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TMI Blog2023 (5) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the A.O. to make an addition of Rs. 2,62,834/-being the receipts incidental to the business activities carried on by the appellant society as per the provisions governing the Co-operative Societies in Karnataka and had denied to allow the deduction claimed under section 80P(2)(a)(i) of the Income Tax Act, 1961 . Because, the learned lower authorities have erred in computing the Total Tax Liability by overlooking the deduction allowed under section 80P(2) of Income Tax Act, 1961 in the Assessment Order. The appellant craves leave to add / alter any of the .grounds of appeal before or at the time of hearing." 2. The brief facts of the case are that the assessee filed return of income on 5.10.2018 declaring total gross income of Rs.43,06,181 claiming deduction u/s. 80P(2)(a)(i) of the Income-tax Act, 1961 [the Act] under Chapter VI-A declaring total income at NIL. 3. The case was selected for complete scrutiny through CASS and statutory notices were issued to the assessee. After examining the details filed by the assessee, the AO allowed deduction u/s. 80P(2)(a)(i) of Rs.33,94,955. The AO further observed that assessee has received interest income from fixed deposits in Axis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther Receipts as per the consolidated Profit & Loss account and therefore it is operational income of the assessee eligible for deduction u/s. 80P(2)(a)(i) of the Act which was denied by the lower authorities. 7. The ld. DR relied on the orders of the lower authorities and submitted that interest received from cooperative banks and banks are not covered u/s. 80P(2)(d) of the Act. He further submitted that co-operative bank where its entire income is earned from banking activities cannot be termed as co-operative society. He further submitted that it is settled by the Supreme Court judgment in the case of Totagars Co-operative Sale Society reported in 395 ITR 611 that interest received from surplus funds is to be taxed as income from other sources and therefore it is not eligible to claim deduction u/s. 80P & the assessee received interest is on Fixed Deposits which are surplus fund of the assessee. He further submitted that in the case of PCIT & Ors. v. Totagars Co-operative Sale Society reported in 395 ITR 0611 (Karnataka), the Hon'ble Court had decided that deduction u/s. 80P(2)(d) is allowable on the interest income received from cooperative society. He strongly relied on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks / cooperative bank which do not qualify for deduction u/s. u/s. 80P(2)(a)(i) or u/s. 80P(2)(d) of the Act. We find that this Tribunal in the case of Judicial Employees House Building Coop Society Ltd. in ITA No.108/Bang/2023 dated 11.04.2023 has considered similar issue and decided the issue in favour of the revenue by observing as under:- "10. Heard both the parties, perused the entire material on record and the orders of the lower authorities. The assessee society is running business of forming, developing and distributing residential sites to its members and has claimed deduction u/s. 80P(2)(d) of the Act on the interest received on Fixed Deposits from The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. and Punjab National Bank. It is clear from the facts of the case as observed by the AO that the surplus funds were invested in Fixed Deposits as investments in Co-operative Bank & Nationalised Bank. The ld. AR has relied on the judgment dated 05.01.2017 of the Hon'ble jurisdictional High Court in the case of PCIT v. Totagars Co-operative Sale Society {2017] 78 taxmann.com 169 (Karnataka). However, the Hon'ble jurisdictional High Court in the later judgment dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources" under Section 56 of the Act, whereas for availing the exemption or 100% deduction under Section 80P of the Act the income is specified in clauses (a) to (f) of Subsection (2) of Section 80P of the Act should be its business or operational income. 13. 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 cooperative society should be out of the investments with any other cooperative 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. 14. The banking business, even though run by a Co-operative bank is sought to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch provisions. What was clearly held to be not exempt and not deductible under Section 80P(2)(a) of the Act by the Hon'ble Supreme Court in the case of respondent assessee, cannot be contrarily held as exempted and deductible now for these years, merely because the depository bank, with whom the investments were made by the respondent assessee happens to be a co-operative bank. We cannot appreciate this distinction so as not to apply the binding precedent of the Hon'ble Supreme Court for subsequent years merely on account of the change of the Bank where such deposits were made by the respondent assessee, all other facts remaining the same, particularly the nature and character of the income earned by it. The interest income of assessee continues to be not attributable to its business operations even in these subsequent years. 