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TMI Blog2023 (1) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... rders by the Revenue authorities, nor were any pleadings toward the same made during hearing and, per contra, not responded to by the assessee. The same is directed for deletion. Disallowance of the deduction claimed, i.e., rs. 13.76 lacs - assessee is entitled thereto at the full amount, i.e., as claimed by it, or at a lower sum? - HELD THAT:- The question arising in the instant case, on the contrary, is the extent of income arising to the assessee-society on the provision of credit to it s members, the sole qualifying activity u/s. 80P(2). The same cannot be stretched to the income on placement of investible surplus with the assessee, i.e., not required for the said eligible activity for the time being, in other investment avenues deemed by law, concerned as it is with the safety of public funds, as low risk and, thus, safe . And which would be so independent and irrespective of the nature of activity being pursued. In principle, we find no difference between the investible surplus arising to the assessee-society in Totgars CSS Ltd. [ 2010 (2) TMI 3 - SUPREME COURT] , wherein the qualifying activity/s was, as in the instant case, the provision for credit facilities to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 ( the Act hereinafter), dated 12/12/2019 for the Assessment Year (AY) 2017-18. 2. The appeal raises the following grounds:- 1. Whether on the facts and in the circumstances of the case, the ld. CIT(A) was justified in deleting the addition of Rs. 13,76,224/- u/s. 80P(2)(a)(i) of the Income Tax Act, 1961. 2. Whether on the facts and in the circumstances of the case the ld. CIT(A) was justified in deleting the addition of Rs. 7,49,50,575/- since the earning of interest income was outside the principle of mutuality. 3. The appellant craves to leave, add, amend, alter, substitute or delete the grounds urged herein above as and when found necessary.‖ 3. Opening the arguments for and on behalf of the assessee-respondent; the ld. CIT-DR relying on the assessment order, it was submitted by Sh. Purohit, the ld. senior counsel, that the assessee is a cooperative society registered under the Madhya Pradesh Cooperative Societies Act, 1960 (MPCSA), formed for encouraging thrift amongst it s Members, being the employees or ex-employees of Madhya Pradesh Rashtriya Koyla Khadaan Ltd., who subscribe thereto by way of monthly deductions from their salaries. The corpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. Peroorkada Service Cooperative Bank Ltd. Ors . [2022] 442 ITR 141 (Ker), rendered following Mavilayi Service Cooperative Bank Ltd. (supra). As explained therein, in the context of a primary agricultural credit society engaged in the business of banking and providing credit facilities to it s members, it is only the income from the activity specified in s. 80P(2)(a)(i) that would qualify for deduction u/s. 80P(1), and not the entire income of the assessee-society. Accordingly, while the interest income on loans to members and investment with cooperative banks was deductible, interest from treasury, which was in the nature of interest from non-members, was held as not. 4. We have heard the parties, and perused the material on record. 4.1 We may begin by reproducing section 80-P of the Act, which deals with computation of income of co-operative societies, reads as under in its relevant part: 80P. Deduction in respect of income of co-operative societies. - (1) Where, in the case of an assessee being a co-operative 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80HH or section 80HHA or section 80HHB or section 80HHC ... (4) The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation.-For the purposes of this sub-section,- (a) co-operative bank and primary agricultural credit society shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) primary co-operative agricultural and rural development bank means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities. Section 80P provides for a deduction in computing the total income of a non-excluded co-operative society in respect of incomes referred to, and to the extent mentioned, therein. Sub-section (1) provides the deduction on the income specified in, including its extent, sub-section (2). Sub-section (3) provides for nonoverlapping of deduction with other specified deductions u/s. VI-A, and subsection (4) specifies the excluded entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an enactment, i.e., which would, where applicable, hold, the assessee s refrain in not bringing the same on record was again incomprehensible and, rather, recalcitrant, particularly considering, also explained during hearing, that the ld. CIT(A) having not issued any finding in the matter there is no merger qua the same in the impugned order, so that in absence of a rebuttal, the AO s finding would hold. The BR Act, being in the public domain, it was considered only proper under the circumstances to proceed with the hearing, securing a copy thereof for the purpose, rather than keeping the same on hold indefinitely, or making it subject to production thereof. The Apex Court in Mavilayi Service Cooperative Bank Ltd. (supra) clarified that cooperative banks, which therefore require a licence from the Reserve Bank of India (RBI) for banking business, would, w.e.f. AY 2007-08, stand excluded for the benefit u/s. 80P(1). We have perused the stated sections, falling under Part V of the said Act, inserted on the statute w.e.f. 01/3/1966, and shall, where applicable, override anything (to the contrary) in the said Act (s. 56 of the BRA). None of them, however, is applicable inasmuch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a corresponding reduction in the income assessable as business income , resulting in the same gross total income, only on which deduction u/s. 80P is to be allowed and, therefore, to no effect. We are unable to understand the said disallowance, sought to be justified by the Revenue per its Grounds of Appeal in terms of mutuality, even as there is no reference thereto in the orders by the Revenue authorities, nor were any pleadings toward the same made during hearing and, per contra, not responded to by the assessee. The same is directed for deletion. 4.4 Coming to the aspect of disallowance of the deduction claimed, i.e., rs. 13.76 lacs, the question before us is if the assessee is entitled thereto at the full amount, i.e., as claimed by it, or at a lower sum. This lower sum could be nil, as the Revenue claims, only if the income on the qualifying activity is nil or in a negative sum, qua which, a matter of fact, there is in fact no claim by it. Section 80P(2)(a) restricts of allowance of deduction 80P(1) to the income arising from the activities specified thereunder. The answer to the question posed thus lies in determining the income from the activity of providing credit fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) in Peroorkada Service Cooperative Bank Ltd. (supra) as the same fell within the business of banking and, further, the assessee-respondent being a primary agricultural credit society (PACS), was not excluded by s. 80P(4) from the purview of s.80P. We may also note that the Apex Court in Mavilayi Service Cooperative Bank Ltd. (supra) held that interest on loans to members not for agricultural purposes was also entitled to deduction u/s. 80P(1). This, as explained therein, is so as it is not permissible for the Revenue to change the status of the appellant-society from that of PACS, which is sole prerogative of the Registrar of Co-operative Societies, who alone could examine if the assessee-society is, or continues to be, a PACS, or not. As such, as long as it is classified and registered as a PACS, not excluded u/s. 80P(4), income on the provision of credit to its members, falling u/s. 80P(2)(a)(i), would be eligible for deduction u/s. 80P(1) in full. The question arising in the instant case, on the contrary, is the extent of income arising to the assessee-society on the provision of credit to it s members, the sole qualifying activity u/s. 80P(2). The same cannot be stretched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of interest on different investments, which include saving deposit accounts as well, could vary significantly. As such, for example, if the monies lent to the members fetch an interest rate (a) (say), and the other investments (b) (say), and the total (gross) interest earned on the former is rs. 100 (say), and that on the latter rs. 200 (say), the estimated (net) income earned from the members, rather than being proportioned in the rate of 1/3 (of the total income), would be in the ratio of (100b/(100b + 200a)), i.e., by taking a weighted average. In practice, a much easier way would be to compute the average deployment of funds on each investment avenue, including on monies lent to members, by adopting the interest rate obtaining (on an average) in its respect for the relevant year. For example, an interest on saving deposit which is substantial in the instant case, of rs. 100 (say), at the rate of 4% (say), would imply an average capital deployment therein during the year at rs. 2500 (rs. 100 / 4%). Aggregation thereof would yield the total funds deployed across all avenues, i.e., on an average, during the year. The borrowing cost as well as the administrative cost is to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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