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TMI Blog2023 (8) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... d profit and loss account reflecteda net profit of Rs. 1,17,247. The same was selected for being subject to the verification procedure under the Act in view of huge cash deposits with other banks during demonetization period (09.11.2016 to 31.12.2016), i.e., at Rs. 98.87 lakhs and Rs. 74.48 lakhs with Trivandrum District Cooperative Bank and Kerala Gramin Bank respectively. The Assessing Officer (AO), in assessment proceedings, observed the following: (a) The assessee was, apart from advancing agricultural loans, also giving loans for other purposes as well; (b) The assessee accepts deposits from persons for the purpose of making deposits therewith, or availing loan therefrom, by requiring them to become a Member by filling up a membership application form; (c) The assessee is also running various chit funds, which is again in the nature of banking; and (d) It had transferred a major portion of its profits to certain special reserves u/s. 36(1)(viii), applicable to a co-operative bank, i.e., other than a PACS or a Primary Co-operative Agricultural and Rural Development Bank (PCARDB). The assessee was, thus, in his view, engaged in the business of banking, i.e., a cooperati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived by a co-operative society on its investment with another co-operative society. The Hon'ble jurisdictional High Court has in Pr.CIT v. Peroorkada SCB Ltd. [2022] 442 ITR 141 (Ker), placing a copy of the same on record, clarified that the investment in a co-operative bank would be exigible for deduction u/s. 80P(2)(d) inasmuch as the co-operative bank is also a co-operative society, albeit in the business of banking. Smt.Jamuna Devi, the ld.Sr.DR, would, in response, rely on the orders by the Revenue authorities. 4. We have heard the parties, and perused the material on record. 4.1 The first issue before us is if the assessee is an eligible entity u/s. 80P of the Act inasmuch as sec. 80P(4) excludes, w.e.f. 01.04.2007 (i.e., AY 2007-2008 onwards), a co-operative bank, other than excepted categories, being PACS and PCARDB, from the purview of sec. 80P. The Hon'ble Apex Court in Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 431 ITR 1 (SC), reversing the decision by the Hon'ble jurisdictional High Court in Poonjar SCB Ltd. (supra), clarified that whether a co-operative society is a PACS (or PCARDB) is irrelevant for the purpose of deduction u/s. 80P where it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the commencement of the Kerala Co-operative Societies (Amendment) Act, 1999, as the assessee. The assessee-society is thus entitled to service any member of the public at large, giving it the character of a public entity, at par with a cooperative bank.The second proviso to sec. 2(oa) (renumbered as s. 2(oaa) by the Kerala Cooperative (Amendment) Act, 2013), as substituted by the Amendment Act of 1999, clearly provides that in the event of the principal object/s being not fulfilled, the PACS shall loose all its characteristics of being one such, except for staff strength. The same, however, did not find favour with the Hon'ble Apex Court in Mavilayi SCB Ltd.(supra), since followed in Pr. CIT v. AnnasahebPatilMathadi Ltd. [2023] 454 ITR 117 (SC), inasmuch as a category C or D member is only in terms of the Kerala Act. Section 2(l) defines a 'member' as inclusive of a nominal or associate member, separately defined u/s. 2(m) to mean a member who possesses only such privileges and rights, and is subject to such liabilities, as specified in the bye-laws. There was thus no parallel with the Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995, which had no provision fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant case, assessable as an 'Association of Persons'. It may here also be emphasized that s. 80-P(2)(d) is applicable to any set of two cooperative societies, i.e., other that the excluded category of cooperative banks (s. 80-P(4)), and irrespective of the nature of their business/activity and, further, irrespective of whether their income falls to be deductible under any of the other clauses of s. 80P. Be that as it may, in view of the decision in Peroorkada SCB Ltd.(supra), binding on us, the head of income under which the interest income, being deductible u/s. 80P(2)(a)(i) and/or sec. 80P(2)(d), is assessable, is rendered of no consequence. In fact, the gross interest of Rs. 84.08 lakhs cannot be assessed as income inasmuch as deduction/s u/s. 57 would have to be necessarily allowed in computing the same, and which exercise may, again, not be of any consequence. We may at this stage also advert to Totgar's Co-operative Sale Society Ltd. (supra) with a view to state its ratio, applicability of which would, in a given case, determine if the interest income is an operational income or arises qua surplus funds, assessable u/s. 56. And, that is, interest on surplus funds, i.e., not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble w.r.t. s. 80P(2)(d); (We are conscious of an overlap between (a) and (b) qua the interest income on deposits with co-operative societies/banks. However, in either case, i.e., it falling u/s. 80P(2)(a)(i) or sec. 80P(2)(d), is deductible in full. No useful purpose to our mind would therefore be served by determining the extent to which it falls under either, including may be nil under one of them. The same, thus, can be segregated from the total income of Rs. 64.65 lakhs, as being exempt u/s. 80P(1) r/w either sub-clause of sec. 80P(2). As a corollary, the head of income under which it is assessable, i.e., as business income (s.28) or income from other sources (s.56), becomes irrelevant.) (c) any income, not falling under the clause (a) and (b), shall be exempt to the extent of Rs. 50,000 w.r.t. sec. 80P(2)(c)(ii). 6. We consider it pertinent to, before parting with our order, state an observation in the matter. Income-tax Act is a Central Act, applicable uniformly across India. Cooperative sector, which has made deep made inroads into the rural economy of the country, is, with a view to encourage it, extended a beneficial treatment under the Act, noted time and again by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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