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TMI Blog2024 (11) TMI 850X X X X Extracts X X X X X X X X Extracts X X X X ..... d) holding the co-operative banks to be co-operative societies for the purposes of section 80P(2)(d). However, Hon'ble courts has held interest earned from treasury/commercial banks to be not eligible for deduction under section 80P as it is neither covered under section 80P(2)(a)(i) nor under section 80P(2)(d). To sum up, even though such interest and dividends as received from entities registered with Cooperative Societies Act is income from other sources, it is eligible for deduction u/s 80P(2)(d) of the Act. DR vehemently quotes Totagars Cooperative Sales Society Ltd. [ 2010 (2) TMI 3 - SUPREME COURT ]; CIT vs. Totagars Cooperative Sale Society [ 2017 (1) TMI 1100 - KARNATAKA HIGH COURT ] that the assessee s impugned interest income is not eligible for sec.80P(2)(d) deduction. He could hardly dispute that learned CIT(A)-NFAC has already considered the catena of case law (supra) whilst deciding the instant issue in assessee s favour. That being the case, we did not find any substance in the Revenue s instant sole substantive grievance - Decided in favour of assessee. - Shri Satbeer Singh Godara, Judicial Member And Shri Inturi Rama Rao, Accountant Member For the Revenue : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. (Para 45). It must also be mentioned here that 'nominal members' are 'members' as defined under the Kerala Act. Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). [Para 46] Further, the Kerala Act expressly permits loans to non-members under section 59(2) and (3). Thus, the giving of loans by a primary agricultural credit society to non-members is not illegal. [Para 47]. Considering the facts of the case and arguments advanced by the appellant, I am inclined to agree with its claim that being primary agricultural credit cooperative society registered and operating under the provisions of the Kerala Co-operative Societies Act, 1969, it is eligible for deduction u/s 80P of the Act. 6.4. After the decision of the Hon'ble Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench decision. This judgment, on the contrary, permits an inquiry by the IT authorities into the factual situation: whether a society is in fact conducting business as a co-operative bank but not as a primary agricultural credit society. 27. In fact, these divergent views compelled the Kerala High Court to refer the matter to a Full Bench. Then, in Mavilayi Service Co-operative Bank Ltd. v. CIT 2019 (2) KHC 287, ( Mavilayi HC ) the Full Bench has endorsed Perinthalmanna Service Co-operative Bank's Ltd.'s case (supra) view: that the IT Authority can go behind the certificate granted by the Registrar of Co-operative Societies. To hold thus, the Full Bench has relied on the Supreme Court's Citizen Cooperative Society Ltd. v. Asstt. CIT [2017] 84 taxmann.com114/250 Taxman 78. The Full Bench decision taken in further appeal, the Supreme Court, finally, in Mavilayi Service Co operative Bank Ltd.'s case (supra) SC considered the controversy threadbare and reversed the Kerala High Court's Full Bench decision. It has, thus, endorsed Chirakkal Service Co-operative Bank's case (supra) view. 28. Here, before us, an identical question of law has arisen. It will suffice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative Society case (supra), according to Mavilayi Service Co-operative Bank Ltd.'s case (supra) SC, stands robbed of its precedential on a point that has never been raised and, thus, never discussed. For a decision binds not beceruse of its conclusion but because of the ratio and the principle it lays down. In other words, a decision is only an authority for what it actually decides. What matters in a decision is its ratio and not every observation found in it or what logically follows from the various observations made in it. 31. Then, Mavilayi Service Co-operative Bank Ltd.'s case (supra) SC turns to the proper interpretation of Section 80P of the IT Act. In interpreting that provision, it refers, among other things, to (a) the marginal note to Section 80P to ascertain the general drift of the provision; to the Finance Minister's speech, dated 28-2-2006, on the floor of Parliament; to a Circular dated 28-12-2006, explaining the provision as found in the Finance Act, 2006. Eventually, Mavilayi SC holds that to earn eligibility for deduction, the assessee must be a co-operative society ; it is unnecessary to probe any further whether the co-operative society is classif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, the AO has concluded that the appellant's activity violates the Cooperative Societies Act. Moreover, it is a cooperative credit society which is not entitled to deduction under section 80P(2)(a) (i) of the Act. 36. The appellant in Mavilayi Service Co-operative Bank Ltd.'s case (supra) (SC) has argued that the assessing officer and other authorities under the IT Act could not go behind the registration of the cooperative society in order to discover as to whether it was conducting business in accordance with its byelaws. Accepting this contention, Mavilayi Service Cooperative Bank Ltd.'s case (supra) (SC) observes: Nor can it be said that it would logically follow from the finding on facts that the assessing officer can go behind the registration of a society and arrive at a conclusion that the society in question is carrying on illegal activities. *** Secondly, for purposes of eligibility for deduction, the assessee must be a co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is ambiguity, it must be resolved the Assessee's favour. A deduction given without any reference to any restriction or limitation cannot be restricted or limited by implication. Conclusion. 