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TMI Blog2024 (2) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the following judgments. a) Decision of Hon'ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO, Ward-V, Tumkur reported in (2015) 55 taxmann.com 447 b) Decision of Coordinate Bench in case of Kedambady Keyur Primary Agricultural Co-operative Society Ltd. in ITA Nos. 667 & 668/Bang/2023 vide order dated 08.11.2023 for A.Ys. 2017-18 & 2018-19 4. The brief facts leading to this case is this that the assessee is a primary agricultural credit co-operative society engaged in the business of providing credit facilities to its member- agriculturists, engaged in the business of acceptance of deposits from members, lending loans to members. 5. During the year under consideration, the assessee has filed its return of income on 23.10.2017 declaring total income of Nil after claiming deduction of Rs. 29,42,050/- u/s. 80P of the Act. The return of income was processed u/s. 143(1) of the Act. 6. The assessee society has received Rs. 40,23,010/- as interest / dividend from its investments with Scheduled Banks and Co-op Banks other than co-op societies. 7. The Ld.AO ultimately disallowed the interest dividend earned from Scheduled Banks and Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igible 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 the administration and they are not entitled to vote as particular category of member is not entitled to participate and thereby the ld. AO followed the decision of Hon'ble Supreme Court in the case of Citizen Co-operative Society Ltd. (397 ITR 1) (SC). However, we find that the decision of Hon'ble Supreme Court in the case of Mavilayi Service Cooperative Bank Ltd. & Ors. Vs. CIT (431 ITR 1) (SC), wherein held as under: "It is important ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 from tax notwithstanding that the conditions of another head of deduction are not satisfied; (IV) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co- operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so - which is not the case with section 80P(2)(a)(i); (V) That section 80P(4) is in the nature of a proviso to the main provision contained in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 6.3. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 Section 80P of the Income Tax Act, 1961 (hereinafter referred to as "the Act", for the sake of brevity)." 6.7 In other words Hon'ble Supreme Court in the said decision analyzed, whether the assessee therein could be treated as a "cooperative Bank" within the meaning of sec. 80P(4) of the Act. The Hon'ble Supreme Court considered the above issue in case of an assessee who is a state level Agricultural and Rural Development Bank, governed as a cooperative society, under the relevant state cooperative societies Act, and was engaged in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 societies, the whole of such income is eligible for deduction, the object of the provision being furtherance of the cooperative movement as a whole. ...............15.8. Since the words `bank' and `banking company' are not defined in the NABARD Act, 1981, the definition in sub-clause (i) of clause (a) of Section 56 of the BR Act, 1949 has to be relied upon. It states that a co- operative society in the context of a co-operative bank is in relation to or as a banking company. Thus, co- operative bank shall be construed as references to a bankin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome 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 Supreme Court in the case of Totgars Co-operative Sale Society Ltd. (322 ITR 283) (SC), wherein held as follows: "The words "the whole of the amount of profits and gains of business" in section 80P(2) of the Income-tax Act, 1961, emphasise that the income in respect of which deduction is sought by a co-operative society must constitute the operational income and not the other income which accrues to the society. The interest income arising to a co-operative society carrying on the business of providing credit facilities to its members or marketing of agr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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