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TMI Blog2018 (9) TMI 1465X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome was eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. - Decided in favour of assessee. - ITA No.184/Coch/2018, ITA No.196/Coch/2018 - - - Dated:- 19-9-2018 - Shri Chandra Poojari, AM Shri George George K, JM For the Appellant : Smt. A.S.Bindhu For the Respondent : Smt.Shamseera C Ashraf ORDER PER BENCH These appeals at the instance of the Revenue are directed against separate orders of CIT(A). The relevant assessment year is 2014-2015. 2. In the grounds raised, two issues are involved, viz., (i) Whether the assessee is entitled to deduction u/s 80P(2) of the I.T.Act? (ii) Whether the interest income received from investments with co-operative banks is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act? 3. Brief facts of the case are as follows:- The assessees are primary agricultural credit societies. For the assessment years under consideration, the assessments were completed by denying the deduction claimed u/s 80P of the I.T.Act. The reasoning of the Assessing Officer was that the assessees were primarily doing the business of banking and in view of insertion of provisions of section 80P(4) of the I.T.Act with effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 80P(4) of the Act. 1.1 It is respectfully submitted that the respondent is essentially, a Co- operative bank and not merely a primary agricultural credit Society and hence the allowance of deduction u/s 80P to the respondent assessee while computing the total income was irregular in nature and also against law. 1.2 The present appeal involves substantial question of law. (i) The Ld.CIT(A) ought to have seen that the Honble Supreme Court in the case of Sabarkhanta Zilla Kharid Vechar Sangh Ltd. Vs CIT reported in 203 ITR 1027 (SC) has held that eligible deduction u/s 81(1)(d) (substituted by section 80P by Finance (No.2)Act, 1967 w.e.f. 01.04.1968) of the Income tax Act, 1961 in respect of co-operative societies/banks doing both agricultural and non agricultural activities should not be 100% of the gross profits and gains of business of such societies etc. but would be limited to the profits generated from agricultural activities alone performed by such assessee. (ii) The Ld. CIT(A) ought to have seen that the above decision of the Apex Court is in sharp contrast to the decision of the Kerala High Court in the case of M/s Chirakkal Service Co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order as it is an order on writ petition on stay application, and not on the appeal on disallowance. Further, there is no findings or conclusions in the order, on this issue rather a prima facie observation. 2.2 While stating that, the Honble Supreme Court decision in the case of Totgar's Co-operative Sale Society Ltd relied on by the AO is distinguishable on facts, CIT(A) ought to have agreed with his earlier findings in the order on stay petition in assessee's own case, for the same A Y. In this order CIT(A) has held that the assessee sought exemption/ deduction not from the operational income which they earned from loan and advances given to the members of the society but from the income which accrued from the surplus amount deposited with the district co-operative bank. Since regular business income alone is to be exempted from tax u/s 80P(2)(a)(i) of the Act, to my understandings, the interest received from the deposit the assessee had with the District Cooperative Bank, State Cooperative Bank and Treasuries shall necessarily be treated as income from other sources only and accordingly be brought to tax. Further, CIT(A) ought to have confirmed the findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Chirakkal Service Co-operative Bank Limited Ors. (supra) had categorically held in para 17 page 14 of the judgment that when a primary agricultural credit Society is registered as such under the Kerala Co-operative Societies Act, 1969, such society is entitled to the benefit of deduction u/s 80P(2) of the Income-tax Act. The Hon'ble High Court was considering the following substantial question of law: a) Whether on the facts and in the circumstances of the case under consideration/ the Tribunal is correct in law in deciding against the assessee/ the issue regarding entitlement for exemption under section 80P, ignoring the fact that the assessee is a primary agricultural credit society? 7.1 In considering the above question of law, the Hon'ble High Court rendered the following findings: 15. Appellants in these different appeals are indisputably societies registered under the Kerala cooperative societies Act 1969, for sort, KCS Act and the bye-laws of each of them, as made available to this court as part of the paper books, clearly show that they have been classified as primary agricultural credit societies by the competent authority under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e IT Act by virtue of sub-section 4 of that sect; on. In this view of the matter, the appeals succeed. 17. In the light of the aforesaid, we answer substantial question: `A in favour of the appellants and hold that the Tribunal erred in law in deciding the issue regarding the entitlement of exemption under section 80P against the appellants. We hold that the primary agricultural credit societies, registered as such under the KCS Act; and classified so, under that Act including the appellants are entitled to such exemption. 