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TMI Blog2021 (11) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. v. CIT Anr. (supra). Thus we restore the issue of claim of deduction u/s 80P of the I.T.Act to the files of the A.O. for de novo consideration. As regards the claim of deduction u/s 80P(2)(d) of the I.T.Act, the CIT(A) has not adjudicated the same for the reason that the assessee has violated the principle of mutuality. If the assessee receives / earns interest / dividend income out of investments with co-operative society, the same is entitled to deduction u/s 80P(2)(d) of the I.T.Act. With these observations, we direct the A.O. to examine the claim of deduction u/s 80P(2)(d) of the I.T.Act, afresh. If interest income is to be assessed income from other sources, necessarily, the cost incurred for earning such interest income should be allowed as deduction u/s 57 - We find an identical issue was considered in the case of Totgars Co-operative Sales Society Ltd. [ 2015 (4) TMI 829 - KARNATAKA HIGH COURT] - assessee has not raised the plea before the Income Tax Authorities that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cieties. Ours is a Primary Agricultural Credit Co-operative Society governed by the Karnataka Cooperative Societies Act, 1959, which is akin to Andhra Pradesh Co-op. Societies Act, 1964. No statutory provision regarding having nominal members, but the societies can have nominal members only as per the provisions of their respective by-laws. Societies are statutorily allowed to have nominal members as per the provisions of section 2(f) and section 18 of the Karnataka Cooperative Societies Act, 1959. Most of the business of the society was with the `nominal members . Most of the business of the society is with regular members. Only a very small percentage of business is with nominal members. There is no Government control or participation in societies registered under the APMACSA There is major Government control over the activities of our society. Being a primary agricultural credit society, major portion of loans are given to the farmers as per the rules framed by the Government. These loans are supervised by the district c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 60,71,501. The return of income was selected for scrutiny by issuance of notice u/s 143(2) of the I.T.Act. The assessment u/s 143(3) was completed vide order dated 10.12.2019 wherein the claim of deduction u/s 80P of the I.T.Act was denied by the Assessing Officer. The Assessing Officer held that the assessee has violated the principles of mutuality by placing reliance on the judgment of the Hon ble Apex Court in the case of The Citizen Co-operative Society Ltd. v. ACIT reported in 397 ITR 1 (SC). The Assessing Officer also denied the claim of deduction u/s 80P(2)(d) of the I.T.Act since interest / dividend income was earned out of investments with co-operative banks. For denying the claim of deduction u/s 80P(2)(d) of the I.T.Act, the Assessing Officer relied on the judgment of the Hon ble Karnataka High Court in the case of Totagars Co-operative Sales Society reported in 395 ITR 611 (Kar.). 3. Aggrieved by the disallowance of deduction u/s 80P of the I.T.Act, the assessee preferred an appeal to the first appellate authority. The CIT(A) confirmed the view taken by the Assessing Officer. The CIT(A) held that the assessee was having substantial dealings with non-members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a licence in this behalf from the RBI. The Hon ble Apex Court had enunciated various principles in regard to deduction u/s 80P of the I.T.Act. On identical factual situation, the Bangalore Bench of the Tribunal in the case of M/s.Ravindra Multipurpose Cooperative Society Ltd. v. ITO in ITA No.1262/Bang/2019 (order dated 31.08.2021) had remanded the issue to the files of the A.O. for de novo consideration. The Tribunal directed the A.O. to follow the dictum laid down by the Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. v. CIT Anr. (supra). The relevant finding of the Co-ordinate Bench of the Tribunal in the case of M/s.Ravindra Multipurpose Cooperative Society Ltd. v. ITO (supra), reads as follows:- 6. Grounds 2-4 additional Ground No.1: In respect of associate / nominal members, Hon ble Supreme Court in the case of Mavilay Service Co-operative Bank Ltd. v. CIT (2021) 123 taxmann.com 161 (SC) has held that the expression Members is not defined in the Income-tax Act. Hence, it is necessary to construe the expression Members in section 80P(2)(a)(i) of the Act in the light of definition of that expression as contained in the concerned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income earned on the interest is declared as other income falling under Section 56 of the Income Tax Act. Then the next immediate question that follows is as to whether the entire fund i.e., in deposit with the Bank is taxable or the proportionate expenditure incurred by the appellant requires deduction. It is logical that when the Revenue is permitted to assess and recover taxes from assessee under Section 56 by treating the income earned by interest as income from other sources , the appellant shall be entitled for proportionate expenditure cost incurred in mobilizing the deposit placed in the Bank/s. What can be taxed is only the next income which the appellant earns after deducting cost and expenditure incurred and administrative expenses incurred by the assessee. 13. Accordingly, we answer the question of law and hold that the Tribunal was not right in coming to the conclusion that the interest earned by the appellant is an income from other sources without allowing deduction in respect of the proportionate costs, administrative expenses incurred in respect of such deposits. 5.4 The assessee has not raised the plea before the Income Tax Authorities that i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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