TMI Blog2022 (2) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... essarily, 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 cooperative societies alone is to be allowed as a deduction. AR had claimed that if interest income is to be assessed as income from other sources, necessarily, the cost incurred for earning such interest income should be allowed as deduction u/s 57 of the I.T.Act. We find an identical issue was considered by the Hon ble jurisdictional High Court in the case of Totagars Co-operative Sale Society Ltd. v. ITO [ 2015 (4) TMI 829 - KARNATAKA HIGH COURT] . The assessee has not raised the plea before the Income Tax Authorities that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the fundamental principle under Income-tax Act being that only net income has to be taxed (i.e. after deducting expenditure incurred for earning such income), this plea of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 1. The Give effect order of the learned Income Tax Officer in so far as it is against the appellant, is opposed to law, based on weight of evidence, natural justice, probabilities, facts and circumstances of the case. 2. The learned Income Tax Officer should have appreciated the fact that The co-operative societies are bound by Section 57(2), Sec 58 and the rule 23(2) of the Karnataka Co-operative Societies Rules, 1960 which requires co-operative societies to park the Reserve Fund in any co-operative bank or scheduled bank and accordingly, the society has parked ₹ 25,84,405 and 35,00,000 in Mysore Chamaraja Nagar District cooperative Central bank (MCDCC Bank) and ₹ 21,000 in Canara bank to comply with the requirement of the cooperative Act and rules made thereunder earning the Interest amount of ₹ 2,92,151/- on deposits with cooperative banks and ₹ 1784 from Canara bank thereby total Interest received during the period amounting to ₹ 2,93,935/-. The Interest received on deposits made out of Reserve Fund and surplus constituted its income from the business of providing credit facilities to the members and, therefore, eligible for ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT Act 6. Without prejudice to the above, even assuming that another view is possible in the matter of allowability of deduction, Pr.CIT ought to have considered the decision of the Honourable Supreme Court in CIT Vs Max India Ltd 295 ITR 282 wherein, it is ruled that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of revenue and that when the AO adopts one of the two courses permissible in law or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as erroneous and prejudicial to the interests of revenue. The same is view is expressed by the Honorable SC in the case of CIT Vs Green World cooperation 314 ITR 81. 7. In the instant case the ITO has taken one of the two possible views in the matter of allowability of deduction in respect of interest. However The Pr.CIT has not considered the views of Honourable supreme court in issuing directions to ITO in this case. 8. The decision of the Supreme Court in Totgar's Cooperative Sales Society Ltd. v.ITO 322 ITR 283 for reaching the conclusion that, the interest received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.Act amounting to ₹ 15,10,256. The assessment was completed u/s 143(3) of the I.T.Act vide order dated 29.06.2017, accepting the returned income. Subsequently, the CIT issued notice u/s 263 of the I.T.Act. According to the CIT, the A.O. has wrongly allowed deduction u/s 80P(2)(a)(i) of the I.T.Act of ₹ 2,93,935 being interest income earned from Mysore Chamaraja Nagar District Co-operative Central Bank (MCDCC Bank) and Canara Bank. In response to the CIT s notice, the assessee submitted its reply dated 24.02.2020, wherein it was submitted that the assessee being a co-operative society was bound by Rule 23(2) of the Karnataka Co-operative Societies Rules, 1960 and these investments are made in compliance with Rule and the provisions of the Co-operative Societies Act. Therefore, it was prayed that it constitute income from business and was eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. The CIT, however, rejected the contention of the assessee by placing reliance on the judgment of the Hon ble jurisdictional High Court in the case of Pr.CIT Anr. v. Totagars Co-operative Sale Society reported in (2017) 395 ITR 611 (Kar.). The CIT held that the assessee is not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory compulsions, then interest income earned from such investments has nexus with business of the assessee society and would be eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. The relevant finding of the Tribunal reads as follows:- 9. The Hon ble Supreme Court in the case of the The Totgars Co-operative 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 exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded that Hon ble Supreme Court was not laying down any law. Similar view taken in Guttigedarara Credit Cooperative Society Ltd. vs. ITO [2015] 377 ITR 464 (Karnataka). In the case of PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS CO-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cooperative bank may have the corporate body or skeleton of a co-operative 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 Cooperative 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 subsection (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any cooperative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in Section 80P(4) are significant. They ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal itself in different cases .. . No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Cooperative 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 Cooperative 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest 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) 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 cooperative 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 cooperative society, is not deductible unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ightly allowed deduction thereof under section 80-P(2)(a)(i) of the Income Tax Act, 1961. 6. Without prejudice to the above, the learned Principal Commissioner ought to have taken note of the submissions made by the appellant that interest 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming the deduction under the section. If the state Act (the Cooperative Law) provides for enrollment of 'nominal members', the loans given to such nominal members would qualify for the purpose of deduction u/s 80P(2)(a)(i). (Para 30 to 46 of the Judgment) (iii) Under clause (d) of section 80P(2), the interest or dividend income derived by a co-operative society from investments with other co-operative society is also eligible for the deduction whole of such income. (Para 35 of the Judgment) (iv) The restrictive clause in sub-section (4) of section 80P applies only a co-operative bank and not to cooperative societies or to co-operative societies extending credit facilities to its members. Further, only a bank having obtained the license under the Banking Regulation Act, 1949, shall be covered under the said restrictive clause u/s 80P(4). The Hon'ble Court has also elaborately explained the correct meaning scope of the Proviso under the said sub-section (4) of section 80P declaring that the proviso carves out an exception to the exclusion in sub-section (4). 9.3 Further, the learned AR had claimed that if interest income is to be assessed as income from other sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the fundamental principle under Income-tax Act being that only net income has to be taxed (i.e. after deducting expenditure incurred for earning such income), this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of the Hon ble jurisdictional High Court in the case of Totagars Sale Co-operative Society v. ITO [2015] 58 taxmann.com 35 (Karnataka). 9.5 Therefore, in the light of the judgment of the Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. v. CIT Anr. (supra), the judgment of the Hon ble jurisdictional High Court in the case of Totagars Co-operative Sale Society v. ITO reported in (2015) 58 Taxmann.com 35 (Karnataka) and order of the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd (supra), the matter needs to be examined afresh by the A.O. de hors the observations of the CIT. The A.O. is directed to follow the dictum laid down by the above mentioned judicial pronouncements, while framing the fresh assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
