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TMI Blog2024 (11) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... is rightly reversed by the Tribunal holding that the cooperative bank is a cooperative society registered under the Gujarat State Cooperative Societies Act and in view of the various decisions of the Court, the Tribunal after following the same has come to the conclusion that the assessment was not erroneous allowing deduction of section 80P(2)(d) of the Act which is in consonance with the various decisions of the Court as a twin condition invoking section 263 as to the assessment being erroneous and prejudicial to the interest of the revenue are not being fulfilled. Decided in favour of assessee. - HONOURABLE MR. JUSTICE BHARGAV D. KARIA And HONOURABLE MRS. JUSTICE MAUNA M. BHATT MR KARAN SANGHANI WITH MR RUDRAM TRIVEDI FOR MRS KALPANA K RAVAL(1046) FOR THE APPELLANT(S) NO. 1 MR SN DIVATIA(1378) FOR THE OPPONENT(S) NO. 1 MR TUSHAR HEMANI WITH MS VAIBHAVI PARIKH FOR THE OPPONENT(S) IN SCA 221/2022 ORDER ( PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA ) 1. This Tax Appeal is filed under section 260A of the Income Tax Act,1961 [for short the Act ] by the appellant-Revenue proposing following substantial questions of law arising out of the Judgement and Order dated 14.12.2023 passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court.? 2. When this mater was heard on 02.07.2024, it was pointed out that Tax Appeal Nos. 419/2023 and Tax Appeal No. 221/2022 raising similar questions are also pending for adjudication and these matters are admitted by this Court. 3. It was also pointed out that the issue raised by the Revenue on applicability of section 80P(2)(d) of the Act is recurring issue and therefore, all the three appeals were ordered to be listed together. 4. Accordingly, today all the three appeals are listed for hearing. 5. Tax Appeal No. 221/2022 is admitted by order dated 25.04.2022 on the following substantial questions of law: (i) Whether on the facts and circumstances of the case and in law, the Hon ble Tribunal had erred in holding that the order passed by the Ao is neither erroneous nor prejudicial to the interest of Revenue by ignoring the decision of Hon ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. Reported in 322 ITR 283, wherein it was held that interest earned from investments made in any bank not being cooperative society, is not deductible under section 80P(2)(d) of the Act. (ii) Whether on facts and circumstances of the case in law, the learned Tribunal ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals by holding that the action of Principal Commissioner of Income Tax [ PCIT for short] invoking section 263 of the Act directing the Assessing Officer to tax the interest earned by the respondent-assessee on the investment made with the Co- operative Bank to be disallowed is not legal and Tribunal has allowed the appeals of the assessee holding that the action of passing the order by the Assessing Officer was not erroneous and prejudicial to the interest of the Revenue by allowing the deduction on interest earned from Cooperative Bank under section 80P(2)(d) of the Act. 9. As the main issue regarding taxability of the interest earned by the respondent- assessee from the investment made with the Co-operative bank to be eligible for deduction under section 80P(2)(d) of the Act is concerned, the facts of each case are not narrated in detail. 10. Learned Senior Standing Counsel Mr. Karan Sanghani appearing for the appellant- Revenue submitted that as per section 80P(4) of the Act, the provisions of section 80P are not applicable in relation to any Cooperative Bank other than a Primary Agriculture Credit Society or a Primary Cooperative Agricultural and Rural Development Bank. Relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Hon ble Apex Court was that whether such interest income would qualify for deduction as business income under section 80P(2)(a)(i) of the Act or not and in that context, the Hon ble Apex Court held that such income would not be considered as an exempt income under section 80P(2)(a)(i) of the Act as the interest income would come in a category of income from other sources and such interest income would be taxable under section 52 of the Act. It was therefore, submitted that in view of the decision of the Hon ble Supreme Court when the income is taxable under section 56 of the Act and in view of the provision of section 80P(4) of the Act, the respondent-assessee is not entitled to the deduction under section 80P(2)(d) of the Act and the PCIT has rightly invoked the revisional powers under section 263 of the Act as the Assessing Officer has allowed deduction of the interest earned by the respondent-assessee under section 80P(2) (d) of the Act which is erroneous and prejudicial to the interest of Revenue. 14. Reliance was also placed by decision of this Court in case of State Bank of India vs. Commissioner of Income Tax reported in 389 ITR 578 (Guj.) wherein, Division Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent- assessee is not entitled to the deduction under section 80P(2)(d) of the Act. 17. Learned advocate Mr. Sanghani also referred to and relied upon the decision of the Division Bench of this Court in case of Katlary Raiyana Merchant Sahkari Sarafi Mandali Ltd vs. Assistant Commissioner of Income Tax reported in [2022] 140 taxmann.com 602 (Guj) wherein this Court has considered the issue of applicability of section 80P(2)(a)(i) of the Act to the income earned by the assessee which was providing the credit facilities to its members and the assessee was claiming the deduction under section 80P(2)(d) of the Act from the interest received on the FDR from the Cooperative and Nationalized Bank which was inadmissible under section 80P of the Act. 18. It was submitted that this Court while considering the applicability of sections 80P(2)(a)(i) and 80P(2)(d) has also held that the interest income earned by the assessee has rightly been