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TMI Blog2024 (2) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... ame to consider the claim of deduction u/s.80 P(2)(d) of the Act. Further, we make it clear that the assessee is not entitled for deduction u/s 80P(2)(a)(i) of the Act in view of judgement of Hon ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd [ 2010 (2) TMI 3 - SUPREME COURT] wherein as directed that in the event it is found that the interest is earned by the assessee from such commercial/cooperative banks that fall within the definition of banking company as per section 2(c), Section 5(b) and holds license under section 22 of the Banking Regulation Act 1949, such interest are to be considered under the head income from other sources however, relief may be granted as available to the assessee u/s 57 of the Act in accordance with law. Thus we remit the issue to the file of AO to pass orders in the light of the ratio laid down in the said order. Appeal filed by the assessee stands allowed for statistical purposes. - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER For the Appellant : Shri Shreehari Kutsa, Advocate For the Respondent : Shri Ganesh R Ghale, Standing Counsel for Dept. ORDER PER MADH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-operative Ltd. vs. ITO (supra). 9. We have further considered the judgment passed in the matter of Kedambady Keyur Primary Agricultural Co- operative Society Ltd. (supra). While granting relief to the assessee, the Hon ble Coordinate Bench was pleased to observe as follows: 3. We have heard the rival submissions and perused the materials available on record. As rightly pointed out by the ld. A.R. in his petition, the issue involved in these additional grounds is only question of law and there is no necessity of investigation of any facts otherwise on record and these additional grounds are admitted for adjudication. 4. Facts of the case are that the assessee is a Primary Agricultural Credit Co-operative Society engaged mainly in the business of providing credit facilities to its member- agriculturists and distribution of ration articles. For the assessment year 2017-18, the entire income of the assessee is eligible for deduction u/s 80P of the Act and hence had filed its return of income declaring 'NIL' taxable income. a. The assessee's case was selected for scrutiny assessment u/s 143(2) of the Act. b. While passing the order u/s 143(3), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (para 15) Court in Citizen Cooperative Society Ltd. [397 ITR 1] held as follows: 13. If the income of a society is falling within any one head of exemption, it has to be exempted from tax notwithstanding that the condition of other heads of exemption are not satisfied. A reading of the provisions of Section 80-P of the Act would indicate the manner in which the exemption under the said provisions is sought to be extended. Whenever the legislature wanted to restrict the exemption to a primary cooperative society, it was so made clear as is evident from clause (f) with reference to a milk cooperative society that a primary society engaged in supplying milk is entitled to such exemption while denying the same to a federal milk cooperative society. 22. With the insertion of sub-section (4) by the Finance Act, 2006, which is in the nature of a proviso to the aforesaid provision, it is made clear that such a deduction shall not be admissible to a cooperative bank. However, if it is a primary agricultural credit society or a primary cooperative agricultural and rural development bank, the deduction would still be provided. Thus, cooperative banks are now specifically exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word agriculture into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a license in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. On these facts Hon ble Supreme Court held the assessing officer was right in taxing the interest income indicated above under Section 56 as income from other sources of the Act. Hon ble Supreme Court, also clarified that, they are confining the said judgment to the facts of that case alone. 6.4 Further the adjudication by the Hon ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. vs. ITO (322 ITR 283) (SC) was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a cooperative society towards deduction under Sec. 80P(2)(d) on the interest income on the investments/deposits parked with a cooperative bank. Therefore, reliance was placed by the Ld. DR on the decision of Hon ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. vs. ITO (supra) is distinguishable on facts. 6.5 At this juncture, we refer to subsequent decision of Hon'ble Karnataka High Court in the case of PCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein held that the appellant/assessee is a co- operative bank and thus, was hit by the provisions of Section 80(P)(4) and was not entitled to the benefit of Section 80(P)(2) of the Act. This was upheld by the Ld.CIT(A) and the Tribunal. The decision of the Tribunal was confirmed by Hon ble Kerala High Court. 6.8 The Hon ble Supreme Court analyzed the legal framework, relevant provisions under relevant co- operative societies Act, NABARD Act, provisions of sec. 80P under the Income Tax Act, 1961, RBI Act, the Banking Regulation Act and the various judicial precedents on similar issues. The observations of Hon ble Supreme Court in para 14.3 and 15.8 are of relevant that reads as under:- 14.3. While analysing Section 80P of the Act in depth, the following points are noted by this Court: i) Firstly, the marginal note to Section 80P which reads Deduction in respect of income of co-operative societies is significant as it indicates the general drift of the provision. ii) Secondly, for purposes of eligibility for deduction, the assessee must be a co-operative society iii) Thirdly, the gross total income must include income that is referred to in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demand or otherwise, and withdrawal by cheque, draft, order or otherwise. Thus, it is only when a co-operative society is conducting banking business in terms of the definition referred to above that it becomes a co-operative bank and in such a case, Section 22 of the BR Act, 1949 would apply wherein it would require a licence to run a co-operative bank. In other words, if a co- operative society is not conducting the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949, it would not be a co-operative bank and not so within the meanings of a state co-operative bank, a central co-operative bank or a primary co-operative bank in terms of Section 56(c)(i)(cci). Whereas a cooperative bank is in the nature of a banking company which transacts the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949. But if a co-operative society does not transact the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949, it would not be a co-operative bank. Then the definitions under the NABARD Act, 1981 would not apply. If a co-operative society is not a co-operative bank, then such an entity would be entitled to deduction but o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of providing credit facilities to its members or marketing of agricultural produce of its members. Interest income of such society from amounts retained by it cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) or section 80P(2)(a)(iii) of the Act. 6.10 It is directed that in the event it is found that the interest is earned by the assessee from such commercial/cooperative banks that fall within the definition of banking company as per section 2(c), Section 5(b) and holds license under section 22 of the Banking Regulation Act 1949, such interest are to be considered under the head income from other sources however, relief may be granted as available to the assessee u/s 57 of the Act in accordance with law. With the above directions, we remit this issue to the Ld.AO. Additional grounds: 7. With regard to additional ground No.1, in our opinion, this ground is very general in nature and not made any specific material to suggest that the ld. AO have no jurisdiction to frame the assessment in this case. Hence, the first additional ground is dismissed. 7.1 Next additional ground is with regard to levy of interest u/s 234A, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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