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TMI Blog2021 (8) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction claimed u/s.8OP[2][a][i] of the Act amounting to Rs. 52,64,317/- in respect of the profits earned by the appellant from the business of providing credit facilities to its members under the facts and in the circumstances of the appellant's case. 3. The learned CIT[A] erred in holding that the business of providing credit facilities to the members carried on by the appellant cannot be regarded as a business carried on by a co-operative society complying with the principles of mutuality since the appellant had admitted nominal and associate members, who could neither vote nor were entitled to a share in the profits as per the bye-laws of the appellant and hence, the appellant was not entitled to deduction u/s. 8OP[2][a][i] of the Act having regard to the rationale behind the judgment of the Hon'ble Supreme Court in the case of Citizens Co-operative Society reported in 397 ITR 1 [SC] under the facts and in the circumstances of the appellant's case. 4. The learned CIT[A] ought to have appreciated that the appellant co-operative society had no doubt admitted nominal and associate members, which was permissible under the Karnataka Co-operatives Societies Act, 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad of the arbitrary allowance of 10% of the income as incidental expenses, under the facts and in the circumstances of the appellant's case. 9. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s 234-B of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 10. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs." 4. Brief facts of the case are as follow: The assessee is a primary agricultural credit society registered under the Karnataka Co-operative Societies Act, 1959. The assessee is engaged in providing credit facilities to its members. For the assessment years 2015-2016 and 2016- 2017, the returns of income were filed declaring income of Rs. 57,64,370 and Rs. 74,29,284, respectively, after claiming deduction u/s 80P of the I.T.Act. In the gross total income for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. and Ors. v. CIT & Anr. reported in [2021] 431 ITR 1 (SC), it was stated by the learned AR that the Bangalore Bench of the Tribunal in the recent order in the case of M/s.Kadaba Sahakari Vyavasayika Bank Ltd. v. ITO in ITA No.210/Bang/2020 (order dated 23.07.2021) had restored the identical matter to the files of the A.O. to consider the dictum laid down by the Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. and Ors. v. CIT & Anr. (supra). 7. As regards ground Nos.6, 7 & 8 with respect to the claim of deduction u/s 80P(2)(d) of the I.T.Act, the learned AR submitted that the Bangalore Bench of the Tribunal in the case of M/s.The Jayanagar Co-operative Society Ltd. v. ITO in ITA No.3254/Bang/2018 (order dated 23.07.2019), on identical facts, had restored the matter to the files of the A.O. for de novo consideration. 8. The learned Departmental Representative, on the other hand, by relying on the judgment of the Hon'ble Apex Court in the case of Citizens Co-operative Society Ltd. v. ACIT reported in 397 ITR 1 (SC), submitted that the assessee violated the principles of mutuali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that interest income earned by making investment of surplus funds has to be assessed under the head "Income from Other Sources" and not income from business and since interest income is not assessed as business income, the claim for deduction under section 57 of the Act cannot be allowed. In upholding the above conclusions, the CIT(A), inter alia, relied on the decision of the Hon'ble Supreme Court in the case of The Totgar's Co-operative Sales Society Ltd., Vs. ITO 322 ITR 283 (SC) wherein the Hon'ble Supreme Court held that the benefit of deduction under section 80P(2)(a)(i) of the Act is only on income which is assessable under the head "Income from Business". Interest earned on investment of surplus funds not immediately required in short term deposits and securities by a Co-operative Society providing credit facilities to members or marketing agricultural produce to members is not business income but income from other sources and the society is not entitled to special deduction. 5. While learned AR relied on the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Credit Co-operative Ltd., 230 taxman 309 (Karn), the DR relied on a subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arda Co-operative Ltd. (supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon'ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon'ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra)." 9.2 In the light of the above order of the Tribunal, we deem it appropriate on the facts of the instant case, to restore the issue of claim of deduction u/s 80P(2)(d) of the I.T.Act to the files of the A.O. Hence ground Nos.6 and 7 are allowed for statistical purposes. 9.3 As regards ground No.8, we noticed that the issue raised is an alternative contention to the claim of deduction u/s 80P(2)(d). Since we have already restored the issue of claim of deduction u/s 80P(2)(d) of the I.T.Act to the files of the A.O., the issue raised in ground No.8 relating to the allowability of expenditure on income assessed as income from other sources is also restored to the files of the A.O. It is ordered accordingly. 10. In the result, the appeals filed by the assessee are allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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