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TMI Blog2023 (8) TMI 1494X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Explanation 2 to section 263 of the Act to conclude that the assessment order passed by the Assessing Officer was erroneous in so far as prejudicial to the interest of the Revenue. 3. On the facts and in the circumstances of the case, the Learned PCII, Mumbai 400017 erred in concluding that the income received by the appellant by way of interest and dividend from Mumbai District Central Co-operative bank in the previous year was not eligible for deduction u's 80P(2)(a)(1) of the Income-tax Act. 4. Without prejudice to Ground No. 3, on the facts and in the circumstances of the case, the Learned PCIT, Mumbai 400017 erred in concluding that the appellant is not entitled to any deduction u/s 80P(2)(d) of the Income tax Act in respect of interest and dividend received from Mumbai District Central Co-operative Bank. 5. On the facts and in the circumstances of the case, the Learned PCTT, Mumbai 400017 erred in concluding the provisions of section 80P(4) of the Income-tax Act will be applicable to the interest and dividend income received by the Appellant from the Mumbai District Central Co-operative Bank. The appellant craves leave to add to or delete or alter any of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire income u/s 80P of the Act? b. The assessee made detailed submissions to justify its claim for deduction of entire income including Interest & Dividend referred above u/s 80P(2)(a)(i) of the Act, c. In support of its contentions, the assessee relied upon judicial pronouncements including that of jurisdictional High Court and CBDT circular explaining how a cooperative credit society was entitled to deduction of its entire income including interest and dividend earned from a co-operative bank u/s 80P(2)(a)(i) of the Act. d. The section 80P(2)(a)(i) referred to the deduction of entire "income attributable to the described activities" under the said section and not just the direct income from those activities Through the written submissions it was explained that: i. activities which generated income from Interest and Dividend were part of and inseparable from principal business, ii. said income was integral part of the business of providing credit to members by the assessee society. iii. Several judgments of higher authorities relied upon were also referred for consideration. A. 2. After considering the written submissions, the Assessing Officer allowed the claim for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. We rely on CIT VS G. M. Mittal Stainless Steel Pvt. Ltd. 130 Taxmann 67 (SC) Refer Annexure 7 v. The order of AO was in conformity with the principle explained by the junsdictional Bombay High Court in Quepem Urban Co-operative Credit Society Ltd. vs. ACIT (2015) 377 ITR 272 (Bom). No action against said order could legitimately be initiated u/s 263 as the said order was not erroneous and prejudicial to the interest of the Revenue. - CIT VS. Paul Brothers 216 ITR 548 (Bom.). Refer Annexure 8. vi. The assessment order also followed principle laid down in several ITAT judgments that the total income of a co-operative credit society dealing exclusively with its members is fully deductible u/s 80P(2)(a)(1) of the Act. This further supports the contention that the order was neither Erroneous nor Prejudicial to the interest of the revenue as the conclusion of AO in assessment orders was supported by several ITAT decisions. Refer Russel Properties P. Ltd. Vs. Addl. CIT 109 ITR 229 (Cal), Annexure 9, which has clarified that where the order is based on ITAT decisions cannot be revised u/s 263 of the Act. vii. Merely because the assessment order does not contain any specific discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible for deduction u/s 80P(2)(a)(0) of the Act. B. 3. In your view, the Interest income of Rs. 1,07,52,999/-and the Dividend of Rs. 17,61,959/- both received from MDCC bank, were not eligible for deduction either u/s 80P(2)(a)(i) or even sec. 80P(2)(d) of the Act. The later confers deduction of the entire interest and dividend income received by one cooperative Society from the other co-operative society. This also is proposed to be denied. We completely disagree with you on above interpretation and place our submissions to bring out the facts and consequential legal position concerning these incomes We now make submissions on issues described in B.1. above: C. Interest on deposits and Dividend on shares earned from "Mumbai District Central Cooperative Bank Ltd." (MDCC Bank) were attributable to the business of the assessee Society and eligible for deduction u/s 80P(2)(a)(1) of the Act. Separate submissions are made for both these incomes C.1. Interest income of Rs. 1,07,52,999/- How attributable to the business and covered by sec. 80P(2)(a)(1) of the Act a. The business of the assessee was to provide credit (loans) to the members. This business called for certain fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the assessee viz. providing credit to members as specified in sec 80P(2)(a)(1) of the Act. Supreme Court has held this in the case of CIT v/s Karnataka State Co-operative Apex bank 118 Taxman 321. Refer Annexure 17. C. 2. Dividend income of Rs. 17,61,959/- How attributable to the business and covered by sec. 80P(2)(1) of the Act a. The assessee