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TMI Blog2022 (9) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the CIT(Appeals) on the following grounds of appeal : "1. For Rs. 4,00,075/-, that the ld CIT(A) has erred in sustaining the additions made by the Id AO and assessing the total income at Rs. 4,00,075/-by not allowing. deductions u/s 80P. The additions are made as under:- (i) That the ld CIT(A) has erred in sustaining the disallowance of deduction u/s. 80P(2) made by the Id AO on interest earned at Rs.6,90,268/- being interest earned on banking activities done by the assessee-society by assuming that, the assessee-society has invested its surplus funds with banks while, the real facts is that, the funds invested in FDR/ saving accounts with Co-op. banks, are (i) own funds of the assessee-society, and (ii) member's funds, more so, the relevant cost of funds and direct interest cost (i.e., Rs. 49,966/-) should be deducted from the gross interest received at Rs.6,90,268/-, thereby, the net interest income earned by the assessee-society from the banking activities carried out for its members only, would be Rs.6,40,302/-, which is clearly eligible for the deduction u/s80P(2)(a)(i). (ii) That the ld CIT(A) and ld AO has erred in applying the case of Totgar's Co-oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid the due taxes on the alleged dividend distributed to the assessee-society. (vi) The ld CIT(A) has erred in disallowing the deduction u/s8OP (2) of Rs.69,006 /-: being misc. income and Rs.820/- entry fee receipts, which is clearly eligible for the deduction u/s.8OP (2). 2. The appellant craves leave to add, urge, alter, modify and withdraw any ground/grounds before or at the time of hearing of the appeal." 3. Briefly stated, the assessee which is a primary agricultural cooperative society engaged in the business of banking, paddy procurement, sale of fertilizers, seeds, manures and pesticides as well as sale of controlled items under the Public Distribution System (PDS), had on 31.03.2013 e-filed its return of income for the assessment year 2012-13, declaring a total income of Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act. Assessment was, thereafter, framed by the Assessing Officer vide his order passed u/s.143(3) of the Act, dated 23.02.2015 wherein assessee's muti-facet claim for deduction under Sec. 80P was disallowed as under: Sl. No. Particulars Amount in Rs. 1. Disallowance of the assessee's claim for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . the ITO, Ward-1(3), Raipur in ITA No.114/RPR/2016 & Ors., dated 23.02.2022 had after drawing support from the judgment of the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd., ITA No.307/2014, dated 28.10.2014, on the basis of its exhaustive deliberations concluded, that interest income earned on the surplus funds which were parked as deposits by the co-operative society in the normal course of the business of providing credit facilities to its members, i.e., at a point of time when there were no takers for the said funds was duly entitled for deduction under Sec. 80P(2)(a)(i) of the Act, observing as under: "13. We shall first advert to the assessee's grievance that the lower authorities had erred in declining its claim for deduction u/s. 80P(2)(a)(i) of the Act, i.e, as regards the interest income that was earned on the surplus funds which were deposited by it with Jila Sahakari Kendriya Bank, i.e, a co-operative bank. After deliberating at length on the issue in hand, we find that the aforesaid claim of the assessee hinges around the aspect that as to whether or not the interest income earned by it on its surplus funds which were park ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly eligible for deduction under the aforesaid statutory provision, i.e., Sec. 80P(2)(a)(i) of the Act. We may herein observe, that though the assessee-society in addition to its business of providing credit facilities to its members was also engaged in other multiple activities for its members, viz. business of paddy procurement, sale of fertilizers, seeds, manures and pesticides and sale of controlled items under Public Distribution System (PDS), however, it is neither the case of the revenue nor a fact discernible from the record that the funds deposited by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) were the amounts that were payable by the society to its members, and the same having being retained were for the time being invested as a short-term deposit/security with the bank. If that would have been so, then, the interest income earned on such short-term deposit/security with the bank would not have been eligible for deduction u/s.80P(2)(a)(i) of the Act. But then, as the amount deposited by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) was in the nature of simpliciter surplus or idle funds of the assessee society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question. In this regard, it is necessary to notice the relevant provision of law i.e. section 80P(2)(a)(i): "Deduction in respect of income of cooperative societies: 80P. (1) Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) xxx (iii) xxx (iv) xxx (v) xxx (vi) xxx (vii) xxx the whole of the amount of profits and gains of business attributable to any one or more of such activities." 7. The word 'attributable used in the said section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss 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. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd, on which reliance is placed, the Supreme Court was dealing with a case where the assessee co-operative 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 many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ground of appeal No.1 raised before us is allowed in terms of our aforesaid observations." As stated by the Ld. AR, and rightly so, as the facts and the issue involved in the present appeal i.e, allowability of the assessee's claim for deduction under Sec. 80P(2)(a)(i) on the interest on bank deposits remains the same as were there in the aforesaid case i.e, ITA No.114/RPR/2016 & Ors (supra.), therefore, we respectfully follow the same. We, thus, in terms of our aforesaid observations direct the AO to allow the assessee's claim for deduction under Sec. 80P(2)(a)(i) of Rs.6,90,268/-. The Ground of appeal No.1(i) & (ii) raised by the assessee is allowed in terms of our aforesaid observations. 