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TMI Blog2024 (5) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... s been discussed in the case of M/s Totgars Co-operative Sales Society [ 2010 (2) TMI 3 - SUPREME COURT ] where it is held that the deduction u/s 80P is available only to the income which is attributable to the business operation. Since the interest income received by the appellant is not attributable to the main business of the appellant i.e. not operational income, accordingly the interest received by the assessee on investment made with KDCC Bank is not eligible for deduction u/s. 80P(2)(a)(i) of the Act. Deduction u/s 80P(2)(d) - Section 80P(2)(d) describes that if the assessee has derived interest/dividend from its investments with any other co-operative society, then the assessee is eligible for claim of deduction on such interest/dividend derived. In the judgment of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. [ 2023 (9) TMI 761 - SUPREME COURT ] it has been discussed in detail the definition of co-operative banks and cooperative society. If the payer bank falls under the definition of cooperative bank in the light of the judgment of Hon ble Apex Court then the assessee is not eligible to get deduction u/s. 80P(2)(d) on such interest income derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were issued to the assessee. The assessee filed reply. The AO noted that assessee is a credit co-operative society and mainly doing banking business and having members as follows:- A Class members - 628 D Class members (Associate members) - 382 Nominal members - 675 Different members have different rights and responsibilities and this violated the principle of mutuality. The assessee society was giving different types of loans like jewel loans, vehicle loans, etc. and majority of interest receipts from these kind of loans were for purposes other than agricultural purposes. The AO relying on the Supreme Court decision in Citizen Co-operative Society Ltd. [2017] 84 Taxman 114 (SC) denied deduction u/s. 80P(2)(a)(i). 4. Regarding the alternative claim of deduction u/s. 80P(2)(d) of the Act, the AO noted that interest income of Rs. 29,83,833 was earned from investments with Karnataka District Central Co-operative Bank (KDCCB), even though KDCCB had skeleton of a co-operative society, its activities are at par with that of a commercial bank. Hence deduction u/s. 80P(2)(d) was also denied. 5. Aggrieved, the assessee filed appeal before the CIT(Appeals) and relying on various judgments s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning under license from RBI and lending and taking deposits from public are specifically excluded from the provisions of section 80P(4) and cannot be considered as a co-operative society for the purposes of section 80P. Hence the CIT(Appeals) held that the interest income earned from KDCC Bank cannot be considered as income from investment with any other co-operative society and is not eligible for deduction u/s. 80P(2)(d). 7. The CIT(Appeals) therefore rejected assessee s claim of deduction u/s 80P(2)(a)(i) or 80P(2)(d) of the Act. Against this, the assessee is in appeal before the ITAT. 8. The ld. AR reiterated the submissions made before the lower authorities and submitted that the assessee is a co-operative society and carrying on business of providing credit facilities to its members. The assessee received interest income out of its investments with KDCC Bank which is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959 (KCS Act) and accordingly deduction u/s. 80P(2)(a)(i) of the Act should be allowed. Alternatively, he submitted that interest earned by the assessee is attributable to credit business of assessee society and it is liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple of mutuality therefore deduction u/s 80P(2)(a)(i) cannot be granted, relying on the judgement of Hon ble Apex Court in the case of Citizen Co-operative Society Ltd. as relied by the lower authorities. The assessee has violated the provisions of Karnataka Cooperative Society (amendment)Act 2014, the number of associate members under clause (a) in any co-operative society except employees co-operative society shall not exceed fifteen percent of the total regular membership. 11. He further submitted that in the case of Kerala State Cooperative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum Ors. (2023) 154 taxmann.com 305 the Hon ble Supreme Court has clearly held that if the payer bank holds licence from RBI for carrying out banking business, then the interest received from such bank is not eligible for deduction u/s. 80P(2)(d), though the co-operative bank may be primarily formed as co-operative society and that the activity of the entity should be seen. 12. Considering the rival submissions, we note that here the issue is that whether the assessee is eligible to claim of deduction u/s. 80P(2)(a)(i) or 80P(2)(d) on the interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permission is to be taken from , the Registrar of Co-operative Societies. Therefore the argument of the assessee that it is operational income is rejected. Even the maintainability of SLR requirement from out of internal fund/external funds invested in KDCC Bank and interest earned thereon will not change the character of the nature of income and it is not attributable to the business of the assessee. The issue regarding the word attributable has been discussed elaborately by the Hon ble Apex Court in the case of M/s Totgars Co-operative Sales Society (2010) reported in [2010] 188 Taxman 282 (SC) where it is held by the Hon ble Supreme Court that the deduction u/s 80P is available only to the income which is attributable to the business operation. Since the interest income received by the appellant is not attributable to the main business of the appellant i.e. not operational income, accordingly the interest received by the assessee on investment made with KDCC Bank is not eligible for deduction u/s. 80P(2)(a)(i) of the Act. 13. Regarding section 80P(2)(d) of the Act, we note from the submissions of the ld. AR that the assessee has invested in KDCC Bank and earned interest thereon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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