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TMI Blog2024 (5) TMI 1514X X X X Extracts X X X X X X X X Extracts X X X X ..... available to the Appellant in respect of interest income received from co-operative bank? - Nature of income is not a relevant consideration while considering the eligibility for deduction u/s 80P(2)(d) of the Act. Further, the Impact of insertion of Section 80P(4) of the Act is that a co-operative bank would no more be entitled for claim of deduction under Section 80P however, the interest income derived by a co-operative society from a co-operative bank would continue to be eligible for deduction under Section 80P(2)(d) of the Act irrespective of the fact that such interest income is in the nature of 'profits and gains of business' or 'income from other sources' as Section 80P(2)(d) uses the expression 'any income' and not 'profits & gains of business'. Our view draws strength from the decision of the Tribunal in the case of Kaliandas Udyog Bhavan Premises Co-operative Society Ltd [2018 (4) TMI 1678 - ITAT MUMBAI] taking into account the insertion of Section 80P(4) of the Act vide the Finance Act, 2006, the Mumbai Bench of the Tribunal held that a co-operative society would be eligible to claim deduction under Section 80P(2)(d) of the Act in respect of interest received from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt made in nationalized and cooperative banks. 4. Hon'ble CIT-(A), NFAC has erroneously passed the order with pre-conceived notion and overlooking the various judgments of Hon'ble High Courts & ITAT benches wherein deduction u/s 80P(2)(d) of The Income Tax Act, 1961 is allowed to credit societies in respect of interest earned on the investment made in co-operative banks on the grounds that Co-operative bank is a species of co-operative credit society. 5. Alternatively, on the facts and in law, the Hon'ble CIT-(A), NFAC and the learned A.O. erred in not appreciating that the appellant is entitled for deduction u/s 80P(2)(d) of The IT Act 1961, in respect of Rs. 2,46,43,418/- for interest earned from co-operative banks as such interest income is qualified and entitle for deduction u/s 80P(2)(d) and now it is a settle position of law after the various judgments of Hon'ble High Courts & ITAT benches. 6. On the facts and in law, the learned A.O. erred in not appreciating that if the intention of the Income Tax Act/Law Makers was to deny the deduction u/s 80P to a co-operative society carrying on the activity of providing banking/credit facilities with its member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Learned Departmental Representative supported the stand taken by the Assessing Officer by placing reliance on the judgment of the Hon'ble Karnataka High Court in the case of Principal Commissioner of Income Tax, Hubli Vs. Totagar Co-operative Sales Society: [2017] 695 ITR 611 (Karnataka), the judgment of Hon'ble Gujarat High Court in the case of Katlary Kariyana Sahkari Sarafi Mandli Ltd Vs, ACIT: [2022] 140 Taxmann.com 602 (Gujarat), dated 04/01/2022, and the judgment of the Hon'ble Supreme Court in the case of Citizen Co-operative Society Vs. ACIT, Circle 9(1), Hyderabad: 397 ITR 1 (SC) as well as the provisions contained in Section 80P(4) of the Act. 8. We have given thoughtful consideration to the rival submission, perused the material on record and considered the position in law. We find that the issues raised in the present appeal are no longer res-integra. 9. The Assessing Officer and the CIT(A) have concluded that the Assessee is not entitled to claim deduction under Section 80P(2)(a)(i) of the Act as it is engaged in the business of banking and therefore, hit by the provisions of Section 80P(4) of the Act. Reliance in this regard was placed on the judgment of Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; (III) That this Court in Kerala State Cooperative Marketing Federation Ltd. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied; (IV) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so - which is not the case with section 80P(2)(a)(i); (V) That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co-operative banks, which are cooperative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e section (vide Bengal Immunity Company Limited v. State of Bihar [1955] 2 SCR 603])." 28. Secondly, for purposes of eligibility for deduction, the assessee must be a "co-operative society". A co-operative society is defined in Section 2(19) of the IT Act, as being a co-operative society registered either under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any State for the registration of cooperative societies. This, therefore, refers only to the factum of a cooperative society being registered under the 1912 Act or under the State law. For purposes of eligibility, it is unnecessary to probe any further as to whether the co-operative society is classified as X or Y. 29. Thirdly, the gross total income must include income that is referred to in sub-section (2). 30. Fourthly, sub-clause (2)(a)(i) with which we are directly concerned, then speaks of a co-operative society being "engaged in" carrying on the business of banking or providing credit facilities to its members. What is important qua sub-clause (2)(a)(i) is the fact that the co-operative society must be "engaged in" the providing credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g at par with other commercial banks, which do not enjoy any tax benefit. Therefore section 80P has been amended and a new sub-section (4) has been inserted to provide that the provisions of the said 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. The expressions 'co-operative bank', 'primary agricultural credit society' and 'primary co-operative agricultural and rural development bank' have also been defined to lend clarity to them." 38. A clarification by the CBDT, in a letter dated 9-5-2008, is also important, and states as follows: "Subject: Clarification regarding admissibility of deduction under section 80P of the Income-tax Act, 1961. ** ** ** 2. In this regard, I have been directed to state that sub-section (4) of section 80P provides that deduction under the said section shall not be allowable to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. For the purpose of the said sub-section, cooperative bank