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TMI Blog2024 (9) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... n Baroda Rajasthan Regional Rural Banks answer to) as Cooperative Societies for the purposes of Income Tax Act, In the absence of non-obstante clause, the mere fact that a restrictive condition was imposed in relation to a Cooperative Bank for regulating the benefit of Section 80P, does not in any manner, alter the pre-existing situation. By virtue of Section 22, Regional Rural Banks continue to be deemed Cooperative Societies and all the contingent consequences that flow from it. For the above reasons, this court is of the opinion that there is no substantial question of law involved in the present appeal. As perused the various provisions of Regiona Rural Bank Act 1976. Baroda Rajasthan Kshetriya Gramina Bank was set up under the provisions of under the provisions of Regional Rural Bank Act. Section 22 of the Regional Rural Bank Act provides that Regional Rural Bank to be deemed to be a co-operative society for purpose of the Income-tax Act, 1961. In our considered view the the Circular of CBDT cannot override the provisions of the Act of Parliament. Even the careful reading of the Circular No. 6 of CBDT make it clear that exemption is withdrawn with respect to Regional Rural Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case, the leanred CIT(A), NFAC, Delhi was justified in ignoring the finding of the Hon ble Rajsthan High Court vide order dated 21/09/2016 in assessee s own case related to A.y 2007- 08, involving the claim of deduction u/s 80P(2)(d) of the Act, which was rightly pointed by the AO while making the assessment? Vide letter dated 09.05.2024 revenue preferred to revise the ground and instead of two grounds they raised a revised one single ground which reads as under ; Whether on the facts and circumstances of the case, the learned CIT(A), NFAC, Delhi was justified in deleting the addition made by the AO in terms of disallowing the Deduction under section 80P(2)(d) of the Act, 1961 on the Interest Income earned by the assessee amounting to Rs. 1,45,12,666/- from its deposits / investments in a Co-operative bank? 5. Succinctly, the fact as culled out from the records is that the assessee is a co-operative Society registered with the Registrar of Cooperative Societies for Rajasthan having its primary object to carry on the business of providing credit facilities to its members. The assessee filed the return of income for the A.Y 2017-18 on 25.10.2017 declarin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable for taxation under section 56 of the Income Tax Act. Therefore, following the rule of principle of natural justice the assessee given an opportunity to show cause as to why the disallowance of deduction claimed by the assessee should not made. 5.3 The assessee filed a detailed reply in relation to the allowability of deduction claimed u/s. 80P of the Act. The ld. AO considered the reply of the assessee but not found convincing and noted as under : 5.1 The provisions of section 80P(4) shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co- operative agricultural and rural development bank and co- operative bank and primary agricultural credit society shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949). Further it is also seen that Co- operative banks, in which assessee Society has invested its funds are not claiming deduction under section 80P of the Act. In the light of provisions of section 80P and above facts of the case, I am in the view that assessee Society is not entitled to claim deduction under section 80P on the quantum of income which is not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom FDRs and deposits in Bank other than co-operative societies and has issued the show cause notice. After the receipt of reply from appellant, he has invoked provisions of Section 80P(4) to deny the deduction available u/s 80P Provisions of section 80P(4) is applicable to the co-operative bank. In this case, the appellant is not a co-operative bank as per the banking regulation act and does not have necessary license. The AO has also not mentioned any evidence or argument holding the appellant to be a co-operative bank. Therefore, AO was wrong in invoking section 80P(4) in denying the deduction u/s 80P. 4.2.3 The AO has held that the appellant is not eligible for deduction u/s 80P(2)(d) for the interest receipts of Rs 6,88,98,489. Details of such interest receipts were seen in the assessment order and the written submission. It is seen that the appellant has earned total interest of Rs. 6,87,59,794/- from Kota Central Co-op Bank (KCCB) and Kota Nagarik Sahakari Bank Limited, Kota (KNSB) and amount of Rs. 1,38,695/- from other banks. The deduction u/s 80P(2)(d) is given for income by way of interest or dividend derived by the cooperative society from its investment with any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the section was originally introduced. However, as section 22 of the Regional Rural Bank Act provides that a RRB shall be deemed to be cooperative society for the purposes of the Income-tax Act, 1961, in order to make such banks eligible for deduction under section 80P, CBDT issued a beneficial Circular No. 319 dated 11- 1-1982, which stated that for the purpose of section 80P, a Regional Rural Bank shall be deemed to be a cooperative society. 