TMI Blog2022 (1) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... above order of the Tribunal. Appeals filed by the assessee are allowed for statistical purposes. - ITA No.577/Bang/2020 And ITA No.578/Bang/2020 - - - Dated:- 9-12-2021 - Shri Chandra Poojari, AM And Smt.Beena Pillai, JM For the Appellant : Sri.Tata Krishna, Advocate For the Respondent : Sri.Vilas V.Shinde, CIT-DR ORDER PER CHANDRA POOJARI, AM : These appeals at the instance of the assessee are directed against two orders of the CIT, both dated 06.03.2020 passed u/s 263 of the I.T.Act. The relevant assessment years are 2015-2016 and 2016-2017. 2. Since common issues are raised in both the appeals, except variance in figures, they were heard together and are being disposed of by this consolidated order. We shall first adjudicate the appeal for assessment year 2015-2016 (ITA No.577/Bang/2020). 3. The brief facts of the case are as follows: The assessee is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959. For the assessment years 2015-2016, the returns of income were filed declaring total income at ₹ 2,73,59,820, after claiming deduction of ₹ 15,99,694 u/s 80P of the I.T.Act. The assessment u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds raised. The learned Departmental Representative, on the other hand, supported the orders of the CIT. 6. We have heard rival submissions and perused the material on record. An identical issue was considered by the Co-ordinate Bench of the Bangalore Tribunal in the case of M/s.Prathamika Krushi Pattina Sahakari Niyamita v. Pr.CIT in ITA No.1725/Bang/2019 (order dated 22.11.2021), wherein the Tribunal directed the A.O. to consider the issue afresh in the light of the dictum laid down by the Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. V. CIT Anr. (2021) 431 ITR 1 (SC). The relevant finding of the Tribunal, reads as follows:- 7. We have heard rival submission and perused the material on record. On perusal of the assessment order passed u/s 143(3) of the I.T.Act dated 30.11.2016, it is clear that there is no discussion by the A.O. and deduction u/s 80P of the I.T.Act has been granted without much inquiry. The assessment order completed without making necessary inquiry rendered the assessment erroneous and prejudicial to the interest of revenue. Therefore, the CIT has correctly invoked the provisions of section 263 of the I.T.Act and we up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. The Hon ble Court also distinguished the decision of the Hon ble Supreme Court in the case of Totgars (supra) by observing that the Supreme Court was dealing with a case where the assessee- Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee - Society was a liability and it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Co-operative 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 Co-operative 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 Tribunal as well as CIT (Appeals) were justified in holding that such interest income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment) 3. The amendment of Section 194A(3)(v) of the Act excluding the Co-operative Banks from the definition of Cooperative 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 Cooperative 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, the Court held that it did not find any detailed discussion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome 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 the retained amount which was payable to its members but also in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiries before concluding the Assessment but on the ground that his decision was contrary to decision of Hon ble Jurisdictional High Court and therefore this argument of the learned counsel for the Assessee cannot be accepted. 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 395 ITR 611 (Karn.). 16. 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 395 ITR 611 (Karn.). The reliance placed by the learned counsel for the Assessee on the earlier decisions of the Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision in Totgars Co-operative Sale Society (supra) stands explained by the later decision in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 17. We however find that the Assessee has raised the following grounds of appeal in its a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT by remanding the issue raised in ground No.5 to 7 alone to the AO for examination afresh. In other respects we confirm the order of the CIT. 7.2 In the instant case, it was contended that majority of the interest income is earned out of investments made with Central Co-operative Banks and is in compliance with the requirement under the Karnataka Co-operative Societies Act and Rules. If the amounts are invested in compliance with the Karnataka Co-operative Societies Act, necessarily, the same is to be assessed as income from business, which entails the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act. Insofar as deduction u/s 80P(2)(d) of the I.T.Act is concerned, we make it clear that interest income received out of investments with co-operative societies is to be allowed as deduction. 7.3 Moreover, the Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. v. CIT Anr. (supra) had settled various issues for claiming deduction u/s 80P(2)(a)(i) of the I.T.Act. The gist of the judgment of the Hon ble Apex Court are as follows:- (i) Section 80P is a benevolent provision enacted by the Parliament to encourage and promote the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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