earned above Dividend income on shares of the MDCC bank. The need to invest in shares arose because funds collected from members by way of various deposits etc. and available for lending were short of the demand for loan from members. To tide over this shortfall, the assessee availed loan from above bank b. Every co-operative Society has to avail loan from Apex Co-operative Bank This is a directive of the administering authority to strengthen the co-operative movement. The rules of the MDCC bank mandated the borrower to purchase shares of the said bank at specified ratio of borrowing Certificate from the bank of this requirement is enclosed as Annexure 33. c. In earlier years, the assessee society availed Term Loan and Overdraft (loan) from MDCC Bank. The total borrowing as at end of March 2015 from MDCC Bank was Rs. 55.18 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds for utilization in business and that required purchase of shares. The deposits with MDCC bank and the shares of the MDCC bank were not separable from the business and were integral part of the business. Had these two not been made, the business of the assessee would have suffered materially. Consequently, income earned from these investments related to the business and as such integral and inseparable from business These therefore were "attributable to the main business of the assessee. The sec. 80P(2)(a) clearly uses the term "profits and gains attributable" and not "profits and gains derived from or arising from Even if any source of income is distinct from the core activity but if the said source has nexus to the core activity, it is deemed to be attributable to the core activity. d. The interest on deposits and dividend from MDCC Bank were not eamed from any independent act of investing surplus and or idle funds unconnected with the business of providing credit. The interest arose from compliance with applicable provision of Governing Act, and Dividend arose out of the commercial expediency of raising additional funds to meet the demand for loan as a requirement of nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT v/s Karnataka State Co-operative Apex bank - 251 ITR 194; 118 Taxman 321 (SC)has held that where placement of such funds being imperative for purpose of carrying on business, income derived therefrom was income from assessee's business falling under section. 80P(2)(a)(i). This decision of the Supreme Court is squarely applicable to the assessee and has been relied upon by various High Courts and Tribunals thereafter-Refer Annexure 17. f. Income earned from the compliance with Governing Act is attributable to the business Interest earned by a co-operative Society carrying on banking business, in compliance of the Governing Act/Regulation is eligible for deduction u/s 80P. * Com of Income-fax v. Nawanshahar Central Co-op Bank-25 Taxmann Com 273 (S. C.) Refer Annexure 21 If a co-operative bank, carrying on business of banking, is statutorily required to place a part of its fund in approved securities income arising from such investment is deductible under section us 80P(2)(a)(0). The insertion of sec 80P (4) from AY 2007-08 would presently deny co- operative banks benefit of these decisions. However, the principle explained in these will continue to be valid even today an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operative Sales Society was the property of the members whose money was withheld and invested and therefore was a liability of the said society. Totgars Co-operative Sales Society accounted this as its income and claimed deduction u/s 80P of the Act. In case of the Assessee, the amount invested in deposits with MDCC Bank was its own money and therefore the interest earned was its own income iv. As regards Dividend Income, as explained in "C.2" above, the investment which fetched the dividend was made to avail loans for further lending to members. This act added up to loans given and earned additional interest on loans, which was the income of the prime business of the assessee. This income therefore was out of business exigencies v. The investment in shares of MDCC Bank was not in the nature of investment activity in its True sense. The business compulsion required this investment and therefore commercial considerations normally examined in any investment in shares were beside the point. The shares of MDCC bank were not listed. These were encashable only at cost with the issuing bank. The Dividend was declared at 2.35% of Face Value. This return was even lower than the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCC Bank and Dividend received on shares of the said bank were income attributable to the main business being inseparable. The assessee therefore, was fully justified in claiming deduction u/s 80P(2)(a)(i) of the Act even on this income and based on prevailing decisions of the Hon. Apex Court cited above and also jurisdictional Hon. High Court, and other High Courts the assessing officer did not commit any error in not denying deduction u/s 80P(2)(a)(i) to the Interest and Dividend Income earned by the assessee society during above AY from MDCC Bank In the proposed action an issue is made of the assessment order being silent on accepting assessee's claim for deduction u/s 80P(2)(a)() in respect of Interest Income & Dividend Income. It is submitted that this has come to center stage at this stage