considered taxable and not entitled to the deduction under section 80P(2)(d) as the investment was made in nature of FDR other than Cooperative Societies i.e. other Cooperative Banks and Nationalized Bank. It was therefore submitted that the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in view of the provisions of section 80P(2)(d) of the Act which provides that any income earned on the investment made by one cooperative society with other Cooperative Societies would be entitled to deduction of such income. It was submitted that the issue is no more res-integra in view of the decision of the Hon ble Supreme Court in case of Kerala State Cooperative Agricultural and Rural Development Bank Ltd vs. Assessing Officer reported in 458 ITR 384 wherein, the Hon ble Supreme Court after considering the various provisions of the Banking Regulation Act and the National Bank for Agriculture and Rural Development Act, 1981 ( NABARD ACT, 1981 , for short) has held that looking from any angle, a cooperative society which is not a State Cooperative Bank within the meaning of the NABARD Act, 1981 would not be cooperative bank within the meaning of section 56 of the Banking Regulation Act. It was further pointed out that the Hon ble Supreme Court after considering the definition of section 86 of the Banking Regulation Act, 1949 has held that the income earned would be entitled to deduction/exemption under section 80P of the Act and the same could not be denied invoking section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, the sub-clause (d) refers to any income which is earned from the investment made by the cooperative society with another cooperative society whereas, the clause (e) of section 80P(2) of the Act refers to the rental income earned by the cooperative society by letting out the godown for the agriculture purpose to any person. It was therefore submitted that so far as clauses (d) and (e) of section 80P(2) of the Act are concerned, the same are directly related to the nature of income as provided in the said clauses. 26. It was further submitted that the applicability of section 80P(4) of the Act would arise only in case of cooperative bank as the such bank is liable to pay tax without having any deduction under section 80P of the Act. It was submitted that the basis for insertion of section 80P(4) in the Act w.e.f. 01.04.2007 is explained in the memorandum to the effect that the activities carried out by the cooperative bank are at par with the other commercial bank and therefore, the benefit of granting exemption under section 80P of the Act was withdrawn by the legislature. 27. It was therefore submitted that when the respondent-assessee has earned interest on the investment made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amendment of sub-section (4) of section 80P of the Act. Therefore, the exclusion of applicability of section 80P to cooperative banks by section 80P (4) of the Act would not disentitle the respondent-assessee from claiming deduction under section 80P(2)(d) of the Act in absence of any amendment in the said section and that would not be sufficient to deny the claim of the respondent-assessee for deduction of interest earned from investment made in a cooperative bank which is also a cooperative society from the total income. 31. The Hon ble Apex Court in case of Kerala State Co-operative Agricultural Rural Development Bank Ltd. vs. Assessing Officer (supra) while considering various provisions of the Banking Regulation Act read with provisions of the Income Tax Act has held that the provision of section 80P(4) of the Act would not be applicable to a cooperative bank which is not a bank as per the provisions of the BR Act,1949, as under: 5. Interpretation. In this Act, unless there is anything repugnant in the subject or context, X X X (b) banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the aforesaid conspectus of the provisions so as to require a licence under the aforesaid provision for carrying on banking business. In the circumstances, the question could still arise as to whether the appellant herein is entitled to benefit of deduction under Section 80P of the Act. 14.2. In Mavilayi Service Co-operative Bank, it has been observed that Section 80P of the Act is a beneficial provision which was enacted in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and therefore, has to be read liberally in favour of the assessee. That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in sub- section (2) of Section 80P must be given by way of deduction vide Citizen Co- operative Society. This is because sub-section (4) of Section 80P is in the nature of a proviso to the main provision contained in sub- sections (1) and (2) of Section 80P. The proviso excludes co-operative banks, which are co-operative societies which must possess a licence from the Reserve Bank of India to do banking business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (4) of Section 80P is to exclude only co-operative banks that function on par with other commercial banks i.e. which lend money to members of the public. That on a reading of Section 3 read with Section 56 of the BR Act, 1949, the primary co-operative bank cannot be a primary agricultural credit society. As such co-operative bank must be engaged in the business of banking as defined by Section 5(b) of the BR Act, 1949, which means accepting, for the purpose of lending or investment, of deposits of money from the public. Also under Section 22(1)(b) of the BR Act, 1949, no co- operative society can carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by Reserve Bank of India. It was pointed out that as opposed to the above, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. 14.5. It was further observed in the said case that some primary agricultural credit societies had sought for banking licence from Reserve Bank of India but the same was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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