TMI Blog2021 (8) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act. CIT was therefore justified in exercising his powers of revision u/s.263 of the Act and directing the AO to tax interest income in question as it is neither of the nature specified in Sec.80P(2)(a)(i) or 80P(2)(d) of the Act. The argument that the view taken by the AO was a possible view and hence revision u/s.263 of the Act is bad is again not acceptable because, the view that ought to have been adopted was the later binding decision of the High Court in the case of Totagar co-opeartive sales society[ 2017 (7) TMI 1049 - KARNATAKA HIGH COURT] The argument that co-operative Banks are also co-operative societies is again without any basis in the light of the law explained in the case of Totagar co-opeartive sales society [supra] - We uphold the order of the CIT and dismiss the appeal of the assessee. Whether interest received from deposits with Mysore Chamarajanagar District Central Co-operative Bank made out of Reserve Fund in compliance with rule 23(2) of the Karnataka Co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ₹ 1,32,726/- was received by the assessee on deposits with nationalized banks and co-operative banks and therefore deduction on the aforesaid sum ought to not have been allowed to the assessee by the AO either under section 80P(2)(a)(i) or 80P(2)(d) of the Act. Accordingly, the Pr.CIT, Mysore issued show cause notice dated 06.03.2020 to the assessee. The Pr.CIT had in a show cause notice referred to the decision of the Hon ble Karnataka High Court in the case of Pr.CIT Vs. Totagars Co-operative Sale Society, 395 ITR 611 for the proposition that the assessee was not entitled to deduction under section 80P(2)(d) of the Act on the interest earned from deposits with nationalized banks and co-operative banks. 4. The assessee, in reply to the aforesaid show cause notice of the Pr.CIT, the Assessee firstly submitted that the entire interest income of ₹ 1,32,726/- was earned by way of interest on deposits with Mysore and Chamarajnagar District Central Co-operative Bank and not from any nationalized bank. The assessee secondly pointed out that the claim for deduction on the aforesaid sum was made under section 80P(2)(a)(i) and not under 80P(2)(d) of the Act and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t interest on such deposits/securities, which strictly speaking accrues to the members account, could not be taxed as business income under section 28 of the Act and it was held by the Hon ble Supreme Court that such interest income would come in the category of income from other sources , hence, such interest income would be taxable under section 56 of the Act and hence not attributable to the business of providing credit facility to its members. It was submitted the ratio of the decision in case of Totgars Co-op. Sale Society (supra), as observed by Supreme Court itself, was confined only to the facts of the case before it accordingly cannot be applied in general to all kinds of co-op. societies. It was submitted that in the case of Totgars, the Hon ble Supreme Court had not spelt out anything with regard to operational funds in the hands of pure Cooperative Credit Societies and the ratio was applicable to co-operative sale societies only. It was submitted that the Assessee in Totgars case had admitted that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits. The surplus funds arose out of the amount retai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in the case of the The Totgars Cooperative Sale Society Ltd. Vs. ITO 322 ITR 283 (SC) held that Income from utilisation of surplus funds was taxable under the head income from other sources, and therefore not eligible for deduction u/s 80P. The Hon ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (230 Taxman 309), was dealing with a case where deduction u/s.80P(2)(a)(i) of the Act was claimed on interest from the deposits made in a nationalized bank out of the amounts which was used by the assessee for providing credit facilities to its members. The Assessee claimed that the said interest amount is attributable to the business of providing credit facilities by the assessee and forms part of profits and gains of business. The Hon ble Karnataka High Court after considering SC judgment in case of Totgars(supra) held that since the word income is qualified by the expression attributable to the business of Banking is used in Sec.80P(2)(a)(i) of the Act, it has to receive a wider meaning and should be interpreted as covering receipts from sources other than the actual conduct of business. The Court held a Cooperative S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O-OPERATIVE SALE SOCIETY 392 ITR 0074 (Karn) in the context of deduction u/s.80P(2)(d) of the Act, it was held that Sec.80P(2)(d) of the Act allows deduction in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other cooperative society, the whole of such income. The Hon ble Court held that that the aforesaid Supreme Court's decision in the case of Totgars (supra), was not applicable to deduction u/s.80P(2)(d) of the Act, because the said decision was rendered with regard to deduction under Section 80P(2)(a)(i) of the Act and not under Section 80P(2)(d) of the Act. 10. However, the Hon ble Karnataka High Court in the case of PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE SOCIETY 395 ITR 0611 (Karn) took a different view and held that interest income earned on deposits whether with any other bank will be in the nature of income from other sources and not income from business and therefore the deduction u/s.80P(2)(d) of the Act cannot be allowed to the Assessee. The Hon ble Court followed decision of Hon ble Gujarat High Court in the case of SBI Vs. CIT 389 ITR 578(Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate body or skeleton of a cooperative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act. (Paragraph 13 of the Judgment). 2. The banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub-section (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any co-operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in Section 80P(4) are significant. They are: The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society .. . The words in relation to can include within its ambit and scope even the interest income earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s far as applicability of Section 80P(2) of the Act is concerned, the applicability of the Supreme Court's decision cannot be restricted only if the income was to fall under Section 80P(2)(a) of the Act and not under Section 80P(2)(d) of the Act.(Paragraph-18 of the Judgment) 6. The Court finally concluded that it would not make a difference, whether the interest income is earned from investments/deposits made in a Scheduled Bank or in a Co-operative Bank. Therefore, the said decision of the Co-ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon'ble Supreme Court. (Paragraph 19 of the Judgment) 12. The Hon ble Karantaka High Court in the aforesaid decision also placed reliance on a decision of the Hon ble Gujarat High Court in the case of STATE BANK OF INDIA (SBI) vs. COMMISSIONER OF INCOME TAX 389 ITR 0578 (Guj) did not agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision of the Supreme Court in Totgars Co-operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph-13 of the Judgment) 13. It can thus be seen that the ratio laid down by the Hon ble Karnataka High Court in the case of Totalgars Cooperative Sales Society in 395 ITR 611 (Karn) is that in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in cooperative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act. 14. The CIT was therefore justified in exercising his powers of revision u/s.263 of the Act and directing the AO to tax interest income in question as it is neither of the nature specified in Sec.80P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest received by it amounting to ₹ 1,32,726 from deposits with Mysore Chamarajanagar District Central Co-operative Bank made in compliance with section 58 of the Karnataka Co-operative Societies Act, 1959 constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the deduction under section 80-P(2)(a)(i) of the Income Tax Act, 1961 in respect thereof was rightly allowed by the Income Tax Officer. 7. Without prejudice to the above, the learned Principal Commissioner ought to have considered the submissions of the appellant to the effect that the interest received by it amounting to ₹ 1,32,726 from deposits with Mysore Chamarajanagar District Central Co-operative Bank made in compliance with rule 28 of the Karnataka Co-operative Societies Rules, 1960 constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the appellant was eligible for deduction thereof under section 80-P(2)(a)(i) of the Income Tax Act, 1961. 18. The issue raised by the Assessee in the aforesaid grounds require examination because if there are sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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