully considered the material on record; including the judicial pronouncements cited and placed reliance upon . From the material on record, it is seen that the ld. CIT(A) while disposing off the appeal for assessment year 2007-08 in the case on hand, which order has been followed by the ld. CIT(A)in the impugned order for the assessment year 2010-11, has observed that there is no dispute that the assessee accepts deposits only from its members and advances loans only to its members and does not have any banking licence. It was also observed that all the deposits on the liability side of its balance sheet only reflect deposits from members and that it accepts deposits only from its members and not from the public at large. In the above factual matrix, the ld. CIT(A) came to the view that the assessee is a co-operative society and not a co-operative bank as held by the Assessing Officer . 7.3.2 At the time of hearing, it was brought to the notice of the Bench that this very issue was for consideration before the Hon'ble Gujarat High Court in the case of CIT vs. Jafari Momin Vikas Co -op. Credit Society Ltd.(2004) (362 ITR 331) (Guj.).In this case, the question, of law before the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified primary agricultural credit societies along with primary cooperative agricultural and rural development banks for exclusion from such exclusion and, in other words, continued to hold such entity as eligible for deduction. However, the issue has been considerably simplified by virtue of the Central Board of Direct Taxes Circular No. 133 of 2007, dated May 9, 2007. Circular provides as under : "Subject : Clarification regarding admissibility of deduction under section 80P of the Income-tax Act, 1961. 1. Please refer to your letter No. DCUS/30688/2007, dated March 28, 2007, addressed to the Chairman, Central Board of Direct Taxes, on the above given subject. 2. In this regard, I have been directed to state that sub-section(4) of section 80P provides that deduction under the said section shall not be allowable to any co-operative bank other than a primary agri cultural credit society or a primary co-operative agricultural and rural development bank. For the purpose of the said sub-section, co-oper ative bank shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949. 3. In Part V of the Banking Regulation Act, 'co-operative bank' mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2010-11 is dismissed. Assessee's appeal in ITA No.3477/Mum/2014 10. In this appeal for assessment year 2010-11, the assessee has raised the following grounds :- " 1. On the facts and in the circumstances of the case, and also ill law, the learned CIT(A) erred in treating interest of Rs. 1,49,500/ - received by the appellant on Govt. Securities income from other sources, and, therefore, also erred in not allowing deduction u/s.8OP(2)(a)(i for the same. Your appellant, therefore, prays that the said interest be assessed as business income, and deduction u/s. 8OP(2)(a)(i) be allowed for the same. 2. Without prejudice, the appellant further submits that if deduction u/s.80P(2) is not to be allowed for the interest referred to in Ground No.1 above, and is to be taxed, then the same should be assessed net of interest cost incurred by the appellant. Your appellant, therefore, prays accordingly. 3. On the facts and in the circumstances of the case, and also in law, the learned CIT(A) erred in treating interest of Rs. 5,63,180/- received on Secured Redeemable Non-convertible Debentures issued by Maharashtra Cooperative Development Corporation Ltd. as income from other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, following decision rendered by the Hon'ble Apex Court in the case of Cambay Electric Supply Industrial Company Ltd.(1978) (113 ITR 84), held that the interest earned by the from deposits kept in banks in attributable to the profits and gains of business of providing credit facilities to its members. The Ld. Representative for the assessee in support of this proposition also placed reliance on the decision of the Co-ordinate bench of the ITAT, Mumbai in the case of Jaoli Taluka Sahakari Patpedhi Maryadit v. ITO in ITA No.6627/Mum/2014 dated 10/08/2015 which followed the aforesaid decision of the Hon'ble Karnataka High Court (supra) on this issue. 11.2 Per contra, the Ld. Departmental Representative vehemently supported the order of the Ld. CIT(A) on this issue. 11.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited. Taking into consideration the factual matrix and circumstances of the case, we are of the considered opinion that the decision rendered by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op Ltd.(2015) (230 Taxman 309) (Kar) squarely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd is liable to be deducted from the gross total income under Section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount whichwas retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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