TMI Blog2019 (3) TMI 381X X X X Extracts X X X X X X X X Extracts X X X X ..... est income derived from co operative society in the form of Co-operative bank on first principles. - Decided in favour of assessee. assessee to demonstrate on facts that the investee co-operative bank in question is recognised as a co-operative society indeed within the meaning of Section 2(19) of the Act. A self declaration from the respective co-op. bank in this regard or any other suitable document may discharge the onus of the assessee towards the status of the co-op. bank. Similarly, the assessee is entitled to avail deduction of resultant ‘income’ derived and not gross receipt of interest under S. 80P(2)(d) of the Act in accord with basic rationale of taxation. Hence, all expenses/losses attributable to such interest income are required to be necessarily deducted and only resultant interest income is eligible for deduction under S. 80P(2)(d) of the Act. The AO would thus be at liberty to ascertain these factual aspects for which the assessee shall provide suitable assistance. Allowance of pro-rata expenditure against the interest income from investment in co operative banks - HELD THAT:- Assessee is entitled for deduction under s.80P(2)(d) for resultant income derived f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62/- as fully taxable u/s. 56 of the Act without allowing the Pro-rata expenditures incurred u/s 57 of the Act. It is submitted that the only net interest income received after allowing the Pro-rata expenditure incurred be taxed. 3. The assessee, a co-operative credit society, filed its return of income which inter alia included interest income amounting to ₹ 3,28,923/- derived from Ahmedabad District Co-operative Bank (ADC) and ₹ 1,139/- derived from Axis Bank. The return was subjected to scrutiny assessment and certain additions were made by the AO. The assessee preferred appeal before CIT(A) on those additions with which we are not presently concerned as the assessee is no longer aggrieved. 4. In the first appeal against the order of the AO on other issues, the CIT(A), however, denied deduction of the aforesaid amount aggregating to ₹ 3,30,662/- claimed u/s. 80P of the Act by the assessee in exercise of its power of enhancement. 5. The assessee is in appeal before the Tribunal against the aforesaid action of the CIT(A). 6. When the matter was called for hearing, the learned AR for the assessee at the outset submitted that the appeal has been filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .80P(2)(a)(i) of the Act either, in view of the decision of the Hon ble Supreme Court in the case of The Citizen Co-Operative Society Ltd. v. Asstt. CIT (2017) 88 Taxmann.com 279 (SC). 9. We have carefully considered the rival submissions. The dispute concerns section 80P of the Act which provides for deduction of income of a co-operative society engaged in specified activity catalogued in Section 80P(2) of the Act. The principal controversy in the captioned appeal is towards maintainability of deduction under s.80P(2)(d) of the Act in the hands of the credit co-operative society towards interest earned from deposit placed with co-operative banks, more so, in the light of insertion of s. 80P(4) of the Act by Finance Act, 2006. Thus, the incidental point in issue is whether the benefit of S. 80P denied to coop banks by the insertion of 80P(4) adversely impacts the investment in such banks by a co-op society or not? It is common knowledge that a large number of co-op. societies place their surplus with co-op. banks and seek benefit of Section 80P(2)(d) of the Act on interest income derived. Hence, a nuanced understanding of the raging controversy is strongly needed. 9.1 It is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered under the Co-operative Societies Act, 1912 (2 of 1912 ), or under any other law for the time being in force in any State for the registration of cooperative societies; 9.2.2 Income under S. 2(24) of the Act also includes: the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members 9.2.3 The relevant portion of S. 80-P governing deduction available to co-operative societies is also quoted hereunder: Deduction in respect of income of co-operative societies. 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members; or (ii) a cottage industry ; or (iii) --- (iv) -- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in earlier para, it would be expedient to firstly refer to the decision of The Citizen Co-Operative Society Ltd. (supra) to gather the rules of interpretation of various sub- sections of the beneficial provision of S. 80P. The Hon ble Supreme Court inter alia has observed that different heads of exemption enumerated in the Section 80P of the Act should be treated as separate and distinct head of exemption . If any particular category of an income falls within any one head of exemption , the assessee would be free from tax notwithstanding that the conditions of other head of exemption are not satisfied and such income is not free from tax under other head of exemption . Thus, in view of the express judicial dicta, provisions of Section 80P(2)(a) and 80P(2)(d) are mutually exclusive and are to be read independent of each other. 9.4 We are presently concerned with the availability of deduction to a co-op society within the realm of Section 80P(2)(d) of the Act. Two things need to be noted in this regard; firstly, unlike Section 80P(2)(a) or (b) or (c) of the Act where the assessee is qualified for deduction of profits gains of business attributable to one or more of activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80P(4)] may not qualify for deduction under s.80P of the Act, a co-operative society per se would not come within the mischief of sub-section 4 of the Act of Section 80P of the Act and would continue to avail the benefit of Section 80P(2)(d) of the Act. Thus, simply put, while a co-operative bank has been stripped of the benefit of Section 80P of the Act on its various income by insertion of S. 80P(4), the investment in such co operative bank [ bearing the legal trappings of a co-op society ] by a co-op society as envisaged in Section 80P(1) of the Act is not divested of such benefit. 9.7 Joining the issue in hand, as per Section 80P(2)(d) of the Act, the only requirement is that the income should be received from investment by a co-operative society in other co-operative society and it is claimed that co-operative bank namely Ahmedabad District Co operative Bank , in the present case, is nothing but a co-operative society recognised by the competent authority of the State as contemplated under Section 2(19) of the Act. On these facts, the eligibility of deduction under Section 80P(2)(d) of the Act is required to be evaluated independent of mutuality doctrine taken away by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of Section 80P(2)(d) of the Act. Placing reliance upon the judgments rendered in the context of 80P(2)(a)(i) of the Act, the Hon ble High Court concluded that the deduction of interest income is not permissible unless it arises from business operations. Clearly, the distinction between Section 80P(2)(a) and 80P(2)(d) of the Act of substantial nature (as discussed in para 9.4 of this order) was not brought to the notice of Hon ble High Court. The deduction under s. 80P(2)(a) or (b) or (c) of the Act is available only on account of income/profits arising from business activity. However, this requirement is not applicable under s.80P(2)(d) of the Act where whole of the income arising from interest or dividend etc. is allowable without such limitation of business activity. This cardinal difference of overwhelming nature was not brought to the notice of the Hon ble High Court. Consequently, the decision rendered by the Hon ble High Court appears to be subsilentio. Thus, governed by the observations of the Hon ble Gujarat High Court in the case of Sabarkantha District (supra) and State Bank of India (supra), we have not hesitation to affirm the plea of the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard to the Appellant. It is submitted the order passed by Ld CIT(A) is completely erroneous , incorrect and unlawful. Thus order passed by Ld CIT(A) be set aside and incorrect addition made and confirmed of ₹ 6,07,377/- be deleted in view of natural justice. 2. The Ld CIT(A) has erred in confirming the addition made of ₹ 6,07,377/- disallowing the interest income claimed u/s 80P of the Act. It is submitted that the Appellant has never been informed regarding fixing of hearing by issuing notice or by any other communication mode whatsoever from the office of CIT(A). Thus the order passed by Ld CIT(A) without granting of opportunity of being heard be treated as null and void. Therefore the order so passed by CIT(A) be set aside and incorrect addition made of ₹ 6,07,377/- be deleted. 3. The Ld. CIT(A) has erred in confirming the addition made of ₹ 6,07,377/- on account of interest income received from bank. It is submitted that interest income received from savings / deposits with the bank which in turn to be used for the for the objects of the society is clearly eligible for deduction u/s 80P(2)(a)(i) of the Act. On the facts and circumstances, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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