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TMI Blog2021 (6) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... ound against disallowance claim of deduction u/s 80P(2)(a)(i) in both the appeals under consideration and another ground raised in AY 2014-15 is relating to disallowance u/s 40(a)(ia) of the Act. 4. The revenue has raised a ground in both the appeals against the action of CIT(A) in allowing the assessee's claim of deduction u/s 80P(2)(d) of the Act. 5. First, we take up assessee's appeals and the facts as culled out from AY 2011-12 are that the assessee is a cooperative society deriving income from the activity of providing credit facilities to the members/normal members as well as income from sale of stamps. The assessee filed its return of income for the AY 2011-12 on 29/01/2011 declaring total income at Rs. 90,84,410/-. The AO completed the assessment u/s 143(3) rws 147 of the Act on 14/12/2018 by assessing the total income at Rs. 4,04,77,722/- by making the disallowance of assessee's claim of deduction u/s 80P(2)(a)(i) of Rs. 41,44,498/- and deduction u/s 80P(2)(d) of Rs. 2,59,50,392/-. 5.1 The AO disallowed the assessee's claim of deduction u/s 80P(2)(a)(i) on the following grounds: i. The appellant cooperative society Is not providing credit facilities to its members. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther submitted that assessee has not obtained licence form RBI for carrying out banking business activity, even though, the assessee itself engaged in the banking business. He further submitted that in respect of deduction u/s 80P(20(d), assessee has earned interest on surplus funds deposited with the Bank. Therefore, the judgment of the Hon'ble Supreme Court in the case of Totgars Cooperative Sales Society Ltd. Vs. ITO, 322 ITR 283 is squarely applicable to the facts of the present case. Therefore, he submitted that the order of the CIT(A) may be set aside and the order of the AO be restored on this issue. 8. We have considered the submissions of the Ld. DR and perused the material on record as well as gone through the orders of revenue authorities. We observe that the CIT(A) confirmed the AO's decision in respect of claim of deduction u/s 80P(2)(a)(i) relying on the judgment of the Hon'ble Supreme Court in the case of Citizen Cooperative Society Ltd., Hyd. In Civil Appeal No. 10245 of 2017, dated 08/08/2017, the decision of which was followed by the AO while confirming the disallowance. As regards the assessee's claim of deduction u/s 80P(2)(d) of the Act, the CIT(A) relying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le granting bail to the accused persons. Assessee while filing the return of income computed the gross total income at Rs. 57,07,206 and did not claim deduction under section 80P of the entire income. Since, its receipts include gross receipts from Cooperative societies/ Banks/Members and also from general public and from Associated/Nominal Members assessee claimed proportionate deduction under 80P by taking eligible receipts from the Cooperative Sector over the gross receipts, thereby, assessee claimed only deduction of Rs. 26,00,800. While claiming deduction under section 80P, it has claimed deduction only under 80P(2)(a)(i) on the income from 'providing credit facilities to its members'. Even though it has interest income from the deposits made with other Cooperative Societies/Banks, it did not claim deduction under section 80P(2)(d) in respect of income by way of interest/ dividend from other cooperative society. 3. The A.O. while completing the assessment was of the opinion that assessee is not entitled for deduction under section 80P(2)(a)(i) on the reason that assessee has admitted nominal Members in violation of A.P. Cooperative Societies Act /Rules, 1964 as amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers of the society, he directed the A.O. to exclude an amount of Rs. 9,38,866 consisting of the other receipts while calculating deduction under section 80P(2)(a)(i). Ld. CIT(A), however, did not agree with the assessee's contention of allowing expenses of Rs. 20,68,583 on insurance and medical claim policies on its Members, which the A.O. held to be purely personal in nature. He was of the opinion that the expenditure on insurance policies cannot be said to be incurred for the purpose of assessee's business. Therefore, he did not allow the above expenditure while deciding the issues. 5. Assessee is aggrieved on the disallowance of expenses of Rs. 20,68,583 on insurance and medi-claim policies taken in the name of its Members whereas, Revenue is aggrieved on the direction of the Ld. CIT(A) to allow deduction under section 80P(a)(i). Revenue in its appeal has raised the following grounds : 1. "The CIT(A) erred in overlooking the violation of provisions of A.P. Cooperative Societies Act, 1964 and the finding of A.O. that the activity of assessee is "banking business" and not "carrying on the business of banking or providing credit facilities to its members" as it was mob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's activities and determining the so-called violations by the A.O. is misdirected. The issue of transactions with nominal Members or non-Members is not an issue as the assessee has clearly claimed deduction under section 80P only to the extent of transactions with its Members. Since the transactions are inter-linked, assessee has proportionately claimed deduction under section 80P(a)(i) taking the transactions with the Members and the gross receipts. Ld. CIT(A) also examined this aspect on factual basis and excluded certain other incomes also. Therefore, on facts, the issue of violation of provisions of A.P. Cooperative Societies