shall have th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of Section 3 of the Banking Regulation Act, 1949 (AACS), PACS are not entitled for obtaining a banking license. Hence, your society does not come under the purview of Reserve Bank of India. RCS will issue the necessary guidelines in this regard xx xx 45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness attributable to any one or more of ssuch activities' has been used), whereas in Section 80P(2)(d) of the Act expression used is 'any income by way of interest'. Thus, the nature of income is not a relevant consideration while considering the eligibility for deduction under Section 80P(2)(d) of the Act. Further, the Impact of insertion of Section 80P(4) of the Act is that a co-operative bank would no more be entitled for claim of deduction under Section 80P of the Act, however, the interest income derived by a co-operative society from a co-operative bank would continue to be eligible for deduction under Section 80P(2)(d) of the Act irrespective of the fact that such interest income is in the nature of 'profits and gains of business' or 'income from other sources' as Section 80P(2)(d) uses the expression 'any income' and not 'profits & gains of business'. Our view draws strength from the decision of the Tribunal in the case of Kaliandas Udyog Bhavan Premises Co-operative Society Ltd. vs. ITO: ITA No. 6547/Mum/2017, dated 24.04.2018. In that case, after examining the judgment of the Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. vs. ITO (2010) 322 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p;………………… (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" Thus, from a perusal of the aforesaid Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee cooperative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. 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 cooperative society. We though are in agreement with the observations of the lower authorities 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 development bank, but however, are unable to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taka 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 also held that the interest income earned by the assessee on its investments held 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, as had been relied upon by the ld. A.R, also makes it clear beyond any scope of doubt, that the purpose behind enactment of sub-section (4) of Sec. 80P was to provide that the cooperative banks which are functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. We are of the considered view that the reliance placed by the CIT(A) 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 (S.C.) being distinguishable on facts, thus, 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 enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a co-operative society on its investments held with a co operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9. We thus in the backdrop of our aforesaid observations are unable to persuade ourselves to be in agreement with the view taken by the lower authorities that the assessee would not be entitled for claim of deduction under Sec. 80P(2)(d), in respect of the interest income on the investments made with the co-operative bank. We thus set aside the order of the lower authorities and conclude that the interest income of Rs.27,48,553/- earned by the assessee on the investments held with the co-operative bank would be entitled for claim of deduction under Sec. 80P(2)(d)." (Emphasis supplied) 10.1. On perusal of the above, it can be seen that it was held by the Tribunal that even after insertion of Section 80P(4) of the Act, deduction under Section 80P(2)(d) of the Act was allowable in respect of interest received by a co-operative society from a co-operative bank. 10.2. During the course of hearing strong reliance was placed by the Learned D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come derived from investing surplus funds with the State Bank of India must be closely linked with the business of providing credit facilities for it to be held that it is attributable to the business of the assessee. Therefore, the profits and gains can be said to be directly attributable to the business of providing credit facilities to its members if there is a direct and proximate connection between the profits gains and the business of the appellant. In the present case there is no obligation upon the appellant to invest its surplus funds with the State Bank of India. Investing surplus funds in a bank is no part of the business of the assessee of providing credit facilities to its members. Therefore, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India not being attributable to the business carried on by the appellant, cannot be deducted under section 80P(2)(a)(i) of the Act. If the appellant wants to avail of the benefit of deduction of such interest income, it is always open for it to deposit the surplus funds with a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80P(2)(d) of the Act, respectively. Thus, Ground No. 1 to 3 raised by the Appellant are allowed while rest of the Grounds raised by the Appellant are dismissed as being infructuous. ITA No. 57/Mum/2024 (Assessment Year 2020-21) 12. We would now take up appeal for the Assessment Year 2020-21 which has been preferred by the Assessee challenging the order, dated 08/11/2023, passed by the CIT(A), whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Assessment, dated 16/09/2022, passed under Section 143(3) read with Sections 144B of the Income Tax Act, 1961 [hereinafter referred to as 'the Act']. 13. Both the sides agreed that there being no change in facts and circumstances of the case and the applicable legal position, our reasoning, findings and adjudication in appeal for the Assessment Year 2018-19 shall apply mutatis mutandis to corresponding grounds raised in appeal for the Assessment Year 2020-21. On perusal of the orders passed by the authorities below we find that the deduction of INR 82,40,604/- claimed by the Appellant under Section 80P(2)(d) of the Act has been denied on the ground that the same has been received from a co-operative bank. While adj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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