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TMI Blog2024 (6) TMI 1096X X X X Extracts X X X X X X X X Extracts X X X X ..... being taken as a member, the income earned on account of providing credit facilities to such member also qualify for deduction u/s 80P(2)(a)(i) of the Act. It was further held by the Hon ble Apex Court that section 80P(4) of the I.T. Act is to be read as a proviso. As stated by the Hon ble Apex Court that section 80P(4) of the Act now specifically excludes only co-operative banks which are co-operative societies engaged in the business of banking i.e. engaged in lending money to members of the public, which have a license in this behalf from the RBI. The Hon ble Apex Court had enunciated various principles in regard to deduction u/s 80P of the Act. On identical factual situation, in the case of M/s. Ravindra Multipurpose Cooperative Society Ltd. [ 2021 (9) TMI 342 - ITAT BANGALORE] had remanded the issue to the files of the A.O. for de novo consideration. Thus we restore the issue of claim of deduction u/s 80P(2)(a)(i) of the Act to the file of the A.O. for de novo consideration. Deduction u/s 80P(2)(d) - appellant earned interest income from funds invested in Co-operative banks other than Cooperative societies - As regards the claim of deduction u/s 80P(2)(d) of the I.T. Act, we d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service Cooperative Bank Ltd., Ors v/s Commissioner of Income Tax, Calicut Anr. [2021] 123 taxmann.com 1 where the primary agricultural credit societies are entitled to the benefit of deduction contained in section 80P(2)(a)(i) of the Act on interest income earned from lending to members including nominal members. 5. The learned Commissioner of Income Tax(Appeals) erred in considering interest income earned by the Appellant from investment into other cooperative societies as taxable under the head Other sources and not Business income ; thus rending deduction u/s80P(2)(d) not applicable. 6. The learned Commissioner of Income Income-tax (Appeals) erred in not considering Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co- operative Ltd. V. Income Tax officer ward-v, Tumkur reported in 120151 55 taxmann.com 447 and Bangalore ITAT decisions in the case of Totagars Co- op sale Society, Sirsi vs The Asst. Commissioner of Income tax, circle-1(1) TPS, Hubli in ITA No.376 to 379/Bang/2023 where interest income earned from investment in Co-opeartive Bank by multi purpose Cooperative Society is eligible for deduction u/s 80P(2)(d) of the Act. 7. The Appellant craves lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase are not in dispute. It is significant to point out that the main reason for disentitling the assessee from getting the deduction provided under Section 80P of the Act is that the claim is alternate to the 'Test of Mutuality'. What has been noticed by the AO, after analyzing in detail the activities of the assessee is that the activities of the assessee are in violation of the provisions of the section 80P. It is pointed out by the AO that the assessee is catering to two distinct categories of members (Ordinary and Nominal). These types of members were having different kind of rights and also the different work culture/work allotted according to the type of member. With indulgence in such kind of activity by the assessee, it was noted by the ld. AO that the activity of the assessee is in violation of the Cooperative Societies Act. Hence, it was held by the AO that the assessee society is not following the principle of mutuality and accordingly is not entitled to claim the benefit of the deduction u/s 80P of the Act. He observed that the ld. AO has relied on the decision of the Hon'ble Supreme Court of India in the case of Citizens Cooperative Society and disallowed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles in regard to deduction u/s 80P of the Act. On identical factual situation, the Bangalore Bench of the Tribunal in the case of M/s. Ravindra Multipurpose Cooperative Society Ltd. v. ITO in ITA No.1262/Bang/2019 (order dated 31.08.2021) had remanded the issue to the files of the A.O. for de novo consideration. The Tribunal directed the A.O. to follow the dictum laid down by the Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. v. CIT Anr. (supra). The relevant finding of the Co-ordinate Bench of the Tribunal in the case of M/s. Ravindra Multipurpose Cooperative Society Ltd. v. ITO (supra), reads as follows:- 6. Grounds 2-4 additional Ground No.1: In respect of associate / nominal members, Hon ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT (2021) 123 taxmann.com 161 (SC) has held that the expression Members is not defined in the Income-tax Act. Hence, it is necessary to construe the expression Members in section 80P(2)(a)(i) of the Act in the light of definition of that expression as contained in the concerned co-operative societies Act. In view of this, the facts are to be examined in the light of principles lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80P of the Act. 5.4. In view of the above facts, he observed that the interest earned from surplus invested/deposited in the Co-operative banks is not attributable to main business of the assessee, hence needs to be assessed as income from other sources and not as business profits. Accordingly, he observed that the observations and the findings of the AO appear to be in order which does not permit to take a divergent view. Accordingly, the disallowance made by the AO in respect of the interest income earned from the deposits made in Cooperative Bank was upheld and the grounds raised in respect of this issue were dismissed by the ld. CIT(A). Against this assessee is in appeal before us seeking relief u/s 80P(2)(d) of the Act. 6. We have heard the rival submissions and perused the materials available on record. As regards the claim of deduction u/s 80P(2)(d) of the I.T. Act, we direct the A.O. to verify whether interest / dividend is received by the assessee out of investments made with Cooperative Societies. If the assessee earns interest / dividend income out of investments with co-operative society, as observed by Hon ble Supreme Court in the case of Kerala State Co-operative Agri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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