9911796707
TMI Blog2024 (6) TMI 1360X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the present appeal i.e, allowability of the assessee s claim for deduction under Sec. 80P(2)(a)(i) on the interest on bank deposits remains the same as were there in the aforesaid case we direct the AO to allow the assessee s claim for deduction under Sec. 80P(2)(a)(i). Decided in favour of assessee. Paddy Procurement Business - Tribunal while disposing off the appeal in the case of Gramin Sewa Sahakari Samiti Maryadit Ors [ 2022 (3) TMI 75 - ITAT RAIPUR ] while dealing with the assessee s claim for deduction of the income from paddy procurement business u/s.80P(2)(a)(iii) of the Act, had remanded the issue to the file of the A.O as held now when only a small fraction of the procurement of paddy was made by the assessee-society in the course of its paddy procurement business from non-members, therefore, restricting of its claim for deduction u/s. 80P(2)(a)(iii) of the Act to 35% of the profits earned from the said business activity was not justified. Be that as it may, we are of the considered view that as the compilation of the paddy procurement by the assessee-society has been filed before us as additional documentary evidence, and the same was not there before the lower au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom banking business and deduction be allowed. 1.2 Without prejudice to above, the Ld. CIT(A)/A.O further erred in not deducting the interest paid to members amounting to Rs. 2,62,526 from aforesaid sum of Rs. 2,62,526 Prayed income from the business of banking and providing credit facility to its members Rs. 7,00,937 be allowed as deduction. 2. Paddy Procurement Business: That under the facts and circumstances of the case and in law the learned CIT(A) / A.O further erred in disallowance of deduction U/s. 80(P)(2)(a)(iii) in relation to "marketing of agricultural produce grown by its members" amounting to Rs. 4,49,911 . Prayed that the society is directly engaged in marketing of agricultural produce (paddy) grown by its member. The provision of Section 80P(2)(a)(iii) is applicable. Disallowance of Rs. 4,49,911 be deleted. 3. Trading Business (Sale of Khad I Beej): That under the facts and circumstances of the case and in law the learned CIT(A) / A.O has further erred in disallowance of deduction U/s. 80P(2)(a)(iv) in relation to "sale of seeds, manure, fertilizers and pesticides or other articles intended for agricultural for the purpose of supplying th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the AO was perused carefully and it was observed that the AO had concluded that the assessee deposits of its surplus funds with cooperative banks is not eligible for deduction u/s 80P(2) referring to the case of Totagars Cooperative Sale Society and disallowed the deduction u/s 80P in totality. 3.2. The submission dated 14.08.2019 made by the appellant have been carefully perused wherein the appellant has stated that the society purchases paddy from registered members only and that transactions with non-members are strictly prohibited. The activities of the society are restricted to facilitate its members' farmers only and no personal interest is involved. The appellant further states that it has earned commission of Rs. 22,70,768/-. 3.3. The appellant further states that in a similar case for the same AY, He CIT(A) has adjudicated the case in favour of an appellant -- Sewa Sahakari S Dhanora. The order u/s 250 of Hon'ble CIT(A) NFAC was also perused. affirmations of the AO in the assessment order for the additions made by him detailed in page 2 to 8 are as under -- 3.4. As per the assessment order, the relevant portions are reproduced -- Assesses is a pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Business:- As submitted by the assessee during the course of assessment proceedings, one of the activities of the society is carrying out banking business like borrowing, raising or taking up money and lending or advancing money for the purpose of agriculture, sale and purchase of seeds and urea to its members. Cooperative society avails credit facility from Cooperative bank. The assessee has claimed the entire income of cooperative society from banking business deductible under section 80P (2)(a)(0 of the I.T. Act,1961. In this case it is important to mention that once that once the Urban Co Operative Credit Societies are classified as bank then they are not eligible for benefits provided under section 80P of the Income Tax Act, 1961. As per the provisions of section 80P(4) of the income Tax Act, 1961 deduction under section 80P is not available to Co- perative bank from the A.Y. 2007-08. The expression Co[l]Operative bank, primary agricultural credit society have been taken as per the definition given in part V of the banking Regulation Act, 1949 (10 of 1949). Further, as per sub-section (viia) of section 2 (24 ) of the I. T. Act 1961 provides that the profits and gains of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on bank deposit. The assessee Society had invested the surplus funds as, and by way of, investment by an ordinary investor, hence, interest on such investment has got to be taxed under the head 'Income from other sources" It is an earned and unearned income. On going through the records Produced by the assessee it appears that these are long term investments On deposit with banks. However, the assessee has Claimed the same u/s 80P (2)(d) of the IT Act 1967 Considering the Same as income from Business. In this case this income is to be taxed under section 56 of the Act as the interest income arising on the surplus invested deposits and Securities which surplus was not required for business Purposes. In this connection, on the analysis of section 80P of the Act which comes in Chapter VI-A, which in turn, deals with 'Deductions IN respect of certain incomes" The head note to section 80P indicates that the said Section deals with deduction in respect of income of Co-Operative Societies. Section 80P(1), inter alia states that where the gross total income of a Co-operative Society includes any income from one or More specified activities, then SUCN income Shall be deducted from the Gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. Accordingly, the interest income derived by the cooperative bank by lending the money received from the assessee society is not eligible for deduction u/s 80P of the I.T. Act A part of the non-eligible income is retained by the bank as its margin and the rest is passed on to the assessee society. This income has ultimately been earned from third parties/customers of the cooperative bank and not from the activities with the members of the assessee societies and hence is clearly ineligible for deduction u/s80P of the I. T. Act. Therefore, it is hereby held that interest income on bank deposit is not eligible for deduction u/s80P of the I.T. Act and hence will be taxed accordingly. 