TMI Blog2023 (11) TMI 1221X X X X Extracts X X X X X X X X Extracts X X X X ..... he term, Banking Company as per section 2(c ) of the Banking Regulations Act, 1949, would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. The Ld.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. Further, we make it clear that the assessee is not entitled for deduction u/s 80P(2)(a)(i) of the Act in view of judgement of Hon ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. [ 2010 (2) TMI 3 - SUPREME COURT] It is 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 Appellant : Ms. Harsha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative Ltd. v. Income tax officer Ward-V, Tumkur reported in 120151 55 taxmann.com 447 and Bangalore ITAT decisions in the case of Totagars Co-op Sale Society, Sirsi Vs The Asst. Commissioner of Income tax, Circle1(1) TPS, Hubli in ITA No. 376 to 379/Bang/2023 where interest income earned from investment in co-operative Bank by a primary agricultural credit co-operative society is eligible for deduction u/s 80P(2)(d) of the Act. 7. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 8. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity. 2. The assessee has raised additional grounds as follows: 1. The assessment order passed by the learned AO is bad in law for want of requisite jurisdiction on the facts and circumstances of the case. 2. Without prejudice to the right to seek waiver with the Hon'ble Chief Commissioner of Income Tax/Director General of Income Tax, the Appellant denies itself liable to be charged to interest under section 234A, 234B and 234C of the Act wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), c. Further the learned assessing officer also disallowed the assessee ls claim for deduction u/s 80P(2)(d) in respect of income from investment in other co-operative societies relying on the decision of the Dharwad Bench of the Hon ble High Court of Karnataka in the case of The Totagars Co-op. Sale Society in ITA No. 100066 of 2016. 4.1 The assessee's contention that being a primary agricultural co-op. society, they are eligible for the said deduction and that the judicial pronouncements relied upon by him are not applicable to them was not considered by the learned A.O. Aggrieved by the disallowance of deduction u/s 80P of the Act, the assessee has preferred this appeal. 5. The ld. D.R. relied on the order of lower authorities. 6. We have heard the rival submissions and perused the materials available on record. The ld. A.R. for the assessee has submitted detailed written submissions, which are kept on record. First of all, the claim of assessee has been denied on the reason that the assessee is having nominal members and associated members. As per the Bye-laws of the assessee society, nominal members and associated members are not allowed to participate in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank of India, which the appellant does not possess. Not only this, as noticed above, Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a cooperative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80-P. (para 20) Following propositions may be culled out from the judgment: (I) That section 80P is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the cooperative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee; (II) That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in sub-section (2) of section 80P must be given by way of deduction; (III) That this Court in Kerala State Cooperative Marketing Federation Ltd. and Ors. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (supra) considered, 'nominal members' are 'members' as defined under the Kerala Act. (para 46) Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2) (a)(i). Unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non-members under section 59(2) and (3). Giving of loans by a primary-agricultural credit society to non-members is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra). Impugned Full Bench judgment is set aside. (para 47) 6.1 In view of this, the claim of assessee cannot be denied on the basis of assessee having nominal members and associated members. 6.2 Further, ld. D.R. referred to the judgement 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 cooperative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 6.6 The Ld.D R 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 consideration before the Hon ble Court reads as under:- The issue involved in these cases is, whether, the appellant/assessee, a co-operative society, is entitled to claim deduction of the whole of its profits and gains of business attributable to the business of banking or providing credit facilities to its members who are all co-operative societies under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts, 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 (b), either independently of or in addition to those activities, then profits and gains attributable to such activity are also liable to be deducted, but subject to the cap specified in sub-clause (c). viii) Eighthly, sub-clause (d) states that where interest or dividend income is derived by a co-operative society from investments with other co-operative s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court in the decision relied by the Ld. DR has elaborately analyzed the requirement of a cooperative bank that could fall within the exception of section 80 P(4) of the Act. Based on such principle analyzed 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 license 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, would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. The Ld.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. Further, we make it clear that the assessee is not entitled for deduction u/s 80P(2)(a)(i) of the Act in view of judgement of Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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