Act, 1964 does not arise at all. 7. With reference to the finding of A.O. that the activity of assessee is banking business and not carrying on the 'business of banking or providing credit facilities to its Members'. This ground raised is also misplaced. Assessee by its bye laws has two types of Members. Vide bye law 3(iv)(a) Member means, Member/shareholder of the society. Bye-Law 3(iv)(b) defines Associate Member and Nominal Member means other than shareholder of the society. Therefore, the bye-laws itself distinguishes between M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccused and these amounts received from such non-Members are deposited in other Cooperative Societies/ Cooperative Banks or Scheduled Banks. As can be seen from the order of the A.O. itself, he has identified the amounts of interest received from the Cooperative Societies/Cooperative Banks and deduction under section 80P(2)(d) was allowed. Ld. CIT(A) also corrected certain calculation errors in restricting deduction under section 80P(2)(d). There is no dispute on the above either by assessee or by the Revenue. 7.1. Assessee's activity cannot be considered as a banking activity and as rightly analysed and held by the Ld. CIT(A), assessee is involved in providing the credit facilities to its Members. Since the assessee only claimed proportionate deduction under section 80P on the activities with its Members only, while offering income to tax on the activities with non- Members/outside world, Revenue grounds raised in this regard are misconceived. We do not find any merit in the contentions raised by the Revenue in ground No.2. 8. With reference to ground No.3, also since assessee is not involved in business of banking and it is only a Cooperative Society registered under Mutua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety Ltd., vs. ITO 322 ITR 283 (SC), Ld. CIT(A) agreed with the opinion of the A.O. in treating the income as other sources, but however, directed the A.O. to allow deduction under section 80P(2)(d) as allowed in A.Y. 2007-08. With reference to acceptance of various insurance claims, Ld. CIT(A) agreed with the order of the A.O. on similar lines as that of A.Y. 2007-08. "22.1 The ground No.3 regarding deduction under section 80P(ii)(d) is in respect of interest received from Cooperative Societies and the Cooperative Banks. We are unable to understand why the Cooperative Banks are not considered as Cooperative Societies in Banking business. The sub-section (4) introduced by Finance Act, 2006 w.e.f. 1.4.2007 is as under : (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 cooperative 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) "Prim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Co-operative Societies Act, 1912 or under any other law for the time being in force in any State for the registration of co-operative societies. This, therefore, refers only to the factum of a co-operative society being registered under the 1912 Act or under the State law. For purposes of eligibility, it is unnecessary to probe any further as to whether the co-operative society is classified as X or Y. [Para 28] Thirdly, the gross total income must include income that is referred to in sub-section (2). [Para 29] Fourthly, sub-clause (2)(a)(i) with which this case is directly concerned case speaks of a co-operative society being 'engaged in' carrying on the business of banking or providing credit facilities to its members. What is important qua sub-clause (2)(a)(i) is the fact that the co-operative society must be 'engaged in' the providing credit facilities to its members. [Para 30] The statutory provision involved does not require the appellants to be primary agricultural credit societies to claim a deduction under section 80P(2)(a)(i) in the first place. [Para 31] The burden is on the assessee to show, by adducing facts, that it is entitled to claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the co-operative movement generally and, therefore, the moment a co-operative society is registered under the 1912 Act, or a State Act, and is engaged in activities which may be termed as residuary activities i.e. activities not covered by sub-clauses (a) and (b), either independently of or in addition to those activities, then profits and gains attributable to such activity are also liable to be deducted, but subject to the cap specified in sub-clause (c). The reach of sub-clause (c) is extremely wide, and would include co-operative societies engaged in any activity, completely independent of the activities mentioned in sub-clauses (a) and (b), subject to the cap of INR 50,000/- to be found in sub-clause (c)(ii). This puts paid to any argument that in order to avail of a benefit under section 80P, a co-operative society once classified as a particular type of society, must continue to fulfil those objects alone. If such objects are only partially carried out, and the society conducts any other legitimate type of activity, such co-operative society would only be entitled to a maximum deduction of Rs. 50,000/- under sub-clause (c). [Para 34] Sub-clause (d) also points in the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited 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 licence in this behalf from the RBI. Clearly, therefore, once section 80P(4) is out of harm's way, the assessee is 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. [Para 45] It must also be mentioned here that 'nominal members' are 'members' as defined under the Kerala Act. Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). [Para 46]" 8.5 We find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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