TMI Blog2023 (12) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... d retained amount payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such amount retained by the assessee therein was a liability and it was shown in the balance sheet on the liability side. Therefore, 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. On these facts Hon ble Supreme Court held the assessing officer was right in taxing the interest income indicated above under Section 56 as income from other sources of the Act. Further the adjudication by the Hon ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. vs. ITO(supra) was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a cooperative society towards deduction under Sec. 80P(2)(d) on the interest income on the investments/deposits parked with a cooperative bank. Therefore, reliance was placed by the Ld. DR on the decision of Hon ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (supra) is distinguishable on facts. In the instant case, the amount which was invested with other co-op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 80P(2)(d) of the Act. AO is thus directed to carry out necessary verification in respect of the that same to consider the claim of deduction u/s. 80 P(2)(d) of the Act. As directed that in the event it is found that the interest is earned by the assessee from such commercial/cooperative banks that fall within the definition of banking company as per section 2(c ), Section 5(b) and holds license under section 22 of the Banking regulation Act 1949, such interest are to be considered under the head income from other sources however, relief may be granted as available to the assessee u/s 57 of the Act in accordance with law. With the above directions, we remit this issue to the Ld.AO. - Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Assessee : Shri Rajagopalan, CA. For the Revenue : Smt. Priyadarshini Baseganni, JCIT DR. ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the order dated 30.06.2023 passed by NFAC, Delhi for A.Y. 2017-18 on following grounds of appeal: 1. The order passed by the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi, passed under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee in response to which representative of assessee filed the submissions from time to time. 2.2 After considering the submissions of the assessee, the Ld.AO concluded the assessment by denying the deduction claimed u/s. 80P(2)(a)(i) by holding that, the assessee s activities are contrary to the principles of mutuality by relying on the decision of Hon ble Supreme Court in case of Citizen Co-operative Society Ltd. reported in (2017) 397 ITR 1. 2.3 The Ld.AO also held that the deduction is not available to the assessee u/s. 80P(2)(d) by relying on the decision of Hon'ble Karnataka High Court in case of Totagars Co-operative Sale Society reported in (2017) 83 taxmann.com 140. 2.4 Against the order of the Ld.AO, assessee preferred appeal before the Ld.CIT(A) who held that assessee s activities are in accordance with the principles of mutuality and is eligible for deduction u/s. 80P(2)(a)(i) by distinguishing the facts with that of Citizen Co-operative Society Ltd. (supra). However the deduction u/s. 80P(2)(d) of the act was denied and the Ld.AO s view was upheld in that respect. 2.5 Aggrieved by the order of the Ld.AO, assessee has preferred appeal before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, the Co-operative Bank which is a species of the genus would necessarily be covered by the word Cooperative Society. 4.2 On the contrary, the ld. DR relied on the orders of the lower authorities and decision of Hon ble Supreme Court in case of Totagars Co-operative Sale Society Ltd. vs. ITO reported in (2010) 322 ITR 283. He also referred to recent decision of Hon ble Supreme Court in case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum Ors. in Civil Appeal Nos. 10069 of 2016 dated 14.09.2023 submitted that the assessee cannot be allowed deduction on the interest earned from deposits made in cooperative banks under section 80 P (2) (d) of the Act. 5. We have perused the submissions advanced by both the sides in the light of the records placed. When we look at the decision of Hon ble Supreme Court in case of Totgars Co-operative Sale Society's case reported in (2010) 322 ITR 283, relied by the Ld.DR, Hon ble Supreme Court was dealing with a case where the assessee therein, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s juncture, we refer to subsequent decision of Hon'ble Karnataka High Court in the case of PCIT Vs. Totagars cooperative Sale Society reported in (2017) 395 ITR 611, wherein Hon ble Court held that, a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we find, that the Hon'ble Karnataka High Court in the case of PCIT Anr. vs. Totagars Cooperative Sale Society reported in (2017) 392 ITR 74 and Hon ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, held, that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. 5.4 The Ld.DR relied on a recent decision of Hon ble Supreme Court in case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd., KSCARDB Vs. AO Ors (Supra), in support of the disallowance of interest claimed by the assessee before us from the investments made in other Co-operative Banks/Sahakari Sangha etc. We have gone through this decision of Hon ble Supreme Court. In para 3 of the decision, the issue that was under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) Thirdly, the gross total income must include income that is referred to in sub-section (2). iv) Fourthly, sub-clause (2)(a)(i) speaks of a co-operative society being engaged in , inter alia, carrying on the business of banking or providing credit facilities to its members. v) Fifthly, the burden is on the assessee to show, by adducing facts, that it is entitled to claim the deduction under Section 80P. vi) Sixthly, the expression providing credit facilities to its members does not necessarily mean agricultural credit alone. It was highlighted that the distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be deducted. vii) Seventhly, under Section 80P(1) (c), the co-operative societies must be registered either under Co-operative Societies Act, 1912, or a State Act and may be engaged in activities which may be termed as residuary activities i.e. activities not covered by sub-clauses (a) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety is not a co-operative bank, then such an entity would be entitled to deduction but on the other hand, if it is a co-operative bank within the meaning of Section 56 of BR Act, 1949 read with the provisions of NABARD Act, 1981 then it would Not be entitled to the benefit of deduction under sub-section (4) or Section 80P of the Act. 5.7. In any event Hon ble Supreme Court in the decision relied by the Ld.DR has elaborately analysed the requirement of a cooperative bank that could fall within the exception of section 80 P(4) of the Act. Based on such principle analysed by Hon ble Supreme Court and respectfully following the view taken by the Hon'ble Karnataka High Court in the case of PCIT Anr. Vs. Totagars Cooperative Sale Society reported in (2017) 392 ITR 74 and Hon ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, we hold that, the interest income earned by a cooperative society on its investments held with a cooperative bank that do not have licence under section 22 of the Banking Regulation Act 1949, falls outside the definition the term, Banking Company as per section 2(c ) of the Banking Regulations Act, 1949, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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