due to "Change in Opinion" which is now formed. Please note in proceedings u/s 263, "Change of Opinion" is certainly out of the scope and cannot occupy center stage. II. Without prejudice to above, the interest on deposits and the dividend from MDCC bank received by the assessee are covered by sec. 80P(2)(d) of the Act If submissions made before, justifying eligibility of deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of banking and includes co- operative bank. iv. The assessee society has received interest of Rs. 1,07,52,999/- and Dividend of Rs. 17,61,959/- from Mumbai District Central Co-operative (MDCC) bank. This bank was registered as co-operative society in the year 1974 and started its activity of banking from 1975 Even today it continues to be a co-operative Society. The very fact that its name includes the word "Co- operative" is testimony of its continuing as co-operative Society. If it ceases to be a cooperative Society, the word "Cooperative" would get eliminated from its name. The fact that even today it is a co-operative society is available on the wob site of the bank and being a public document it is verifiable by anybody. iv. To sum up, all the co-operative banks continue to be registered under the Cooperative Societies Act of the relevant State and as such are "Co-operative Societies" besides the "co-operative Bank" and therefore continue to be "Co- operative Societies" within the meaning of section 2(19) of the Income Tax Act, 1961. v. It is not in dispute that assessee is a co-operative society. As explained above all the co-operative banks are "co-operative socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore in its case u/s 80P(2)(a)() of the Act, entire income by way of interest and dividend from a cooperative bank, being attributable to its main business, is fully deductible. Alternatively entire said income is deductible u/s 80P(2)(d) of the Act. Jurisdictional High Court in Bank of Baroda vs H. C. Shrivastava (2002) 256 ITR 385 has held as follows "Judgment delivered by the Tribunal is binding on the AO; it is necessary for the judicial unity and discipline that all the authorities below the Tribunal must accept as binding the judgment of the Tribunal". Thus learned A.O was duty bound to follow the decision of the Tribunals as well besides the jurisdictional High Court The original assessment order passed in conformity with above principle therefore is valid and cannot be tampered with us 263 by interpreting relevant sections differently. Summary of submissions & Conclusions: Summary of submissions: A. Order of assessment cannot be revised: 1. Prejudice must be to revenue administration money & not loss of revenue in 2. Where another view is possible, revision is not possible, 3. Where AO has followed decision of jurisdictional High Court, revision is not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of the assesse. The ld. Pr.CIT observed that provisions of subsection (4) of Sec. 80P is attracted to the case of the assessee. In subsection (4) it is mentioned that the provision of this section shall not apply in relation to any cooperative bank other than the primary agricultural credit society or a Primary Cooperative Agricultural and Rural Development Bank. The ld. Pr.CIT further stated that the assessee was not eligible for deduction claimed in view of the provision of Sec. 80P(4) inserted by the Finance Act 2006 w.e.f 01.04.2007 which specifically excludes cooperative banks from the definition of cooperative society. The ld. Pr.CIT observed that for getting 100% deduction u/s Sec. 80P(2)(d) of the Act, the income claimed to be exempt including interest income should be in the nature of business income and should be in the nature of any income as mentioned in the provisions of Sec. 80P(2) of the Act. The ld. Pr.CIT has also referred the decision of Pr.CIT, Hubballi Vs. Totagars Co-operative Sale Society of the Hon'ble High Court of Karnataka (83 Taxmann.com 140 that assessee is ineligible for claim of deduction u/s 80P of the Act. It is further stated that the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is comprised business of providing loans to members, interest on deposit maintained with Mumbai District Central Co-op Bank and dividend on shares of that bank. The ld. Pr.CIT was of the view that such interest income and dividend income are not profits and gains of business of providing credit facilities to its members as mandated by section 80P(2)(a)(i) of the Act. The ld. Pr.CIT also observed that even deduction u/s 80P(2)(d) cannot be given when there is investment in any cooperative bank and that the income from investment in the cooperative bank after insertion of sub-section (4) of the section 80P is not eligible to deduction. However, we consider though the Cooperative Bank pursuant to the insertion of sub-section (4) of Sec. 80P is no more be entitled for claim of deduction u/s 80P of the Act, but a cooperative bank continue to be a cooperative society registered under the Co-operative Society Act. Even the interest income derived by a cooperative society from its investment held with a cooperative bank would be entitled for claim of deduction u/s 80P(2)(d) of the Act as held in the various decisions of the coordinate benches of the ITAT Mumbai. During the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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