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TMI Blog2023 (6) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... BENCH: These two appeals are filed by assessee and are arising out of the order of the National Faceless Appeal Centre, Delhi dated 17/03/2023 [here in after (NFAC)] for assessment years 2018-19 2020-21 which in turn arise from the order dated 23.03.2021 21.09.2022 respectively passed under section 143(3) of the Income Tax Act, [ here in after as Act ] by the National e- Assessment Centre, Delhi. 2. Since the issues involved in the assessee s appeal for both the years are almost identical and are almost common, except the difference in figure of additions disputed, therefore, both these appeals were heard together with the agreement of both the parties and are being disposed off by this consolidated order. 3. At the outset, the ld. AR has submitted that the matter pertaining to Royal Credit Co Operative Society Limited in ITA no. 221/JPR/2023 may be taken as a lead case for discussions as the issues involved in the lead case are common and inextricably interlinked or in fact interwoven and the facts and circumstances of other cases are identical except the difference in the amount in other assessment year. The ld. DR did not raise any specific objection against takin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2019 with a total income of Rs. 94,600/-. In response to the notice u/s 142(1) issued, the assessee submitted information. After verifying the information submitted by the assessee it is seen that the assessee for the A.Y.2018-19 claimed deduction u/s. 80P(2)(a)(i) of Chapter-IVA of Income tax Act, 1961 to the extent of Rs. 31,70,144/-. In order to verify the genuineness of the claim of the assessee, notice u/s. 142(1) issued asking to justify the claim of deduction made under Sec. 80P(2)(a)(i) of Income Tax Act, 1961. 5.1 In response to the various notices issued, the assessee submitted the information and stated that the assessee is a Cooperative Credit Society formed and operated by members only. The assessee Co-operative Society is registered with the Registrar of Co-operative Society, Rajasthan, Jaipur under Rajasthan State Co-operative Act. The assessee accepts deposits and provide credit facilities solely to its members. The assessee provides secured loans to its members by way of overdraft facility, short term, medium/long term nature out of circulating funds available with it, which are in the form of share capital, recurring deposits, fixed deposits raised from its m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other societies. 19. It is also pertinent to refer the decision of Hon'ble Supreme Court of India in the case of Totgars' Co-operative Sale Society Ltd Vs Income-tax Officer [2010] 188 Taxman 282 (SC), in which it was held that fund not required immediately for business of providing credit facilities and interest earned on such fund would come under the category of 'Income from Other Sources' taxable u/s 56 of the Income-tax Act, 1961 and the same would not qualify for deduction as business income u/s 80P(2)(a)(i) of the Income-tax Act, 1961. 20. In view of the above discussion, the undersigned is of considered opinion that the appellant is not eligible for deduction u/s 80P(2)(d)/80P(2)(a)(i) with respect to the interest income of Rs. 31,70,144/- earned from the deposit of surplus fund in the Co-operative Bank. Accordingly, the ground raised by the appellant stands dismissed. 21. In the result, the appeal is dismissed. 7. As the assessee did not found any favour from the appeal so filed before the ld. CIT(A)/NFAC, preferred this appeal on the various grounds as reproduced here in above. To support grounds so raised by the assessee the ld. AR of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers. The assessee society primarily works for the mutual benefit of the said members by accepting deposits from members and giving on credit to needy members on interest. Further on account of statutory guidelines of the regulations of the societies, as prudence management and in the larger interest of the depositors the society keep its surplus funds by way of liquid investments. 2. Action of Ld. A.O. The assessee society s case was selected in Scrutiny for this A.Y. by Ld. A.O. by issuing notice u/s 143 (2) which assessee complied from time to time. The Ld. A.O. in assessment proceedings is of the opinion that the interest income of Rs. 6075056 earned by the appellant co-operative society on FDR(s) with the Malviya Urban Co-operative bank Ltd is not an income derived by it from its business activities and is in the nature of receipts from other sources. The Ld. Assessing Officer is further opined that interest income of Rs. 6075056 derived by it from FDR(s) with the Malviya Urban Co-operative Bank is in fact income derived from a Co-operative Society within meaning of sec. 80P(2)(d) of the I.T. Act, 1961 by arbitrarily holding