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TMI Blog2022 (7) TMI 1261X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal before us: "1. Banking Business : 1.1. That under the facts and the law, the Ld. CIT(Appeals) erred in rejecting the deduct claimed by the appellant u/s.80P(2)(a)(i) pertaining to its banking business amounting to Rs.4,36,196/- as rejected by the ld. AO. Prayed that Rs.4,36,196/- is income from banking business & deduction be allowed. 1.2. Without prejudice to above, the Ld. CIT(Appeals) further erred in not deducting the interest paid amounted to Rs.1,72,284/- from the aforesaid sum of Rs.4,36,196/-. Prayed without prejudice to Ground No.1, interest paid to its members on their deposit at Rs.1,72,284/- be deducted from 4,36,196/-. 2.Paddy Procurement Business: - 2.1 Under the facts and laws, the Ld. CIT(Appeals) further erred in confirming the disallowance @35% out of income in paddy procurement business made by the Ld. AO claimed by the appellant u/s.80P(2)(a)(iii) out of Rs.10,60,017/- observing that paddy is also procured from other the members. Prayed that paddy has been procured from members of appellant society & therefore, provision of section 80P(2)(a)(iii) is applicable, disallowance of Rs.3,71,006/-being 35% of Rs.10,60,017/- be deleted. Proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of profit from paddy procurement business u/s. 80P(2)(a)(iii) of the Act. Rs.4,17,910/- 3. Disallowance of the assessee's claim for deduction of profit from PDS u/s.80P(2)(c)(i) of the Act. Rs.1,47,499/- 4. Disallowance of assessee's claim for deduction of other income u/s 80P. Rs. 6,750/- 5. Disallowance of assessee's claim for deduction of dividend income u/s.80P(2)(d) of the Act. Rs. 180/- , and proportionately allocating the expenses to the extent the same related to the amount which qualified for deduction u/s.80P of the Act, the A.O vide his order u/s. 143(3) of the Act, dated 20.03.2015 assessed the total income of the assessee society at Rs. 5,46,940/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). However, the CIT(Appeals) not finding favour with the contentions advanced by the assessee upheld the assessment framed by the Assessing Officer and dismissed the appeal. 5. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 6. We have heard the ld. Authorised Representatives of both the parties, perused the orders of the lower authorities and the material available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect that as to whether or not the interest income earned by it on its surplus funds which were parked as deposits in the normal course of its business of providing credit facilities to its members, i.e., at the point of time when there were no takers for the said funds, was eligible for deduction u/s. 80P(2)(a)(i) of the Act. We have given a thoughtful consideration to the contentions advanced by the Ld. Authorized representatives for both the parties. Before proceeding any further, we deem it fit to cull out the provisions of section 80P(2)(a)(i) of the Act, the scope and gamut of which is the primary bone of contention before us, which reads as under : "80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in subsection (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a) in the case of a co-operative society engaged in- (i). carrying on the business of banking or providing credit faciliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Kendriya Bank (supra) was in the nature of simpliciter surplus or idle funds of the assessee society, for which there were no takers for the time being in course of its business of providing credit facilities to its members, therefore, depositing of the same by way of short-term deposits with the aforesaid bank, as stated by the ld. A.R, and rightly so, would clearly be inextricably interlinked, or in fact interwoven with its aforesaid primary business activity, i.e., providing of credit facilities to its members. At this stage, we may herein observe, that the Hon'ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. Vs. ITO, Karnataka, 322 ITR 283 (SC), had held, that in a case where the assessee-cooperative society apart from providing credit facilities to its members was also in the business of marketing of agricultural produce grown by its members, and the sale consideration of the agricultural produce due towards its members was thereafter retained and invested as a short-term deposit/security with the bank, then, the interest income therein earned to the said extent could not be said to be attributable to its activity of providing credit facilities to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in various other provisions of the statute in the case of CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME TAX, GUJARAT-II reported in ITR Vol.113 (1978) Page 842 at Page 93 as under: As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the Legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or under section 80P(2)(a)(iii) of the Act. Therefore, in the facts of the said case, the Apex Court held the assessing Officer was right in taxing the interest income indicated above under section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore, it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore, they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore, it is liable to be deducted in terms of section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds the details of paddy purchase by the assessee-society, Page 1 to 31 that has been filed before us as "additional evidence". It is the claim of the assessee that as the said document would have a material bearing on the adjudication of the Ground of appeal No. 2, therefore, the same in all fairness be admitted. After giving a thoughtful consideration, we herein admit the compilation of paddy purchase by the assessee-society as had been furnished before us as an additional documentary evidence. 