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TMI Blog2023 (3) TMI 1137X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITAT BANGALORE] the matter needs to be examined in the light of the above as observed in the above judgement. Therefore the case is remanded back to the file of the AO for a fresh consideration. Needless to say that reasonable opportunity be given to the assessee and the assessee is also directed not to seek unnecessary adjournments for early disposal of the appeal. Appeal filed by the assessee is allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... lso discussed the provisions of Section 80P(2) of the Act as well as the distinction between cooperative bank and cooperative society. He also relied on the judgement of the Hon'ble Supreme Court in the case of Totagars Co-operative Sale Society (2017) 395 ITR 611 (Kar). The AO also upheld that the income by way of interest earned on deposit or investment on ideal surplus funds does not change its characteristics irrespective of the fact that whether such interest income earned from scheduled bank or a cooperative bank, thus clause (d) of Section 80P(2) of the Act would not apply in the case of the assessee. Alternatively, the assessee also claimed expenditure under Section 57 of the Act for earning income under Section 56 of the Act but the AO denied it by observing that the assessee would not have incurred expenditure towards earning of income and accordingly disallowed the claim of expenditure under Section 57 of the Act and denying the deduction under Section 80P of Act & completed the assessment. Aggrieved by the order of the AO assessee filed appeal before the CIT(A). Before the CIT(A), assessee filed detailed written submission which has been incorporated by the CIT(A) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taka 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." 4.2. It may be necessary to mention here that the Hon'ble Tribunal has relied on the judgment of the Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. (Supra) and mentioned the gist of the said judgment vide para 7,3 of its order which is as under: "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. Act. The gist of the judgment of the Hon'ble Apex Court are as follows:- (i) Section 80P is a benevolent provision enacted by the Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, if there is ambiguity, in favour of the assessee (para 45of the judgment). ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction u/s 80P(2)(a)(i) of the Act on the interest income earned from investments made with the banks in compliance with the requirements under the Karnataka Co-operative Societies Act and Rules. The assessee should be given adequate opportunity of being heard." (Emphasis added) 4.4. It is submitted that the detailed submissions on the covered issues relying on the aforementioned decisions of the Hon'ble Tribunal in assessee's own case & others were made before the learned CIT(A) vide Written Submissions dated, 17-11-2022. However, the learned CIT(A) has not commented upon the same for the reasons not known. 6. On the other hand, the learned D.R. relied on the orders of the lower authorities and he submitted that both authorities had examined the issue in detail and relied on the judgement of the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society. The learned D.R. also submitted that the learned CIT(A) has rightly distinguished the judgement of Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. as per para 4.2.6 of the order of the CIT(A). 7. After hearing both the parties and perusing the entire materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess of Rs.10 lakh. In this context also, the assessment order is erroneous and prejudicial to the interest of the revenue. Therefore, this ground of the assessee is also rejected. 7.1 As regards whether the assessee is entitled to deduction u/s 80P(2)(a)(i) and 80P(2)(d) of the I.T.Act, the recent order of the Tribunal in the case of M/s.Vasavamba Cooperative Society Ltd. v. The Pr.CIT in ITA No.453/Bang/2020 (order dated 13.08.2021), after considering the judicial pronouncements on the issue held that interest income earned out of investments made from surplus funds 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. The relevant finding of the Tribunal reads as follows:- "9. The Hon'ble Supreme Court in the case of the The Totgars Co-operative Sale Society Ltd. Vs. ITO 322 ITR 283 (SC) held that Income from utilisation of surplus funds was taxable under the head income from other sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. The Court also observed that even the Hon'ble Supreme made it clear that they are confining the said judgment to the facts of that case. The Court therefore concluded that Hon'ble Supreme Court was not laying down any law. Similar view taken in Guttigedarara Credit Co-operative Society Ltd. vs. ITO [2015] 377 ITR 464 (Karnataka). In the case of PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE SOCIETY 392 ITR 0074 (Karn) in the context of deduction u/s.80P(2)(d) of the Act, it was held that Sec.80P(2)(d) of the Act allows deduction in respect of any income by way of interest or dividends d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT (Appeals) were justified in holding that such interest income was 100% deductible under Section 80P(2)(d) of the Act?" 11. 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 cooperative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the earlier decision of the Hon'ble Karnataka High Court referred to in the earlier part of this order, the Court held 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 co- operative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Totagar Co-operative Sales Society rendered by the Hon'ble Supreme Court is not restricted only to the investments made by the assessee therein from 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) 13. It can thus be seen that the ratio laid down by the Hon'ble Karnataka High Court in the case of Totalgars Cooperative Sales Societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Sale Society (supra) stands explained by the later decision in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 17. We however find that the Assessee has raised the following grounds of appeal in its appeal, viz., "5. Without prejudice to the above, the learned Principal Commissioner ought to have considered the submissions of the appellant to the effect that interest received by it amounting to Rs. 1,32,726 from deposits with Mysore & Chamarajanagar District Central Co-operative Bank made out of Reserve Fund in compliance with rule 23(2) 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 have held that the Income Tax Officer rightly allowed deduction thereof under section 80-P(2)(a)(i) of the Income Tax Act, 1961. 6. Without prejudice to the above, the learned Principal Commissioner ought to have taken note of the submissions made by the appellant that interest received by it amounting to Rs. 1,32,726 from deposits with Mysore & Chamarajanagar District Central Co-operative Bank made in compliance with section 58 of the Karnataka Cooperative S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the I.T.Act. The gist of the judgment of the Hon'ble Apex Court are as follows:- (i) Section 80P is a benevolent provision enacted by the Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, if there is ambiguity, in favour of the assessee (para 45 of the judgment). (ii) The co-operative societies extending credit facilities are entitled to deduction u/s 80P(2)(a)(i) and if there are loans to non-members, only profits attributable to the transactions with the non-members alone is liable to be excluded from the deduction. That is to say that the transactions with non-members per se would not disentitle a co-operative society from claiming the deduction under the section. If the state Act (the Co- operative Law) provides for enrollment of 'nominal members', the loans given to such nominal members would qualify for the purpose of deduction u/s 80P(2)(a)(i). (Para 30 to 46 of the Judgment) (iii) Under clause (d) of section 80P(2), the interest or dividend income derived by a cooperative society from investments with other co-operative society is also eligible for the deduction whole of such income. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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