7.2 In the instant cases, the assessees are primary agricultural credit societies registered under the Kerala Cooperative Societies Act, 1969. The certificate has been issued by the Registrar of Cooperative Societies to the above said effect and the same is on record. The Hon ble High Court, in the case cited supra, had held that primary agricultural credit society, registered under the Kerala Cooperative Societies Act, 1969, is entitled to the benefit of deduction u/s 80P(2). Since there is a certificate issued by the Registrar of Cooperative Societies, stating that the assessees are primary agricultural credit societies, going by the judgment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see therein cannot admit `nominal members and most of the deposits were taken from such category of person (as they were not members as per the provisions referred). The Apex Court in para 25 of the Judgment has pointed out that the main reason for disentitling the assessee from getting the deduction provided under section 80P of the Act is not sub-section (4) of the Act. On the contrary, the Hon ble Apex Court held that the Credit Co-operative Society was not entitled for deduction u/s 80P of the Act for the reason of categorical finding of the A.O.that the activities of the assessee are in violation of the Provisions of the MACSA under which it is formed as the substantial deposits were from `nominal members who are actually non-members as per the provisions of law referred. The Hon ble Apex Court specifically took note of the fact that the assessee therein has carved out a category of `nominal members who are infact not the members in the realsense. Therefore the deposits received from the carved out category viz nominal members who are not the members as per the provisions of the law referred to therein and without the permission of the Registrar of Societies was held to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to construe the expression members in Section80P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Co-operative Societies Act. 8.7 The Bombay High Court in Jalgaon District Central v. UOI (2004) 265 ITR 423 (Bom) in the light of the above Supreme Court judgment had held that nominal member is also member under the Maharashtra Co-operative Societies Act and entitled for benefits under section 80P. [Para 17 to 20 of the judgment], as under:- 17. In case of M/s U.P.Co-op. Cane Union Federation Ltd., Lucknow (cited supre), the Supreme Court has held that the expression Member is not defined in the Income Tax Act. Since the Co-operative Society has to be established under the provisions of law made by the State Legislature in that regard, the expression Member in Section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of law enacted by the State Legislature under which the co-operative society claiming exemption has been formed. The Supreme Court has further observed that it is necessary to construe the expression Member in Section 80P(2)(a)(i) of the Act in the light of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anking Regulation Act are not entitled for banking license; (Copies of such letter from RBI are placed on record). 8.9 That being the case, the Assessing Officer was not competent and did not possess the jurisdiction to resolve / decide the issue as to whether the assessee was a 'Primary Agricultural Credit Society' or a 'Cooperative bank', within the meaning assigned to it under the provisions of the Banking Regulation Act and to take a contrary view especially in view of the Explanation provided after the clause (ccvi) of section 5 r.w.s Section 56 of the Banking Regulation Act. 8.10 In view of the aforesaid reasoning, we hold that the judgment of the Hon ble Apex Court in Citizen Cooperative Society Ltd. is not applicable to the facts of the present cases. According to us, the judgment of the Hon ble jurisdictional High Court is identical to the facts of the present case and is squarely applicable. Therefore, we hold that the CIT(A) has correctly allowed the claim of deduction in the above cases and we uphold the orders of the CIT(A). It is ordered accordingly. 9. In the result, these appeals filed by the Revenue are dismissed. 7.1 In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sangha Niyamamitha vs ITO has clearly answered the issue. The Hon ble High Court, after considering the amendment introduced by Finance Act 2006 w.e.f 1.4.2007 (insertion of section 80P(4) had rendered the following findings: Therefore, the intention of the legislature is clear. If a cooperative bank is exclusively carrying on banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Cooperative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary cooperative agricultural and rural development bank. The Legislature did not want to deny the said benefits to a primary agricultural credit society or a primary cooperative agricultural and rural development bank. They did not want to extend the said benefit to a Cooperative bank which is exclusively carrying on banking business i.e. the purport of this amendment. Therefore, as the assessee is not a Co- operative bank carrying on excursively banking business and as it does not possess a licence from Reserve Bank of India to carry on business, it is not a Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble feature has been taken note by the Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd in ITA No.307 of 2014 (judgment dated 28th Oct 2014). The Hon ble Karnataka High Court was considering the following substantial question of law: Whether the Tribunal failed in law to appreciate that the interest earned on short term deposits were only investment in the course of activity or providing credit facilities to members and that the same cannot be considered as investment made for the purpose of earning interest income and consequently passed a perverse order? 