18. The contention of the learned counsel for the assessee that a coordinate bench of this Court dismissed the Revenue's appeals by referring, but not applying the decision of the Hon'ble Supreme Court, we observe with greatest respects that we do not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The relevant portion of the said judgment from the Head Note is quoted below for ready reference: "HELD, affirming the decision of the High Court, that the burden was on the assessee under section 80P(2)(e) to establish that the income comes within the four corners of section 80P(2)(e) of the Act. The exemption was available in respect of income derived from the letting of godowns or warehouses, only where the purpose of letting was storage, processing or facilitating the marketing of commodities. If the godown was let out (including user) for any purpose besides storing, processing or facilitating the marketing of commodities, then the assessee was not entitled to such exemption. Any income derived by the society unconnected with such letting or use of the godown would not fall under clause (e). The High Court was right in coming to the conclusion that the assessee was storing the commodities in question in its godowns as part of its own trading stock and hence, it was not entitled to claim the deduction under Section 80P(2)(e). In this case, the issue price was set off against the sale price which clearly indicated that the netting/difference between the two prices constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business carried on by the assessee could not be deducted under section 80P(2)(a)(i) . There was no infirmity in the orders of the Appellate Tribunal warranting interference. Totgar's Co-Operative Sale Society Ltd. v. ITO [2010] 322 ITR 283 (SC)followed." ** ** ** "Thus, in the light of the principles enunciated by the Supreme Court in Totgar's 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 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, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act." 22. Again, the Division Bench of Punjab and Haryana High Court in still a later decision reported in the same vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding credit facilities to its members was deposited in banks for a short duration which earned interest. The question was whether this interest was attributable to the business of providing credit facilities to the members. The Division Bench held as follows : "8. Therefore, the word 'attributable to' is certainly wider in import than the expression 'derived from'. Whenever the Legislature wanted to give a restricted meaning, they have used the expression 'derived from'. The expression 'attributable to' being of wider import, the said expression is used by the Legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A co-operative society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Co-operative Bank Ltd. reported in [2011] 336 ITR 516 (AP) ; [2011] 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the Revenue. Hence, we pass the following order. Appeal is allowed." (The reproduction is from the original website of the Karnataka High Court). There is an important distinction. The Division Bench expressly held in paragraph 10 that interest income was attributable to the business of banking and, therefore, liable to be deducted under section 80P(2)(a)(i) of the Act. At the cost of repetition, we have not considered whether the assessee carries on the business of banking. If it is established upon remand that the assessee carries on the business of banking the result may be different. In any event assuming that the judgment is not distinguishable on this ground, we would with respect disagree with the same in view of the judgments that we have already referred to and on the basis of our interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions under Section 80P(2)(d) of the Act. 27. The appeals of the Revenue are accordingly allowed and those of the assessee are dismissed. No order as to costs.' Respectfully following the aforesaid detailed order of the Hon'ble Jurisdictional High Court, the appeal of the assessee is dismissed. I make it clear that the assessee is eligible for setting off of losses as per law." (emphasis supplied) 11. From the above decision of the coordinate Bench, it is noticed that the Hon'ble jurisdictional High Court in the later judgment dated 16.6.2017 in the case of PCIT v. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka) for AYs 2007-08 to 2011-12 has decided in the issue in favour of the revenue wherein it is held that the person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible for deduction under Section 80P of the Act. The case in hand is also similar and the character of income will not change. Accordingly interest received on investments with cooperative bank as well as other banks shall be treated as income from other sources ..... X X X X Extracts X X X X X X X X Extracts X X X X
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