4.2 Paddy Procurement business In the profit and loss account, it was noticed that assessee has shown gross profit under the head "paddy procurement business' it was stated that government purchase paddy from farmers through its agency namely Chhattisgarh Marketing Federation'. Primary agriculture credit societies act as an agent of Marketing Federation for procurement of pad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This surplus of funds was not required by the appellant. In this connection, on the analysis of section 80P of the Act which comes in chapter VI-A, which in turn, deals with "Deductions in respect of certain incomes" The head note to section 80P indicates that the said section deals with deduction in respect of income of co-operative societies. Section 80P(1), inter alia states that where the gross total income of a Co-operative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee- society. The word 'income' has been defined under section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. Therefore, we are required to be give a precise meaning to the words "profits and gains of business" mentioned in section 80P(2) of the Act. In the present case stated above, assessee societies regularly invest funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant does not qualify deduction under 80 P(2) and the AO has rightly denied him the deduction. The appellant contention that it has been categorized as an Urban Co-operative Society instead of Rural Primary Agricultural society is misplaced as the AO has categorized it as a Primary Agriculture Co-operative Society (PACS)." 5. The assessee being aggrieved with the order of the ADDL/JCIT(A) has carried the matter in appeal. 6. I have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 7. As the assessee society has assailed the declining of its multi-facet claim for deductions u/s. 80P of the Act regarding its various streams of income by the lower authorities, therefore, I shall chronologically deal with the same as under: A. Declining of the assessee's claim for deduction u/s. 80P by the A.O for the reason that as the assessee co-operative society was carrying on the business of banking and providing credit facilities to its members, therefore, it being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee would not be hit by the provisions of Sec. 80P(4) of the Act. 10. Apropos the observation of the A.O that the assessee society was disentitled for claiming deduction of the interest on bank deposits of Rs. 7,00,937/- u/s.80P(2)(a)(i) of the Act, the Ld. Authorized Representative (for short 'AR') submitted that the issue was squarely covered by the order of this Tribunal in ITA No.114/RPR/2016 & Ors., dated 23.02.2022 in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. the ITO, Ward-1(3), Raipur. The Ld. AR submitted that the facts and the issue involved in the present appeal regarding its claim for deduction remains the same as were there before the Tribunal in its aforesaid order. 11. Per contra, the Ld. Departmental Representative (for short 'DR') conceded to the submissions put forth by the Ld. AR of the assessee. 12. I have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the order of the Tribunal in ITA No.114/RPR/2016 & Ors (supra) that have been pressed into service by the Ld. AR to drive home his contentions. As stated by the ld. AR, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members, or (ii) to (iii) …………………………………………………………………………." (Emphasis by underlining supplied by us) On a perusal of the aforesaid statutory provision, we find that the same, contemplates, that the income of a co-operative society from its business of banking or providing credit facilities to its members is eligible for deduction u/s. 80P(2)(a)(i) of the Act. Our indulgence in the present appeal is confined to the limited aspect, i.e, as to whether or not the interest income earned by the assessee-society by depositing its surplus funds with a bank can be brought within the meaning of "income from carrying on the business of banking or providing credit facilities to its members", and thus, would fall within the realm of the deduction contemplated in Section 80P(2)(a)(i) of the Act. At this stage, we may herein observe, that it is the claim of the assessee, that as depositing of its surplus funds, i.e, the funds for which there were no takers at the relevant point of time, in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest income therein earned to the said extent could not be said to be attributable to its activity of providing credit facilities to its members. As is discernible from the aforesaid judicial pronouncement of the Hon'ble Supreme Court, we find the Hon'ble Apex Court had clarified beyond doubt that they have confined the judgment to the facts of the case before them, and the same was not to be considered as laying down of any law. Be that as it may, the aforesaid judgment of the Hon'ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. (supra) had thereafter been considered by the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. (supra) in ITA No.307/2014, dated 28.10.2014, wherein the Hon'ble High Court had after exhaustive deliberations held as under : "6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs. 1,77,305/- represents the interest earned from short term deposits and from savings bank account. The assessee is a cooperative society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f generation and distribution of electricity. In this connection it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression "derived from", as for instance in s. 80J. In our view since the expression of wider import, namely, "attributable to" has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. 8. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A cooperative society which is carrying on the business providing credit facilities to its members, earns profit and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome is attributable to carrying on the business of banking and therefore, it is liable to be deducted in terms of section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME TAX III HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD. Reported in (2011) 200 TAXMAN 220/12. