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TMI Blog2022 (1) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... invested in specified securities as investment are ineligible for deduction under section 80P(2)(a)(i) 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 [ 2017 (7) TMI 1049 - KARNATAKA HIGH COURT] 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 co-operative 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)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d). Allowance of corresponding expenditures proportionately on income earned by the appellant from investments which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest received by it on deposits was in compliance with rule 28 of the Karnataka Co-operative Societies Rules, 1960 constituted its income from the business of providing credit facilities to the members and accordingly, ought to be held that the Assessee was eligible for deduction thereof under section 80-P(2)(a)(i) of the Income Tax Act, 1961. 4. This was rejected by the AO by pointing out that interest received from deposits with co-operative Banks was not eligible for deduction u/s.80P(2)(d) of the Act and therefore the Assessee was making a claim for deduction on interest income u/s.80P(2)(a)(i) of the Act. In this regard the AO made the following observations: 6.1. The contention of the assessee that it has invested the funds in DCC bank in compliance with the statutory requirement of Karnataka Co-operative Societies Act is not correct. As per section 58 of the said Act, any Cooperative Society may invest its funds in the any of the modes stated therein. The word used, in the said Section is may and not shall . The list stated therein is also not exhaustive. The assessee is at liberty to invest its funds in any other mode with the permission of the Registrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed from the deduction of ₹ 37, 27,908/- claimed by the assessee 8. A table showing disallowance of 80P deduction claimed by the assessee is as under: Sl.No. Calculation of Interest earned on FDs as IOS Disallowance of 80P deduction F.Ds (in Rs.) Interest (in Rs.) 1 Gross Interest on FDs as per F L statement 29,29,371 2 Total investment in FDs as per Balance Sheet 3.39.71,566 3 Rate of Interest on investment of FDs (29,29,371/3,39,71,566 X100) 08.62% 4 Percentage of Net profit on Gross receitps as per P L statement 29,29,371/97 ,94 ,297X100) 38.13% 5 Net profit attributable to the Interest income of ₹ 29,29,371/- not eligible for Deduction u/s 80P (38.13% on ₹ 29,29,371) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that such interest income was 100% deductible under Section 80P(2)(d) of the Act? 8. The Hon ble Court held that such interest income is not income from business but was income chargeable to tax under the head income from other sources and therefore there was no question of allowing deduction u/s.80P(2)(d) of the Act. The following points can be culled out from the aforesaid decision: 1. What Section 80P(2)(d) of the Act, which was though not specifically 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 co-operative 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 govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it did not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee (Totagars Sales Co-operative society) and hence unable to follow the same in the face of the binding precedent laid by the Hon'ble Supreme Court. The Hon ble Court observed that in paragraph 8 of the said order passed by a co- ordinate bench that the learned Judges have observed that the issue whether a co-operative bank is considered to be a cooperative 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression profits and gains of business and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. 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) 10. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd denied deduction claimed u/s 80P(2)(d) of the Act. The Ld CIT(A) confirmed the action of the AO on this issue. 8. The Ld. A.R. submitted that the assessee is entitled to claim deduction allowable u/s 57 of the Act in respect of cost of funds and proportionate administrative and other expenses. In support of this submission, the Ld. A.R. placed reliance on the decision rendered by Hon'ble High Court of Karnataka in the case of Totgars Co-operative Sale Society Ltd. Vs. ITO (2015) 58 taxmann.com 35 (Karn). The Ld. A.R. submitted that the assessee in the above said case had put forth identical claim claim before Hon'ble Supreme Court in the case reported as Totgars Cooperative Sale Society Ltd. Vs. ITO (2010) 188 taxmann.com 282 and the Hon'ble Supreme Court, vide 14 of its order, had restored the question raised by the assessee to the file of Hon'ble High Court of Karnataka. Consequent thereto, the Hon'ble High Court of Karnataka has passed the order in the case reported in 58 taxmann.com 35 and held 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 deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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