11. It is the claim of the ld. AR that the issue in hand i.e, the entitlement of a co-operative society for claim of deduction of its income from paddy procurement business under Sec. 80P(2)(a)(iii) had earlier came up before this bench of the Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. the ITO, Ward-1(3), Raipur, in ITA No.114/RPR/2016 & Ors., dated 23.02.2022. It was submitted by the ld. AR that the Tribunal while disposing off the aforesaid appeal had remanded the matter to the file of the A.O, with a direction to re-adjudicate the same after considering the additional documentary evidence that was filed by the assessee before them. The Ld. AR in this case al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y farmer, whether member or non-member, i.e whosoever approaches it, but transactions with the non-members during the year under consideration was minimal and by no means exceeded 25% of the total transactions. In order to buttress his aforesaid claim the Ld. AR had taken us through the compilation of paddy purchase by the assessee-society, Page 1 to 55 of additional documentary evidence that was placed on our record. By drawing support from compilation of paddy purchase from its members, i.e. Page 1A to 255 of the additional documentary evidences filed before us, it was submitted by the ld. A.R that only a small fraction of the paddy procurement was carried out by the assessee society from non-members. In the backdrop of his aforesaid contentions, the Ld. AR had claimed that the restriction of its claim for deduction u/s 80P(2)(a)(iii) to 35% of the profit from paddy procurement business so made by the Assessing Officer was not only on the higher side, but in fact exorbitant and unrealistic. 17. After giving a thoughtful consideration to the aforesaid issue, we find substantial force in the claim of the Ld. AR that now when only a small fraction of the procurement of paddy was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee society had facilitated the marketing of the agricultural produce grown by non-members, and thus, restrict the it's claim for deduction u/s. 80P(2)(a)(iii) only to the extent of the profit relatable thereto. Needless to say, the assessee shall in the course of the set-aside proceedings furnish the requisite details/documents that are called for by the A.O. Thus, the Ground of appeal No.2 raised by the assessee is allowed for statistical purposes in terms of our aforesaid observations. 14. Adverting to the assessee's claim for deduction under Sec. 80P(2)(c)(i) of the profit from PDS activity i.e, distribution of essential commodities to the ration holders through fair price shop, it was submitted by the Ld. AR that the said issue had already been adjudicated upon by the Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. ITO, Ward- 1(3), Raipur in ITA No.114/RPR/2016 & Ors, dated 23.02.2022 and the matter was remanded to the file of the A.O with a direction to restrict the assessee's claim for deduction as regards its profit from PDS only to the extent of its net profit i.e., after considering the proportionate expenses. The Ld. AR in this case also had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statistical purposes in terms of our aforesaid observations. 17. We shall now deal with the grievance of the assessee that both the lower authorities had erred in law and the facts of the case in declining its claim for deduction of the dividend income received on the shares of Jila Sahakar Bank, for the reason that as the same was not a co-operative socity, hence, the dividend incme received therefrom would not be eligible for deduction under Sec. 80P(2)(d) of the Act. Before us, it is the claim of the Ld. AR that the aforesaid issue is squarely covered by the order of the Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors. Vs. the ITO, Ward-1(3), Raipur in ITA No.114/RPR/2016 & Ors, dated 23.02.2022. It was submitted by the ld. AR that the Tribunal in its aforesaid order, had observed, that the dividend income received by a co-operative society on the shares of a co-operative bank held by it would be eligible for deduction under Sec. 80P(2)(d) of the Act. 18. The Ld. DR conceded to the submissions put forth by the Ld. AR of the assessee. 19. We have given a thoughtful consideration to the aforesaid issue in hand. Admittedly, in the case of Gramin Sewa Sahakari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Observing, that the cooperative banks from where the assessee was in receipt of interest income were not co-operative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act. 7. After necessary deliberations, we are unable to persuade ourselves to be in agreement with the view taken by the Pr. CIT. Before proceeding any further, we may herein reproduce the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. "80P(2)(d) (1). Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2). The sums referred to in sub-section (1) shall be the following, namely :- (a)............................................................................................ (b)............................................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act. 8. We shall now advert to the judicial pronouncements that have been relied upon by the ld. A.R. We find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co-operative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum) (ii) M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITORange- 20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. (iv). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst him. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon‟ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a cooperative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and therein concluded that the assessee would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 for dislodging the same. In fact, as observed by us hereinabove, the aforesaid view taken by the A.O at the time of framing of the assessment was clearly supported by the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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