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TMI Blog2021 (9) TMI 1000X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has incurred any expenditure for earning interest income which is assessed u/s 56? - HELD THAT:- A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head `income from other sources . If so, the same shall be allowed as deduction u/s 57 of the I.T.Act. The assessee is directed to co-operate with the department and furnish the necessary evidence for expeditious disposal of the matter - ITA No.629/Bang/2020 And ITA No.630/Bang/2020 - - - Dated:- 22-9-2021 - Shri George George K, Judicial Member For the Appellant : Sri.Nitish Ranjan, CA For the Respondent : Sri.Ganesh R.Ghale, Standing Counsel ORDER These appeals at the instance of the assessee are directed against two orders of the CIT(A), both dated 28.01.2010. The relevant assessment years are 2013-2014 and 2014-2015. Common issues are raised in these appeals, hence, they were heard together and are being disposed of by this consolidated order. 2. The solitary issue raised is whether the CIT(A) is justified in confirming the assessment order, wherein the claim of deduction u/s 80P of the I.T.Act was partly den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Karnataka High Court in the case of Totagars Co-operative Sale Society reported (supra). 5. Aggrieved, the assessee has filed an appeal to the Tribunal. The learned AR has filed a paper book comprising of 98 pages enclosing therein the bye-laws of the co-operative society, financial statements for assessment years 2013-2014 and 2014-2015. The learned AR reiterated the submissions made before the Income Tax Authorities. It was also pleaded that if interest income is to be assessed as income from other sources, necessarily, the cost incurred for earning such interest income should be allowed as deduction u/s 57 of the I.T.Act. The learned AR for allowing deduction u/s 57 of the I.T.Act, relied on Hon ble Karnataka High Court judgment in the case of Tatgars Co-operative Sales Society Ltd. v. ITO [2015] 58 Taxmann.com 35 (Karnataka) judgment dated 25.03.2015). 6. The learned Standing Counsel submitted that the issue in question is squarely covered by the order of the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd. v. The Pr.CIT in ITA No.453/Bang/2020 (order dated 13.08.2021). It was submitted by the learned Standing Counsel that the Tribunal in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, when the Assessing Officer does not apply his mind to the issue at hand or violates any of the principles of natural justice, the order shall be prejudicial to the interests of the Revenue. Also, an incorrect assumption of facts or incorrect application of law by the AO would make the order of assessment erroneous and prejudicial to the interests of the Revenue. 9. The Hon ble Supreme Court in the case of the The Totgars Cooperative Sale Society Ltd. Vs. ITO 322 ITR 283 (SC) held that Income from utilisation of surplus funds was taxable under the head income from other sources, and therefore not eligible for deduction u/s 80P. The Hon ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (230 Taxman 309), was dealing with a case where deduction u/s.80P(2)(a)(i) of the Act was claimed on interest from the deposits made in a nationalized bank out of the amounts which was used by the assessee for providing credit facilities to its members. The Assessee claimed that the said interest amount is attributable to the business of providing credit facilities by the assessee and forms part of profits and gains of business. The Hon ble K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even the Hon ble Supreme made it clear that they are confining the said judgment to the facts of that case. The Court therefore concluded that Hon ble Supreme Court was not laying down any law. Similar view taken in Guttigedarara Credit Co-operative Society Ltd. vs. ITO [2015] 377 ITR 464 (Karnataka). In the case of PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE SOCIETY 392 ITR 0074 (Karn) in the context of deduction u/s.80P(2)(d) of the Act, it was held that Sec.80P(2)(d) of the Act allows deduction in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other cooperative society, the whole of such income. The Hon ble Court held that that the aforesaid Supreme Court's decision in the case of Totgars (supra), was not applicable to deduction u/s.80P(2)(d) of the Act, because the said decision was rendered with regard to deduction under Section 80P(2)(a)(i) of the Act and not under Section 80P(2)(d) of the Act. 10. However, the Hon ble Karnataka High Court in the case of PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE SOCIETY 395 ITR 0611 (Kar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative bank may have the corporate body or skeleton of a cooperative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act. (Paragraph 13 of the Judgment). 2. The banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub-section (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any co-operative bank and to excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered to be a co- operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases .. . No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Co-operative Bank is a specie of the genus co- operative Society, with which we agree, but as far as applicability of Section 80P(2) of the Act is concerned, the applicability of the Supreme Court's decision cannot be restricted only if the income was to fall under Section 80P(2)(a) of the Act and not under Section 80P(2)(d) of the Act.(Paragraph-18 of the Judgment) 6. The Court finally concluded that it would not make a difference, whether the interest income is earned from investments/deposits made in a Scheduled Bank or in a Co-operative Bank. Therefore, the said decision of the Co-ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon'ble Supreme Court. (Paragraph 19 of the Judgment) 12. The Hon ble Karantaka High Court in the aforesaid decision also placed reliance on a decision of the Hon ble Gujarat High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as investment are ineligible for deduction under section 80P(2)(a)(i) of the Act. (Paragraph-13 of the Judgment) 13. It can thus be seen that the ratio laid down by the Hon ble Karnataka High Court in the case of Totalgars Cooperative Sales Society in 395 ITR 611 (Karn) is that in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in cooperative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal High Court in the case of Swabhimani Souharda Credit Co-operative Limited v. Government of India reported in (2020) 421 ITR 670 (Kar.). The Hon ble High Court had held that a society registered under Karnataka Souharda Sahakari Act, 1997 is also a co-operative society. However, the CIT(A), in this case, has not denied the entire claim of deduction u/s 80P of the I.T.Act. The CIT(A) has confirmed the A.O. s disallowance of ₹ 14,81,899 (Total claim of deduction u/s 80P was ₹ 28,48,894) being interest income earned out of investment made with Co-operative Banks. 7.3 The learned AR had claimed that if interest income is to be assessed as income from other sources, necessarily, the cost incurred for earning such interest income should be allowed as deduction u/s 57 of the I.T.Act, I find an identical issue was considered by the Hon ble jurisdictional High Court in the case of Totgars Co-operative Sales Society Ltd. v. ITO reported in [2015] 58 Taxmann.com 35 (Karnataka) (judgment dated 25.03.2015). The relevant findings of the Hon ble High Court, read as follows:- 11. Having heard the learned counsel for the parties and perusing the records and in the light o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act being that only net income has to be taxed and not the gross income, this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of the Hon ble jurisdictional High Court in the case of Totgars Sales Co-operative Society Limited v. ITO [2015] 58 taxmann.com 35 (Karnataka). Accordingly, the case is restored to the files of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head `income from other sources . If so, the same shall be allowed as deduction u/s 57 of the I.T.Act. The assessee is directed to co-operate with the department and furnish the necessary evidence for expeditious disposal of the matter. It is ordered accordingly. ITA No.630/Bang/2020 : Asst.Year 2014-2015 8. The issue raised in this appeal is mutatis mutandis similar to the issue raised in ITA No.629/Bang/2020, and for my reasoning from para 7 to 7.4, I restore the issue to the files of the A.O. for limited purpose of examination whether the assessee has incurred any expenditure for earning interest income which is assessed u/s 56 of the I.T.Act. If the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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