7.3 In answering the above question of law, the Hon ble Karntaka High Court distinguished the judgment of the Apex Court in the case of Totgars Cooperative Sales Society Ltd (supra) and rendered the following findings: 9. In this context when we look at the judgment of the Apex Court in the case of M/s Totgars Cooperative Sales 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 gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14, read as follows: 7.2 As regards the interest from treasury and banks, we find on identical facts, the Cochin Bench of the Tribunal in the case of the Muttom Service Cooperative Bank Ltd in ITA No. 372/Coch/2010 had decided the matter in favour of the assessee. The Cochin Bench of the Tribunal in the case of Muttom Service Cooperative Bank Ltd (supra) has distinguished the judgment of the Hon ble Apex Court in the case of Totgar s Cooperative Sale Society Ltd (supra). The relevant finding of the coordinate Bench of the Tribunal in the case of the Muttom Service Cooperative Bank Ltd (supra) read as follows: 5. We have considered the rival submission on either side and also perused the material available on record. We have also carefully gone through the order of the lower authority. No doubt, the latest judgment in Totgar s Co-operative Sale Society Ltd vs ITO (supra), the Apex court found that the deposit of surplus funds by the co-operative society is not eligible for deduction u/s 80P(2). In the case before the Apex Court in Totgar s Co-operative Sale Society Ltd vs ITO (supra), the assessee cooperative society was to provide credit facility to its members and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No. 208/Coch/2017; ITA No 209/Coch/2017 ITA No. 210/Coch/2017; ITA No. 263/Coch/2017 ITA No. 268/Coch/2017 ITA No. 269/Coch/2017 9 The ld counsel for the assessee and the ld DR agreed that the facts involved in the above appeals are identical to the facts considered by me in the case of the Azhikode Service Cooperative Bank Ltd in ITA no.261/Coch/2017. In the case of Azhikode Service Cooperative Bank I have held that interest on deposits with sub treasury is entitled to the benefit of deduction u/s 80P(2).Therefore, I hold that assessee s in the above appeals is entitled to deduction u/s 80P(2) for interest received as investment with sub-treasury. It is ordered accordingly. 10 To sum-up, the appeals of the assessee s are allowed. 7.2 In view of the above order of the Tribunal, we are of the view that the assessees are entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income received on investments made with co-operative Banks. 7.3 Before concluding, it is to be mentioned that the order of the Cochin Bench of the Tribunal in the case of M/s.Mutholy SCB Ltd. v. ITO [ITA No.11/Coch/2014 order dated 24.09.2014] which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the matter, the issue is well settled. Accordingly, the Board has decided that no appeals may henceforth be filed on this ground by the officers of the Department and appeals already filed, if any, on this ground before Courts/Tribunals may be withdrawn/not pressed upon. This may be brought to the notice of all concerned . It may be true that for application of Sec. 80P(2)(a)(i) of the Act assessee was considered as a primary agricultural credit society based on certificate issued by Joint Registrar, Kottayam. In our opinion para 3.2 of the circular reproduced above has accepted the judgment of Hon'ble Apex Court in the case of CIT vs. Nawanshahar Central Cooperative Bank Ltd 289 ITR 6, as correct for cooperative societies /banks claiming deduction u/s. 80P(2)(a)(i) of the Act. In other words, the Board has taken a view that interest earnings of a cooperative society which was having as its primary business, providing credit facilities to its members who were agriculturists, could be considered under the head income from business and not from income from other sources. Similar view was taken by the Co-ordinate Bench in the case of The Kizathadiyoor Service Coopera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its and gains of business either in other Cooperative Societies or in the construction of godowns and warehouses, may benefit in terms of Clause (d) or (e), but the very same Societies will not be entitled to any benefit, if they invest the very same funds in Banks. Such an understanding of section 80P(2) is impermissible for one simple reason. The benefits under Clauses (d) and (e) are available in general to all Co-operative Societies, including Societies engaged in the activities listed in Clause (a). Section 80P(2) is not intended to place all types of cooperative societies on the same pedestal. The section confers different types of benefits to different types of societies. Special types of societies are conferred a special benefit. 34. The case before the Supreme Court in Totgars was in respect of a Co-operative Credit Society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the Society. It is also found from P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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