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TMI Blog2021 (9) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... was dividend on investments made in SCDCC Bank. The deduction on the aforesaid two sums were claimed by the assessee u/s.80P(2)(a)(d) of the Act. The remaining sum was claimed as deduction u/s.80P(2)(a) (i) of the Act, being income earned from providing credit facility to its members. 3. We will deal with the first issue of deduction u/s.80P(2)(d) of the Act. On this issue, the AO was of the view that the interest income and dividend income claimed as deduction u/s.80P(2)(d) by the assessee on deposits and investments with co-operative banks and therefore deduction on the aforesaid sum cannot be allowed to the assessee either under section 80P(2)(a)(i) or 80P(2)(d) of the Act. The AO held that as per the decision rendered by the Hon'ble Karnataka High Court in the case of Totagars Co-operative Sale Society 395 ITR 611(Karn)(supra), following the decision rendered by the Hon'ble Supreme Court in the case of Totagars Cooperative Sale Society 322 ITR 283 (SC) held that interest income is taxable under the head income from other sources and will not be entitled to deduction under section 80P(2)(a)(i) of the Act. The ratio laid down by the Hon'ble Karnataka High Court in the case of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, Sirsi, is entitled to 100% deduction under Section 80P(2)(d) of the Income Tax Act, 1961 (for short 'the Act') in respect of whole of its income by way of interest earned by it during the relevant Assessment Years from 2007-2008 to 2011-2012 on the deposits or investments made by it during these years with a Cooperative Bank, M/s. Kanara District Central Co-operative Bank Limited? (II) Whether the Supreme Court decision in the case of the present respondent assessee, Totgar Co-operative Sale Society Limited itself rendered on 08th February 2010, in Totgar's Cooperative Sale Society Limited v. Income Tax Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment Year 1995-1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total Income under Section 80P(2)(a)(i) of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is that of a primary agricultural credit society. (Paragraph-14 of the judgment) 3. The amendment of Section 194A(3)(v) of the Act excluding the Cooperative Banks from the definition of "Co- operative Society" by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co-operative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. (Paragarph 15 of the Judgment) 4. If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise.(Paragraph 16 of the Judgment) 5. On the decision of the earlier decision of the Hon'ble Karnataka High Court referred to in the earlier part of this order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. The Hon'ble Gujarat High Court in this regard referred to the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. The Hon'ble Gujarat High Court therefore held that decision in the case of Totagar Co-operative Sales Society rendered by the Hon'ble Supreme Court is not restricted only to the investments made by the assessee therein from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be held that the assessee was eligible for deduction thereof under section 80- P(2)(a)(i) of the Income Tax Act, 1961. It was submitted that the total deposit collected by the assessee during the previous year was as under. Member category Loans given Interest earned Deposit received Interest paid A - Regular 19,26,49,834 1,37,74,793 8,77,39,637 74,57,869 C- Nominal 5,65,360 43,49,141 3,12,95,190 54,84,033 Total 19,32,15,184 1,79,23,934 11,90,34,827 1,29,41,902 Following the direction of the circular dated 10.07.2006 issued under the Co-operative Society Act, 1959, the assessee had maintained statutory liquidity ratio in SCDCC Bank, as below. DEPOSITS IN SCDCC BANKS BANKS AMOUNT GUTHIGAR 9,50,607/- SAMPAJE 18,48,122/- KUMBRA 11,17,613/- JALSOOR 21,43,647/- BANK MG LEDGER 21,47,858/- SULLIA 2,96,63,314/- BELLARE 9,07,638/- TOTAL (A) 3,87,78,799/- 11. The above deposits were maintained with South Canara District Central Co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived on bank deposits under the head "Income from other sources" and denied deduction claimed u/s 80P(2)(d) of the Act. The Ld CIT(A) confirmed the action of the AO on this issue. 8. The Ld. A.R. submitted that the assessee is entitled to claim deduction allowable u/s 57 of the Act in respect of cost of funds and proportionate administrative and other expenses. In support of this submission, the Ld. A.R. placed reliance on the decision rendered by Hon'ble High Court of Karnataka in the case of Totgars Co-operative Sale Society Ltd. Vs. ITO (2015) 58 taxmann.com 35 (Karn). The Ld. A.R. submitted that the assessee in the above said case had put forth identical claim claim before Hon'ble Supreme Court in the case reported as Totgars Co-operative Sale Society Ltd. Vs. ITO (2010) 188 taxmann.com 282 and the Hon'ble Supreme Court, vide 14 of its order, had restored the question raised by the assessee to the file of Hon'ble High Court of Karnataka. Consequent thereto, the Hon'ble High Court of Karnataka has passed the order in the case reported in 58 taxmann.com 35 and held that the Tribunal was not right in coming to the conclusion that the interest earned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed by the CIT(A). 16. On the issue of deduction u/s.80P(2)(a)(i) of the Act, the Hon'ble ITAT, Bengaluru Bench in the case of Puttur Primary Co-operative Agriculture and Rural Development Bank Ltd., Vs. ITO in ITA No.1449/Bang/2019, order dated 14.06.2021 for Assessment Year 2016-17. The Tribunal has decided identical issue that arises for consideration in this appeal and has remanded the issue for consideration with the following observation: "4. We heard Ld D.R and perused the record. The first issue relates to the claim of deduction u/s 80P(2)(a)(i) of the Act. We notice that an identical issue has been considered by the co-ordinate bench in the case of Karkala Co-op S Bank Ltd (supra), wherein an identical issue has been restored to the file of AO for examining it afresh. For the sake of convenience, we extract below the relevant observations made by the co-ordinate bench:- "4. The Ld. A.R. submitted that the law on deduction of 80P(2)(a)(i) of the Act available to credit co-operative societies has since been settled by Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. Vs.CIT (2021) 123 taxmann.com 161 (SC). He submitted that the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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