3. Section 80P was amended by the Finance Act, 2006, with effect from 1-4-2007 introducing sub-section (4), which laid down specifically that the provisions of section 80P will not apply to any cooperative bank other than a Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank. Accordingly, deduction under section 80P was no more available to any Regional Rural Bank from assessment year 2007-08 onwards. An OM dated 25-8-2006 addressed to RBI was issued by the Board clarifying that Regional Rural Banks would not be eligible for deduction under section 80P of the Income-tax Act, 1961 from the assessment year 2007-08 onwards. 4. It has been bought to the notice of the Board that despite the amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Years 2007-2008 to 2011- 2012. The bone of contention is that the deduction under Section 80P(2) of the Act is now claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act. The reason is that now the investments and deposits after the Supreme Court's decision against the assessee Totgar's Co-operative Sale Society Ltd. (supra), the assessee has shifted the deposits and investments from Schedule Banks to Co-operative Bank and such Co-operative Bank is essentially a Co-operative Society also and Clause (d) allows deduction of income by way of interest or dividends derived by the assessee Co-operative Society from its investments with any other Co-operative Society. 12. The sheet anchor of the contention of the learned counsel for the assessee misses two essential points required for claiming the exemption or 100% deduction from gross total income for a co-operative society: (i) that the character or nature of income, namely interest on investments or deposits, does not change irrespective of the fact whether it is earned or received from a Schedule Bank or Co-operative Bank. (ii) that What the Hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under Section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. The depository Kanara District Central Bank Limited in the present case is admittedly not such a primary agricultural credit society. 15. The amendment of Section 194A(3)(v) of the Act excluding the Cooperative Banks from the definition of Co- operative Society by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co-operative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. The Hon ble High Court has clearly stated that the provisions of the section 80P shall not apply in relation to cooperative bank other than a primary agricultural society or a primary Cooperative Agricultural and Rural Development Bank. 4. The Hon ble Rajasthan High Court in the case of PCIT Ajmer V/s M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. D.B. ITA no. 2/2019 dated 13.08.2019 quoted section 22 of the RRBs Act 1976 stating that the RRBs shall be deemed co-operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Hubballi v. Totagars Co-operative Sale Society 61-77 5 [2016] 72 taxmann.com 64 (Gujarat) HIGH COURT OF GUJARAT State Bank of India (SBI) v. Commissioner of Income-tax 78-97 6 [2016] 76 taxmann.com 307 (Punjab Haryana) HIGH COURT OF PUNJAB AND HARYANA Commissioner of Income-tax-I, Chandigarh v. Punjab State Cooperative Agricultural Development Bank Ltd 98-112 7 [2009] 176 Taxman 404 (Rajasthan) HIGH COURT OF RAJASTHAN Commissioner of Income-tax* v. Sirohi S.B.V. Bank Ltd. 113-122 8 HIGH COURT OF RAJASTHAN DB ITA No 636/2008 The CIT, Kota V. M/s Shri Hitkari Vidyalaya Sahakari Shiksha Samiti Ltd. 123-130 9 [2010] 188 Taxman 282 (SC) SUPREME COURT OF INDIA Totgars, Cooperative Sale Society Ltd. v. Income-tax Officer, Karnataka 131-137 7.2 The ld. DR vehemently submitted that the interest income which the assessee society has earned is derived from the co-operative bank and not from the co-operative society and considering the amendment made in section 80P(4) of the Act it is incorrect to appreciate that the co-operative bank is co-operative society for allowing the benefit to the assessee when there is not dispute that the interest income received by the assessee is from the co-ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble High court of Karnataka in the case of PCIT Hubbaali V/s Totagars Co-operative Sales Society [2017] 83 taxmann.com 140 (Karnataka) dated June 16, 2017. In this way the judgement of the Hon'ble Apex Court support the stand of the revenue on this issue. 