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TMI Blog2022 (1) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... would be taxable under the head `income from other sources and would not be eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. It was further held by the Tribunal insofar as deduction u/s 80P(2)(d) of the I.T.Act is concerned, only those interest received from investments with co-operative societies alone would be entitled to deduction. As contended that majority of the interest income is earned out of investments made with Central Co-operative Banks and is in compliance with the requirement under the Karnataka Co-operative Societies Act and Rules. If the amounts are invested in compliance with the Karnataka Co-operative Societies Act, necessarily, the same is to be assessed as income from business, which entails the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act. Insofar as deduction u/s 80P(2)(d) of the I.T.Act is concerned, we make it clear that interest income received out of investments with cooperative societies is to be allowed as deduction. Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. [ 2021 (1) TMI 488 - SUPREME COURT] had settled various issues for claiming deduction u/s 80P(2)(a)(i) Thus the matter needs to be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify or revise any ground at the time of hearing before the Hon ble ITAT. For these and other grounds that may be urged at the time of hearing, it is prayed that the Hon ble ITAT may be pleased to allow the appeal in the interest of the equity and justice. 3. The brief facts of the case are as follows: The assessee is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959. For the assessment year 2014-2015, the return of income was filed declaring total income at `NIL after claiming deduction of ₹ 17,39,677 u/s 80P of the I.T.Act. The assessment u/s 143(3) of the I.T.Act was completed vide order dated 30.11.2016 assessing the total income at ₹ 1,12,030. 4. The CIT issued show cause notice u/s 263 of the I.T.Act on 27.09.2018 to revise the assessment order dated 30.11.2016 passed u/s 143(3) of the I.T.Act. According to the CIT, the A.O. without inquiry granted deduction u/s 80P(2) of the I.T.Act thereby rendering the assessment order 30.11.2016 as erroneous and prejudicial to the interest of the revenue. The assessee filed detailed objections vide its letter dated 29.11.2018 (reproduced in para 4 of the impugned order). The CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le with the cooperative society. (e) Whether the banks are co-societies or Banks in nature, for allowing deduction u/s 80P(2)(d). (f) Obtain the details of nominal members and regular members and obtain complete particulars of registration certificate and verify the details of banking business if any. 6.0 In view of the above discussed facts that have been brought on record and circumstances of the case, I hold that the order passed by the Assessing Officer u/s 143(3) dated 30.11.2016 is not only erroneous but also prejudicial to the interest of revenue and accordingly the order passed by the AO ITO, Ward-2, Hospet, u/s 143(3) on 30.11. 2016, is hereby set-aside with a direction to the AO, to pass a fresh assessment order In accordance with law and after giving necessary opportunity of being heard to the assessee. 5. The assessee being aggrieved, has filed this appeal before the Tribunal. The learned AR has filed a paper book enclosing therein the written submission, case laws relied on, copy of certificate of registration under Karnataka Cooperative Societies Act and the Rules. The learned AR submitted that the issue involved is covered in favour of the assessee by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cooperative societies or banks in nature, for allowing deduction u/s 80P(2)(d). As the deduction is available in the main clause itself, i.e., 80P(2)(a)(i) as the interest income forms part of the business income, the query becomes redundant. (f) Obtain the details of nominal members and regular members and obtain complete particulars of registration certificate and verify the details of banking business if any. The law under the Societies Act (the state law) permits enrolment of nominal members section 18.However the assessee-society has not enrolled any nominal members. (Reference is invited to the written submissions of the assessee made before the learned PCIT and reproduced in paras 4.0 of pages 4 to 8 of the order u/s 263). 6. The learned Departmental Representative supported the order of the CIT. 7. We have heard rival submission and perused the material on record. On perusal of the assessment order passed u/s 143(3) of the I.T.Act dated 30.11.2016, it is clear that there is no discussion by the A.O. and deduction u/s 80P of the I.T.Act has been granted without much inquiry. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. The Hon ble Court also distinguished the decision of the Hon ble Supreme Court in the case of Totgars (supra) by observing that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon ble Court had to deal with the following substantial question of law: (I)Whether the assessee, Totagar Co-operative Sale Society, Sirsi, is entitled to 100% deduction under Section 80P(2)(d) of the Income Tax Act, 1961 (for short 'the Act') in respect of whole of its income by way of interest earned by it during the relevant Assessment Years from 2007-2008 to 2011-2012 on the deposits or investments made by it during these years with a Co-operative Bank, M/s. Kanara District Central Co-operative Bank Limited? (II) Whether the Supreme Court decision in the case of the present respondent assessee, Totgar Co-operative Sale Society Limited itself rendered on 08th February 2010, in Totgar's Co-operative Sale Society Limited v. Income Tax Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment Year 1995- 1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total Income under Section 80P(2)(a)(i) of the Act, is not applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. (Paragraph-14 of the judgment) 3. The amendment of Section 194A(3)(v) of the Act excluding the Co-operative Banks from the definition of Cooperative Society by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Cooperative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. (Paragarph 15 of the Judgment) 4. If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise.(Paragraph 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any law. The Hon ble Gujarat High Court held that in the case of Totgars Co-operative Sale Society (supra) decided by Hon ble Supreme Court, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. The Hon ble Gujarat High Court in this regard referred to the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. The Hon ble Gujarat High Court therefore held that decision in the case of Totagar Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act cannot be exercised. On this argument, the learned DR pointed out that the jurisdiction u/s.263 of the Act was exercised by the CIT not for the reason that the AO failed to make proper enquiries before concluding the Assessment but on the ground that his decision was contrary to decision of Hon ble Jurisdictional High Court and therefore this argument of the learned counsel for the Assessee cannot be accepted. The argument that the view taken by the AO was a possible view and hence revision u/s.263 of the Act is bad is again not acceptable because, the view that ought to have been adopted was the later binding decision of the High Court in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 16. The argument that co-operative Banks are also co-operative societies is again without any basis in the light of the law explained in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). The reliance placed by the learned counsel for the Assessee on the earlier decisions of the Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision in Totgars Co-operative Sale Society (supra) stands ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved from the business of providing credit facility to the members. This aspect requires examination by the AO as it has not been raised before the CIT. We therefore modify the order of the CIT by remanding the issue raised in ground No.5 to 7 alone to the AO for examination afresh. In other respects we confirm the order of the CIT. 7.2 In the instant case, it was contended that majority of the interest income is earned out of investments made with Central Co-operative Banks and is in compliance with the requirement under the Karnataka Co-operative Societies Act and Rules. If the amounts are invested in compliance with the Karnataka Co-operative Societies Act, necessarily, the same is to be assessed as income from business, which entails the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act. Insofar as deduction u/s 80P(2)(d) of the I.T.Act is concerned, we make it clear that interest income received out of investments with cooperative societies is to be allowed as deduction. 7.3 Moreover, the Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. v. CIT Anr. (supra) had settled various issues for claiming deduction u/s 80P(2)(a)(i) of the I.T.A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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