TMI Blog2021 (9) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... be invested in a particular manner to run business of the Assessee then the interest income arising from such investments whether can be said to have business nexus and therefore should be considered as income derived from the business of providing credit facility to the members, requires examination. This aspect requires examination by the AO as it has not been raised before the CIT. We therefore modify the order of the CIT(A) by remanding the issue examination afresh. Deduction u/s.80P(2)(d) - what is the quantum of interest income that should be brought to tax by the AO, in case the deduction is denied to the Assessee u/s.80P(2)(d)? - As decided in THE PUTTUR PRIMARY CO-OP AGRICULTURE AND RURAL DEVELOPMENT BANK LTD. [ 2021 (6) TMI 460 - ITAT BANGALORE] tribunal held that the Assessee should be allowed expenses and the entire gross interest cannot be taxed - AO will afford opportunity of being heard to the assessee and filing appropriate evidence, if desired, by the assessee to substantiate its case, before deciding the issue in the set aside proceedings. Appeal of the assessee is treated as partly allowed for statistical purpose. - ITA No.469/Bang/2020 - - - Dated:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)(i) of the Act. Section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a cooperative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, dividend/interest earned from investments or deposits made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act. The AO therefore denied the benefit of deduction to the assessee u/s.80P(2)(d) of the Act. 4. On appeal by the assessee, the CIT(A) confirmed the order of the AO on this issue. The assessee is in appeal before the Tribunal against the order of the CIT(A). 5. We have heard the rival submissions. The learned counsel for the assessee submitted the Hon ble Supreme Court in Totagar s Co-operative Sales Society (supra) held that interest on security and deposits not relatable to the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Court held that such interest income is not income from business but was income chargeable to tax under the head income from other sources and therefore there was no question of allowing deduction u/s.80P(2)(d) of the Act. The following points can be culled out from the aforesaid decision: 1. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative bank may have the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the respondent assessee (Totagars Sales Co-operative society) and hence unable to follow the same in the face of the binding precedent laid by the Hon'ble Supreme Court. The Hon ble Court observed that in paragraph 8 of the said order passed by a co- ordinate bench that the learned Judges have observed that the issue whether a co-operative bank is considered to be a co- operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases .. . No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Co-operative Bank is a specie of the genus co- operative Society, with which we agree, but as 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-op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression profits and gains of business and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as investment are ineligible for deduction under section 80P(2)(a)(i) of the Act. (Paragraph-13 of the Judgment) 9. It can thus be seen that the ratio laid down by the Hon ble Karnataka High Court in the case of Totagars 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Bank at its branches, mentioned above, as a statutory requirement to maintain 28% of the deposits, as indicated in the circular. At the end of the year the deposit amount came to be ₹ 3,87,78,799/- with interest. 12. These arguments are raised for the first time by the Assessee before the Tribunal. The issue raised by the Assessee therefore requires examination. If there are statutory compulsions that the money should be invested in a particular manner to run business of the Assessee then the interest income arising from such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appellant is an income from other sources without allowing deduction in respect of proportionate cost, administrative expenses incurred in respect of such deposits. Accordingly, the Ld. A.R. prayed that the A.O. may be directed to allow deduction of proportionate cost, administrative and other expenses, if the A.O. proposes to assess the interest income earned from bank deposits as income under the head other sources . 9. We heard Ld. D.R. on this issue. We find merit in the prayer of the assessee, sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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'ble Supreme Court has held that the expression Members is not defined in the Income-tax Act. Hence, it is necessary to construe the expression Members in section 80P(2)(a)(i) of the Act in the light of definition of that expression as contained in the concerned co-operative societies Act. The Ld. A.R. submitted that the Hon'ble Supreme Court has considered the decision rendered by it in the case of Citizen Co-operative Society Ltd. (supra) and observed that the ratio decide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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