3.4 Section 80P (4) of the Act specifically mentions the cooperative bank (other than a Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank) in relation to which the provision of 80P (2)(d) of the Act are applicable. If certain co-operative banks are not eligible for claiming deduction u/s 80P, then it is incorrect to interpret that income arising out of investment in these co-operative banks will be eligible for deduction u/s 80P of the Act. 3.5 Though the headnote of the CBDT circular no. 06/2010 dated 20.09.2010 talks about RRBs but section 80P (4) of the Act has been discussed in the said circular and hence is applicable for co-operative banks (issue in hand). Respectfully submitted for your kind consideration. 8. The ld. AR of the assessee supported the finding recorded in the order of the ld. CIT(A) and submitted the written submission to counter the ground raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livestock or other articles intended for agriculture for the purpose of supplying them to its members (v) . (vi) . (vii) . the whole of the amount of profits and gains of business attributable to any one or more of such activities (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; (4) The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation.-For the purposes of this sub-section,- (a) co-operative bank and primary agricultural credit society shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) primary co-operative agricultural and rural development bank means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.] 4. Finance Ministers Budget Speech while introducing sub-section 80P(4) of the Act is as follows: Coopera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 3 Gujarat High Court The Surat Vankar Sahakari Sangh Ltd. v. PCIT (2016) 7 TMI 1217 dated 12.07.2016 17-23 4 Gujarat High Court State Bank of India v. CIT (2016) 7 TMI 516 dated 25.04.2016 24-41 5 Jodhpur Bench ACIT v. Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. in ITA 163/Jodh/2019 dated 11.09.2023 03-13 6 Jaipur Bench Royal Credit Cooperative Society Ltd. v. AO, NFAC (2023) 6 TMI 1026 dated 20.06.2023 42-63 7 Jaipur Bench Jhunjhunu Kraya Vikray Sahakari Samiti Ltd. v. PCIT (2022) 12 TMI 1117 dated 15.12.2022 64-82 8 Jaipur Bench Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. v. DCIT (2022) 11 TMI 813 dated 09.11.2022 83-88 9 Jaipur Bench Rajasthan Cooperative Dairy Federation Ltd. v. PCIT {ITA: 23/JP/2021 dated 09.11.2021) 262-274 10 Jaipur Bench Palsana Gram Sewa Sahkari Samiti Ltd. v. PCIT {2021 (12) TMI 635 dated 02.11.2021} 275-303 11 Jaipur Bench Ajmer Zila Dugdh Utpadak Sahkari Sangh Ltd. v. PCIT {2021 (3) TMI 256 dated 01.03.2021} 304-319 12 Jaipur Bench Ajmer Zila Dugdh Utpadak Sahkari Sangh Ltd. v. PCIT {2019 (11) TMI 690 dated 28.08.2019} 320-330 13 Jaipur Bench Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd. v. DCIT {2020 (3) TMI 631 dated 04.03.2020} 331-349 14 Jai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, Jodhpur Bench in case of ACIT v. Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. in ITA 163/Jodh/2019 dated 11.09.2023 01-02 03-13 2 Copy of order passed by Hon'ble Madras High Court in case of Thorapadi Urban Co-op Credit Society Ltd. v. ITO (2023) 11 TMI 779 dated 10.10.2023 14-16 3 Copy of order passed by Hon'ble Gujarat High Court in case of The Surat Vankar Sahakari Sangh Ltd. v. PCIT (2016) 7 TMI 1217 dated 12.07.2016 17-23 4 Copy of order passed by Hon'ble Gujarat High Court in case of State Bank of India v. CIT (2016) 7 TMI 516 dated 25.04.2016 24-41 5 Copy of order passed by Hon'ble ITAT, Jaipur Bench in case of Royal Credit Cooperative Society Ltd. v. AO, NFAC (2023) 6 TMI 1026 dated 20.06.2023 42-63 6 Copy of order passed by Hon'ble ITAT, Jaipur Bench in case of Jhunjhunu Kraya Vikray Sahakari Samiti Ltd. v. PCIT (2022) 12 TMI 1117 dated 15.12.2022 64-82 7 Copy of order passed by Hon'ble ITAT, Jaipur Bench in case of Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd. v. DCIT (2022) 11 TMI 813 dated 09.11.2022 83-88 8 Copies of Certificates issued by concerned authorities for: A.P. Mahesh Cooperative Urban Bank Ltd. Kota Central Co-operative Bank Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Employees Coop Credit Society Ltd. v. PCIT {2022 (9) TMI 30 dated 29.08.2022} 385-390 11. Surat Bench ACIT v. Sachin Udyog Nagar Sahkari Mandli Ltd. {2022 (10) TMI 257 dated 06.10.2022} 391-393 12. Vishakhapatnam Bench Krishna District Milk Producer Mutually Aided Co-operative Union Limited v. ACIT {2021 (3) TMI 1108 dated 24.03.2021} 394-405 13. Madras Bench NLC Indcoserve v. ITO {2022 (6) TMI 936 dated 08.06.2022} 406-415 14. Raipur Bench Gramin Seva Sahakari Samiti Maryadit v. ITO {2022 (8) TMI 597 dated 04.08.2022} 416-429 15. Bangalore Bench Kanakshree House Building Co- operative Society {2022 (1) TMI 1187 dated 17.11.2021} 430-440 16. Delhi Bench ITO v. The Jwala Cooperative Urban Thrift and Credit Society Ltd. {2022 (6) TMI 74 dated 31.05.2022} 441-443 17. Mumbai Bench Avanti Niketan Cooperative Housing Society Ltd. v. CIT(A) {2022 (10) TMI 401 dated 06.10.2022} 444-449 18. Panaji Bench Belgaum Coal Coke Consumer Cooperative Association Ltd. v. ITO {2022 (4) TMI 395 dated 06.04.2022} 450-456 19. Kolkata Bench Bhairabnala Samabay Krishi Unnayan Samiti Ltd. v. ITO {2022 (12) TMI 755 dated 15.12.2022} 457-461 10. The ld. AR of the assessee drawing our attention to para 4.2.