that income from co-operative Bank is not ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, co-operative society means a cooperative society registered under the Co-operative Societies Act, 1912, or under any other law for the time being in force in any State for the registration of co-operative societies . For ready reference and sake of convenience the relevant provisions of sub-section 1 and 2 of section 80P are reproduced herein below:- 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 followings namely: (a) In the case of a cooperative society engaged in (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry 1, or 2[(iii) the marketing1 of agricultural produce1 grown by its members, or] (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard for the Urban Co-operative Banks shall have effect. Provided further that a short term co-operative credit structure society may invest or deposit its funds in any bank or financial institution regulated by the Reserve Bank of India.] [Copy of Rajasthan Co-operative Society Act 2001 is attached] 1.4 Assessee society s submissions are also supported by the decision of The Hon ble High Court of Telengana and Andhra Pradesh in case of Vavveru Co-operative Rural Bank Ltd. v. Chief Commissioner of Income-tax (2017) 88 taxmann.com 728, in which case it was held that: Section 80P of the Income-tax Act, 1961 - Deductions - Income of cooperative societies - Assessment years 2010-11, 2013-14 and 2014-15 - Assessee-society was entitled to deduction under section 80P in respect of interest income from fixed deposits with nationalised bank when source of such investment was income derived from activities listed in sub-clauses (i) to (vii) of clause (a) of section 80P(2) [In favour of assessee] If there is a co-operative society, which is carrying on several activities including activities listed in sub-clauses (i) to (vii) of clause (a) of section 80P(2), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, is statutorily required to place a part of its funds in approved securities, income from such securities would be eligible for deduction under section 80P(2)(a)(i). CIT Vs Andhra Pradesh State Cooperative Bank Ltd. (2011) 200 Taxmann 220/12 Taxmann.Com 66(AP) :- Section 80P (2)(a) does not make a distinction between income received by a cooperative Bank from statutory deposits and income from non- statutory deposit of surplus funds and, therefore, income received by a cooperative bank from deposits, whether or not they are made in discharge of a statutory obligation or otherwise, being income from banking business would be eligible for exemption under section 80P. The Hon ble jurisdictional ITAT, Jaipur bench, Jaipur also in the case of Shiksha Vibhag Karmacharigan Sahakari Samiti Ltd, Kota Vs. ITO Ward 2(3) Kota in IT Appeal No.281 282/JP 2017 and 87/JP/2018 dated 17.06.2019 and ITO Vs Keshorai Patan Sahkari Sugar Mills, Bundi (ITA No. 418- 419/JP/2017) upheld the same view after considering the judgements of Totagar's Co-operative Sale Society Ltd. The Assessee society also relies on the following judgments: a) DCIT Vs BardoliVibhag Gram Udyog Vikas Co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.] On plain reading of the Explanation (a) it is apparent that said explanation defining co-operative bank is only to be understood with respect to sub-section (4) of 80P and not for entire section 80P. It is pertinent to note that Explanation begins with the phrase For the purpose of this sub-section,-. It means that interpretation of the cooperative bank is to be drawn only and only while interpretating subsection (4) of Section 80P and not otherwise. 2.3. Contention of the assessee society are duly supported by as decided in the case of Doaba Co-operative Sugar Mills Ltd ( supra ), the Punjab Haryana High Courtas held as under: '5. The contention of Mr. Gupta, learned counsel appearing for the Revenue, is that the Tribunal was wrong in allowing deduction under Section 80P(2) (d) of the Act because it is not established that the assessee had derived the interest by investing all the amount of surplus funds. It is further contended by Mr. Gupta that the assessee has paid interest to Jalandhar Central Co-operative Bank and has also received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in allowing deduction under Section 80P(2)(d) of the Income- tax Act, 1961. In respect of interest of RS. 4,00,919 on account of interest received from Nawanshaln Central Co-operative Bank without adjusting the interest paid to the hank. Therefore, the reference is answered against the Revenue in the affirmative and in favour of the assessee.' [Emphasis supplied] 2.4. It is correctly appraised in para 11.0. of the assessment order that Cooperative bank even though might be registered as a Co-operative Society is not a co-operative society eligible for receiving the benefit of exemption or 100 % deduction under section 80P of the Act, as its Banking business is governed by the provisions of a special law like Banking Regulation Act, 1949. But here in the case of assessee society it is not a co-operative bank but a co-operative society eligible for deduction u/s 80P (2)(a)(i) as well as under sub-section 80P (2) (d) of the Income Tax Act,1961. 