10. We shall now take up the grievance of the assessee that the CIT(Appeals) had erred in law and the facts of the case in sustaining the disallowance of the assessee's claim for deduction of the income from paddy procurement business of Rs.1,00,263/-under Sec. 80P(2)(a)(iii) of the Act. It was submitted by the Ld. AR that though the CIT(Appeals) had scaled down the disallowance by directing that as 95.2% paddy procured by the assessee related to its members, therefore, it's claim for ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon the assessee society to produce the register maintained in respect of its paddy procurement for the year under consideration. As the register produced by the assessee society did not reveal the requisite details which were required to identify the members and non-members, therefore, the Assessing Officer in the backdrop of the said fact had restricted the assessee's claim for deduction u/s.80P(2)(a)(iii) of the Act on an adhoc basis to 35% (i.e. nearly 1/3rd of the aforesaid gross profit) of the profit that was earned by it from paddy procurement business, and had disallowed assessee's claim for deduction as regards the balance amount of profit. Assailing the restriction of the assessee's claim for deduction u/s 80P(2)(a)(iii) to 35% of its income of Rs. 16,21,218/-, it is the claim of the ld. A.R before us that the same is highly exorbitant, for the reason, that the assessee had mainly procured paddy from its members only. It was submitted by the Ld. AR that though as per the policy of the Government the assessee-society is obligated to purchase paddy from each and every farmer, whether member or non-member, i.e whosoever approaches it, but transactions with the non-member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed for statistical purposes in terms of our aforesaid observations." As in the case of the present assessee, it is the claim of the ld. AR that no part of the procurement of paddy was made by the assessee-society in the course of its paddy procurement business from non-members, therefore, restricting of its claim for deduction u/s. 80P(2)(a)(iii) of the Act to 95.2% of the profits earned from the said business activity by the CIT(Appeals) was not justified. Considering the parity of the facts involved in the present case as against those which were involved in ITA No.114/RPR/2016 & Ors., dated 23.02.2022, we are of the considered view that the matter in all fairness on the same terms be restored to the file of the AO for fresh adjudication. In the course of the set-aside proceedings the AO shall read-judicate the assessee's claim for deduction under Sec. 80P(2)(a)(iii) i.e. after determining as to what extent the assessee society had facilitated the marketing of the agricultural produce grown by non-members, and thus, restrict the it's claim for deduction u/s. 80P(2)(a)(iii) only to the extent of the profit relatable thereto. Needless to say, the assessee shall in the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r doing the needful. During the course of the set-aside proceedings, the Assessing Officer is directed to restrict the assessee's claim for deduction as regards its profit from PDS only to the extent of its net profit, i.e., after considering the proportionate expenses. Needless to say, the assessee shall in the course of set-aside proceedings furnish the requisite details/documents as would be called for by the Assessing Officer. The Ground of appeal No.3 is allowed for statistical purposes in terms of our aforesaid observations." Considering our aforesaid observations in order passed in ITA No.114/RPR/2016 & Ors, dated 23.02.2022, we on the same terms restore the matter to the file of the AO, with a direction to restrict the assessee's claim for deduction as regards its profit from PDS only to the extent of its net profit i.e., after considering the proportionate expenses. Thus, the Ground of appeal No.1 (iv) is allowed for statistical purposes in terms of our aforesaid observations. 17. We shall now deal with the grievance of the assessee that both the lower authorities had erred in law and the facts of the case in declining its claim for deduction of the dividend income recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the claim of the assessee for deduction under section 80P(2)(d) in respect of interest income earned from the investments/deposits made with the co-operative banks is in order, or not. In our considered view, the issue involved in the present appeal revolves around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by the Pr. CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of sub-section (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with co-operative banks, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Observing, that the co-operative banks from where the assessee was in receipt of interest income were not co-operative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our considered view, as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other cooperative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find that the term "cooperative society‟ had been defined under Sec. 2(19) of the Act, as under:- "(19) "Co-operative society" means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;" We are of the considered view, that though the co-operative banks pursuant to the insertion of subsection (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a cooperative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Karn), had concluded that a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we find, that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had observed, that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. We find that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom), where there is a conflict between the decisions of non-jurisdictional High Court‟s, then a view which is in favour of the assessee is to be preferred as against that taken against him. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon‟ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ground of appeal No.1(v) raised in appeal by the assessee is allowed in terms of our aforesaid observations. 20. We, thus, in terms of our aforesaid observations set-aside the order of the CIT(Appeal) and allow/allow for statistical purposes the appeal of the assessee in terms of our aforesaid observations. 21. Resultantly, the appeal of the assessee in ITA No.104/RPR/2018 for the assessment year 2012-13 is allowed/allowed for statistical purposes in terms of our aforesaid observations. ITA No.(s) 105/RPR/2018, 111/RPR/2018 & 116/RPR/2018 A.Ys. 2012-13 22. As the facts and issues involved in the captioned appeals remains the same as were there before us in the appeal of Gramin Sewa Sahakari Samiti Maryadit in ITA No.104/RPR/2018 for assessment year 2012-13, therefore, our order therein passed while disposing off the said appeal shall apply mutatis-mutandis for disposing off the captioned appeals i.e., ITA No.(s) 105, 111 & 116/RPR/2018 for assessment year 2012-13. 23. In the combined result, all the captioned appeals of the aforementioned assessee's are allowed/allowed for statistical purposes in terms of our aforesaid observations. Order pronounced under rule 34(4) of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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