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction claimed by the assessee for an amount of Rs. 1,45,12,666/- as per provision of section 80P(2)(d) of the Act. The assessee in the assessment proceeding contended that they have received a sum of Rs. 6,68,98,489/-. Most of the amount so received is sourced from the co-operative society though the same are also running as co-operative bank. The ld. AO did not consider the interest income stating that though assessee claimed to have received the interest from the entity registered under Co-operative Societies Act but it also granted license to carry on banking business u/s. 22(1) read with section 56(o) of the Reserve Bank of India and thus considering the amendment made in section 80P(4) he did not considered these interest income as eligible for deduction u/s. 80P(2)(d) of the Act. Thus, the limited issue before us is that whether the assessee being co-operative society be denied benefit of section 80P(2)(d) of the Act on interest received from another cooperative Societies [ Running as co-operative bank as per banking regulations ]. The similar issue has been decided by the Hon ble Rajasthan High court, Jodhpur while dealing with the Revenue s appeal filed for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the bench in that case being in detailed is reproduced herein below: 7. We have heard the both parties and perused the materials available on record. The Bench observed that the said appeal was filed on the basis of that addition of Rs. 2,23,46,187/- u/s 80P(2)(d) of the Act. We note that the department has preferred an appeal against the order of Id. CIT(A) for assessment year 2016-17 wherein the disallowance of deduction claimed u/s 80P(2)(d) of the Act amount to Rs. 2,23,46,187/- was deleted. The issue before us is that whether the assessee being co-operative society be denied benefit of section 80P(2)(d) of the Act on interest received from another co- operative society engaged in banking activities. The similar issue has been decided by the Hon'ble Rajasthan High court, Jodhpur has decided in Revenue's appeal filed for the assessment year 2014-15 in the case of PCIT. Ajmer vs M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. in BD Income Tax Appeal No. 2/2019 vide its order dated 13.08.2019. The relevant observation made in the order by the Jurisdictional High Court has been reproduced as under:- The revenue cites a CBDT Circular (No. 6/2010 dated 20.09.2010) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med by the Hon ble Court. The relevant observations of ITAT is as under:- 5. We have considered the rival submission of the parties and have gone through the assessment proceedings the AO noted that assessee has claimed exemption of interest income on FDR with Central Cooperative Bank Ltd., for Rs. 76,43.562/- and interest on FDR with Baroda Rajasthan Kshetriya Gramin Bank of Rs. 2,09,91,701 The AO allowed the exemption on interest received from Central Co-operative Bank However, the AO disallowed the exemption on account of interest earned from Baroda Rajasthan Kshetriya Gramin Bank on his observation that Baroda Rajasthan Kshetriya Gramin Bank is not a Co-operative Society. The 40 also took the view that Baroda Rajasthan Kshetriya Gramin Bank is neither registered under Co-operative Society Act or under, other law for the time enforce any such state for registration of Co-operative Societies. Therefore, the interest of Rx 2,09,91,701/- received on FDR was not held eligible for deduction w/s 80P(2)(d). The Id. CIT(A) confirmed the action of AO holding that Baroda Rajasthan (supra) is not a Co-operative Society registered under the Co-operative Society Act or under any law for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he notice of the Board that despite the amended provisions, some Regional Rural Banks continue to claim deduction under section 80P on the ground that they are cooperative societies covered by section 80P(1) read with Boards Circular No. 319 dated 11-1-1982. 5. It is, therefore, reiterated that Regional Rural Banks are not eligible for deduction under section 80P of the Income-tax Act, 1961 from the assessment year 2007-08 onwards. Furthermore, the Circular No. 319 dated 11-1-1982 deeming any Regional Rural Bank to be cooperative society stands withdrawn for application with effect from assessment year 2007-08. The field officers may take note of this position and take remedial action, if required. 7. We have also perused the various provisions of Regiona Rural Bank Act 1976. Baroda Rajasthan Kshetriya Gramina Bank was set up under the provisions of under the provisions of Regional Rural Bank Act. Section 22 of the Regional Rural Bank Act provides that Regional Rural Bank to be deemed to be a co-operative society for purpose of the Income-tax Act, 1961. In our considered view the the Circular of CBDT cannot override the provisions of the Act of Parliament. Even the careful reading ..... X X X X Extracts X X X X X X X X Extracts X X X X
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