2.5. In para 12.0 of the assessment order amendment of section 194A(3) (v) of the Act by Finance Act, 2015 have been enumerated that w.e.f. 01.06.2015 the said section excludes the co-operative bank from the genus category of co-ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpreting the section 80P(2)(a)(i) of the Act held that surplus funds not immediately required in the business and invested in the short term deposit would be assessable under the head income from other sources where the Co- operative society is engaged in carrying on business of banking or providing credit facilities to its members and consequently no deduction is allowable u/s 80P(2)(a)(i) of the Act. Thus, from a perusal of the provisions of u/s 80P(2)(a)(i) and 80P(2)(d) it is clear that the former deals with deduction in respect of profits and gain of business in case of the cooperative society carrying on business of banking or providing credit facilities to its members if the said income is assessable as income from business whereas latter provides for deduction in respect of income by way interest and dividend derived by assessee from its investments with other cooperative society. Thus it is amply clear that a cooperative society can only avail deduction u/s 80P(2)(a)(i) in respect of its income assessable as business income and not as income from other sources if it carries on business of the banking or providing credit facilities to its members and has income assessable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.r.t. Section 80 (2)(d) of the Act, and Accordingly, the ratio decided in the said case is not at all applicable and relevant in the case of assessee society. 2.9 Assessee society also places, its reliance in support of submissions, upon order of jurisdictional Hon ble ITAT Jaipur Bench decision in the case of Shiksha Vibhag Karmacharigan Sahakari Samiti Ltd, Kota Vs. ITO Ward 2(3) Kota in IT Appeal No. 281 282/JP 2017 and 87/JP/2018 dated 17.06.2019[Copy of order attached], where in the Hon ble ITAT has reiterated in the concluding para while deciding in favour of the appellant society as under: The Hon ble High Court has again considered the decision of Hon ble Supreme Court in case of Totagars Co-operative Sale Society Ltd. vs. ITO (supra) and held that the interest earned on the deposits of the assessee s own fund made in the banks is eligible for deduction under section 80P(2)(a) being the said income is attributable to the business activity of the assessee. Though there are divergent views on this issue, however, by following the decision of Hon ble Jurisdictional High Court as well as the decision of this Tribunal, we decide this issue in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs. CCIT (2017) [396 ITR 371](AP), while dealing with the allowability of the interest derived by cooperative societies from out of the investments if any, made. The Hon ble court observed that, the case before the Supreme Courtin Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Courtin Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) alongwith other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on FDR with Bombay Mercantile Cooperative Bank Ltd., and was taxed. The Ld. CIT(A), however, deleted the addition and the Tribunal dismissed the appeal of Revenue. The assessee placed sufficient material before the authorities below to prove that it has invested surplus funds in FDR and earned interest. These funds were available to assessee for utilisation for providing credit facilities to its Members. The interest on FDR have been pledged with the same Bank and O.D. facility have been obtained. The O.D. facility obtained were used for providing credit facilities to its Members. The assessee also filed Certificate that Bombay Mercantile Cooperative Bank Ltd., is a Cooperative Society. The findings of the Tribunal in the case of assessee for A.Y. 2008-2009 have already been reproduced above in which it was held that Bombay Mercantile Cooperative Bank Ltd., have been assessed as a Cooperative Society and its income was allowed to be exempt under section 80P(2)(a)(i) of the I.T. Act by the Mumbai Bench. It was, therefore, held that fixed deposits placed with this Bank falls within the exemption granted by Section 80P(2)(d) of the I.T. Act and assessee was also eligible for deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 8.1. In the said decision, the Judgment of Hon ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd., (supra) have been considered by the High Court and it was held that the said decision is confined to facts of that case. The appeal of assessee was allowed. The Ahmedabad Bench of the Tribunal in the case of Arbuda Credit Co-op. Society Ltd., vs. ACIT (supra), followed the Order in the case of same assessee for A.Y. 2008-2009 and decision of the Hon ble Karnataka High Court above and decided the issue in favour of the assessee and held that assessee is eligible for deduction under section 80P(2)(a)(i) of the I.T. Act for the interest income earned on unutilized idle funds kept for business purposes of the Society being deposited with Banas Bank. The Ld. CIT(A) in the case of the same assessee for A.Y. 2013-2014 vide order dated 15.02.2018 following the order of the Tribunal for A.Y. 2008-2009 allowed the claim of assessee. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.14 The Hon ble High Court of Calcutta in case of PCIT Vs Gunja Samabay Krishi Unnayan Samity Ltd. (147 Taxmann Com 518) Dated 13-01- 2023 held that Where assessee, co-operative society, earned interest income on surplus funds invested in deposits with banks and Government securities, since neither said amount of deposit was due to its members nor it was liability to its members, same would qualify for deduction under section 80P(2)(a)(i) . 2.15 In view of the aforesaid various decisions by jurisdictional Hon ble High Court and Hon ble ITAT the assessee society is rightly entitled to claim the deduction of interest income of FDRs with Co-operative Bank under Section 80 (2) (d) of the Act. In view of the above facts and settled legal position of law the deduction u/s 80P of the Act, is correctly and legally claimed by assessee society and accordingly allowable as such. It is prayed to your honors to set aside the order of Ld. CIT(A) and addition made in the assessment order may kindly be deleted. Ground No. (4) General ground. The appellant prays accordingly. 8. In this appeal the ld. AR of the assessee submitted compilation of judgment(s), the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also perused the judicial pronouncements that have been pressed into service by both the parties to drive home to their respective contentions. The main issue in this case is the denial of deduction u/s. 80 (P)(2)(a)(i) of I.T. Act, to the assessee to the extent of net profit of Rs. 31,70,144/- earned by the assessee from carrying on business as Co-operative Society and the assessee claimed said amount as eligible for deduction u/s. 80(P) of I.T. Act. It was also stated that the assessee's source of income is interest income arising while providing credit facilities to its members and as such it is entitled for deduction u/s 80P(2)(a)(i) of I.T. Act which was claimed in the return of income filed by the assessee. 10.1 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 Malviya Urban Co-operative Bank Ltd., 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest income received on such short-term deposits was duly 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 is engaged in providing credit facilities to its members. 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. Malavia Urban Co-operative Bank Limited (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. Malavia Urban Co-operative Bank Limited (supra) was simpliciter surplus or idle funds of the assessee society, for which there were no takers for the time being in course of its business of providing credit facilities to its members. Therefore, depositing of the same by way of short-term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ) to ( vii )** ** ** 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. v. CIT , Gujarat-II reported in ITR Vol. 113 (1978) Page 842 at Page 93 as under: As regards the aspect emerging from the expression attributable to occurring in the phrase profits and gains attributable to the business of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 80(P)(2) of the Income Tax Act, 1961. Ms. Aakansha Kaul, learned counsel appearing on behalf of the appellant/Revenue has tried to submit that the respondent/Assessee will fall under the definition of Co-operative Bank as their activity is to give credit/loan. However, it is required to be noted that merely giving credit to its members only cannot be said to be the Co-operative Banks/Banks under the Banking Regulation Act. The banking activities under the Banking Regulation Act are altogether different activities. There is a vast difference between the credit societies giving credit to their own members only and the Banks providing banking services including the credit to the public at large also.There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assessee cannot be termed as Banks/Cooperative Banks and that being a credit society, they are entitled to exemption under Section 80(P)(2) of the Income Tax Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Article 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT Circulars a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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