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly, it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order: Appeal is allowed. The impugned order is hereby set aside. Parties to bear their own cost." In the backdrop of the aforesaid observations of the Hon'ble High Court, we are of a considered view, that as in the case of the assessee before us the surplus funds parked by way of short-term deposit with the co-operative bank, viz. Jila Sahakari Kendriya Bank are inextricably interlinked, or in fact interwoven with its business of providing credit facilities to its members, therefore, the same as claimed by the Ld. AR, and rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Sewa Sahakari Samiti Maryadit & Ors Vs. the ITO, Ward-1(3), Raipur in ITA No.114/RPR/2016 & Ors., dated 23.02.2022, while dealing with the assessee's claim for deduction of the income from paddy procurement business u/s.80P(2)(a)(iii) of the Act, had remanded the issue to the file of the A.O by observing as under: "16. Admittedly, the assessee as an 'agent' of Chhattisgarh Marketing Federation (CMF) had facilitated the procurement of paddy from the agriculturists, and for the said service was paid a fixed commission as per the rates prescribed by the Government. The gross profit of Rs.16,21,218/- that was earned by the assessee from its aforesaid stream of business activity, i.e., paddy procurement business was claimed by it as a deduction u/s. 80P(2)(a)(iii) of the Act. However, as per the mandate of Sec. 80P(2)(a)(iii) the deduction therein contemplated was only available qua the marketing of the agricultural produce grown by members of the society, therefore, the Assessing Officer in the course of assessment proceedings had called upon the assessee society to produce the register maintained in respect of its paddy procurement for the year under consideration. As the register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Be that as it may, we are of the considered view that as the compilation of the paddy procurement by the assessee-society has been filed before us as additional documentary evidence, and the same was not there before the lower authorities, therefore, the matter in all fairness requires to be re-visited by the Assessing Officer. We, thus, in terms of the aforesaid observation set-aside the matter to the file of the Assessing Officer, with a direction to re-adjudicate the same after considering the additional documentary evidence that had been filed by the asssessee before us. The A.O shall after determining as to what extent the assessee society had facilitated the marketing of the agricultural produce grown by non-members, therein, restrict the assessee's claim for deduction u/s. 80P(2)(a)(iii) of the Act only to the extent of the profit relatable thereto. Needless to say, the assessee shall in the course of the set-aside proceedings furnish the requisite details/documents that are called for by the A.O. The Ground of appeal No.2 is allowed for statistical purposes in terms of our aforesaid observations." As in the case of the present assessee, it is the claim of the ld. AR th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Gramin Sewa Sahakari Samiti Maryadit & Ors. Vs. the ITO, Ward-1(3), Raipur in ITA No.114/RPR/2016 & Ors the Tribunal, had observed, that the dividend income received by a co-operative society on the shares of a co- operative bank held by it would be eligible for deduction under Sec. 80P(2)(d) of the Act. It was observed by the Tribunal as under: "22. After having given a thoughtful consideration to the aforesaid issue in hand, we are unable to concur with the view taken by the lower authorities. In our considered view, as a Co-operative bank falls within the realm of the definition of "Co-operative Society" as contemplated in Section 2(19) of the Act, therefore, the view taken by the lower authorities that dividend income received by the assessee from Jila Sahakari Kendriya Bank, Raipur, i.e a Co- operative Bank, would not eligible for deduction u/s. 80P(2)(d) of the Act cannot be sustained. Our aforesaid view is fortified by the order of the ITAT, Mumbai in the case of M/s Solitaire CHS Ltd Vs. Principal Commissioner of Income Tax-26, ITA No.3155/Mum/2019, dated 29.11.2019 (wherein one of us, i.e, the JM was a party), had after exhaustive deliberations held as under: "6. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ...................................................................... (c). ........................................................................................... (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;" On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other co-operative society shall be deducted in computing its total income. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other co-operative society. We are in agreement with the view taken by the Pr. CIT, that with the insertion of sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co- operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had held, that the interest income earned by the assessee on its investments with a co- operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co- operative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Insofar the reliance placed by the Pr. CIT on the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) is concerned, we are of the considered view that the same being distinguishable on facts had wrongly been relied upon by him. The adjudication by the Hon‟ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a co- operative socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was clearly supported by the order of the jurisdictional Tribunal in the case of Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum). Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we „set aside‟ his order and restore the order passed by the A.O under Sec. 143(3), date 14.09.2016. 10. Resultantly, the appeal filed by the assessee is allowed." Backed by our aforesaid observations, we not being able to persuade ourselves to subscribe to the view taken by the lower authorities, therein vacate the disallowance of the assessee's claim for deduction of Rs. 1,16,224/- u/s. 80P(2)(d) of the Act. The Ground of appeal No.4 is allowed in terms of the aforesaid observations." I find that as stated by the Ld. AR, and rightly so, as the aforesaid issue in hand i.e, entitlement of a co-operative society for claim of deduction under Sec. 80P(2)(d) regarding the dividend received on shares of a co-operative bank is squarely covered by the aforesaid decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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