40. First, the Assessee has all these years continued with the same set of activities. And this has been accepted by AO. On earlier occasions, unti the Assessment Year we are considering (2012-13), this Court has consistently declared that the Assessee continues to be a cooperative credit society entitled to the benefits under section 80P of the IT Act. We see no reason for the AO to take a different stand this Assessment Year. 41. That apart, the Apex Court has put a quietus to the controversy whether the Revenue could go behind the registration certificate of co- operative society and examine its activities to determine its true nature, if any. In Mavilayi Service Co-operative Bank Ltd.'s case (supra) (SC), the enunciation of law is emphatic: the authorities under the IT Act cannot go behind the certificate. Here, indisputably, all the assessee s have been registered as cooperative credit societies. Banking, as understood by the Revenue, has never been its core activity. Their acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from treasury/commercial banks to be not eligible for deduction under section 80P as it is neither covered under section 80P(2)(a)(i) nor under section 8P(2)(d). Relevant part of the said judgment is quoted below for ready reference: 8.3. .. It is not in dispute that the District/State Cooperative Banks have licence from the Reserve Bank of India under the Banking Regulation Act and are registered Cooperative Societies under the Act. Suffice to observe that by being a Society doing banking business such society will stand on par with a Co-operative Society registered under the Kerala Co-operative Societies Act would come within the purview of clause (d) of Section 80P(2). 9. The above discussion takes us to the next point for consideration namely, whether the interest income comes under Section 28 or 56 of the Act. In other words, the fulcrum of assessee's case is that investment in Bank is business of assessee. Mr Christopher Abraham relied on both the circumstances and the ratio finally laid by the Supreme Court in M/s. The Totgar's Co-operative Sale Society Limited. M/s. The Totgar's Co-operative Sale Society Limited 9.1 M/s.Totgar's Co-operative Sale Society ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 'profits and gains of business. Such interest income cannot be said also to be attributable to the activities of the Society. namely carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. When the assessee/society provides credit facilities to its members, it turns interest income. As stated above, in this case, interest held ineligible for deduction under Section 80P(2)(a)(i) is not in respect of the interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee for its business purposes and which have been invested in specified securities as investment. Further, as stated above, the assessee markets the agricultural produce of its members. It retains the sales proceeds in many cases. It is this retained amount which was payable to its members from whom produce was brought which was invested in short term deposits/securities. Such an amount, which was retained by the assessee/Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent such interest income cannot be said to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parliament in its wisdom is aware of the activities being undertaken by all the Societies to whom relief is provided by way of deduction in Section 80P of the Act. It is with this background the Parliament has provided for the deductions in respect of a few other incomes earned by the assessee/Society. Such deductions are specifically attributable to the source from which such interest is received. Expanding the institutions or categories of benefits is contrary to the intent of the Legislature. According to him clause (d) of Section 80P(2) is clear in its application, viz. that interest/dividend received from Co-operative Societies alone is entitled for deduction. Once interest is received from a Bank or Treasury, such interest income is out of the purview of the eligible deduction in the computation of assessee's income. 11.2. Mr.Jojo appearing for the respondent, in reply to the said argument, relies on the judgment of the Supreme Court in Nawanshahar Central Cooperative Bank Ltd case and argues that irrespective of the source from which the income is earned, according to the principle laid down in Nawanshahar Central Cooperative Bank Ltd case, the assessee is entitled for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80P(2)(d) viz. Interest or dividend derived by the assessee from its investments with any other Co-operative Society. The source of interest income is from Bank and Treasury, interest income received from Treasury be included in the computation of total income of the assessee. In other words, interest earned from Treasury is inadmissible for deduction and interest income from Co- operative Societies registered under the Kerala Co-operative Societies Act are eligible for deduction. The contra consideration of Commissioner of Income Tax (Appeals) and the Tribunal is ITA Nos. 142 323/2019; 5/2020-39- incorrect and liable to be modified as stated above. Hence, it is held that the interest Income earned by the assessee does not come within the ambit of Section 80P(2)(a)(i) and permissible deduction of interest income is limited to Co- operative Societies/Banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered. 7.2 Thus as per the aforesaid judgements it has held interest earned from investment of surplus funds to be assessable as 'income from othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(d) deduction. He could hardly dispute that learned CIT(A)-NFAC has already considered the catena of case law (supra) whilst deciding the instant issue in assessee s favour. That being the case, we did not find any substance in the Revenue s instant sole substantive grievance identically pleaded in both these Revenue s appeals. Rejected accordingly. 4. Next coming the assessee s twin cross objections C.O. Nos.2 3/PAN./2023 raising the following identical substantive grounds : 1. The Hon'ble CIT (A) has failed to direct the Assessing officer in case interest earned from other than societies and Cooperative banks to be brought to tax u/s. 56 after allowing proportionate expenses u/s 57 as decided in Totgars Co-operative Sale Society Ltd. Vs Income Tax Officer Karnataka High Court (2015) 231 Taxman 0794 (Kar). 2. The Appellants crave leave to add/alter any of the grounds of appeal on or before the date of hearing. 5. Learned counsel s only contention during the course of hearing is that the impugned disallowance(s) pertaining to the assessee s sec.80P deduction claim(s), which has been partly affirmed in the CIT(A)-NFAC's detailed discussion; may be directed to be computed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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