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TMI Blog2024 (11) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... PCIT without appreciating that the interest received by the assessee co-perative society amounting to Rs. 8,40,577/- from the Surat District Co-operative Bank Ltd is not eligible for deduction u/s. 80P(2)(d) of the Act as the said bank is not a cooperative society as laid down u/s. 80P(4) of the Act? (ii) Whether on facts and circumstances of the case and in law, the Hon'ble Tribunal had erred in allowing the appeal of the assessee by overlooking the fact that the Hon'ble High Court of Karnataka in the case of Totgars Cooperative Sale Society (2017) 395 ITR 611 has held that the intention of legislature is clear that Co-operative banks are not specie of genus cooperative society, which would entitle to exemption or deduction under the Special Provisions of chapter VI- A in the form of section 80P of the Act. This finding has also been approved by the Hon'ble High Court of Gujarat in the case Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd for A.Y. 2015-16 in R/SCA No. 20585/2019? (iii) Whether on facts and circumstances of the case and in law, the learned Tribunal has erred in law in relying upon the decision of Hon'ble Jurisdictional High Court in the case of Surat Vanka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act and reflects non-application of mind by the AO. (iii) Whether on facts and circumstances of the case and in law, the Hon'ble Tribunal had erred in quashing the revision proceedings u/s. 263 of the Income Tax Act by overlooking the fact that the Hon'ble High Court of Karnataka in the case of Totgars Cooperative Sale Society (2017) 395 ITR 611, has held the intention of legislature is clear that cooperative banks are not specie of genus cooperative society, which would entitle to exemption or deduction under the special provisions of Chapter VI-A in the form of section 80P of the Act. This findings has also been approved by the Hon'ble High Court of Gujarat in the case Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd for A.Y. 2015-16 in R/ SCA No. 20585 of 2019." 6. Tax Appeal No. 419/2023 is admitted on the following questions of law: "(i) Whether in the facts of the case as well as law, the Inocme Tax Appellate Tribunal was justified in allowing the appeal of the assessee against the order u/s. 263 of the Income Tax act of Ld. PCIT contrary to Explanation 2 of section 263 of the Act? (ii) Whether in the facts of the case as well as law, the Income Tax Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em in Part V of the Banking Regulation Act,1949. 11. It was therefore submitted that as the respondent-assessee has invested surplus funds with the Cooperative Bank, the interest on the same would not be liable for deduction under section 80P(2)(d) of the Act. 12. It was pointed out that sub-section (4) of section 80P of the Act was introduced w.e.f. 1st April,2007 and reliance was placed on the memorandum explaining the amendment to submit that withdrawal of the tax benefits available to the Cooperative Bank is based upon the logic that the Cooperative Banks are functioning at par with the commercial banks which do not enjoy any tax benefit. It was therefore submitted that the provisions of section 80P of the Act therefore are not made applicable in relation to any Cooperative bank other than Primary Agriculture Credit Society or Primary Cooperative Agricultural and Rural Development Bank. It was pointed out that new sub-clause (vii-a) to section 2 of the Act was also inserted to provide that the profit and gains of any business of banking (including providing credit facility) carried out by Cooperative Society with its member shall be included in definition of income. It was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such facts, this Court followed the decision of the Totgars' Cooperative Sale Society Ltd. (supra) and it is held that that interest earned from the investment made in any bank not being a Cooperative society is not deductible under section 80P(2)(d) of the Act. It was further submitted that this Court also has considered the provision of section 71 of the Cooperative Societies Act,1961 which permits society to invest or deposit its fund in the State Bank of India and this Court has come to the conclusion so far as the provisions of the Income Tax Act are concerned under section 80P(2)(d) thereof it is only the income by way of interest or dividend derived by the cooperative society from its investment with any other society which is required to be deducted while computing the total income of the assessee. It was therefore submitted that when the respondent-assessee has earned interest income from the surplus funds invested with the Cooperative Bank, the same would not be entitled to deduction under section 80P(2)(d) of the Act. 15. Learned advocate Mr. Sanghani heavily relied upon the decision of the Karnataka High Court in case of Principal Commissioner of Income tax, Hubballi v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modified to be read as "other banks". 19. Learned advocate Mr. Sanghani referred and relied upon the decision of the Hon'ble Supreme Court in case of Secundrabad Club etc. v. CIT reported in 457 ITR 263 to submit that the concept of mutuality is ruptured in the facts of the case as held by the Hon'ble Supreme Court. It was submitted that the essential condition of mutuality i.e. identity between the contributor and participators has come to an end when the respondent-assessee has invested the funds with the Cooperative Bank as the relationship would be of a commercial relationship such as that between a customer and a Bank where a fixed deposit is made by the customer for the purpose of earning an interest income. It was therefore submitted that the respondent-assessee having interest earned on the deposited surplus funds with the Cooperative bank would not be entitled to the deduction under section 80P(2)(d) of the Act as the respondent-assessee has lost its control over such funds and interest generated on Fixed Deposit or investment made is a commercial activity thereby permitting the bank to utilize the fixed deposit amount for its banking business and derive profit on the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequently modified to exclude the other cooperative banks from non-applicability of section 80P (2)(d) of the Act. It was therefore submitted that as the respondent-assessee has invested its surplus fund with the cooperative society which is carrying out the banking activity and is a cooperative bank would not dis- entitle the respondent-assessee from claiming deduction under section 80P(2)(d) of the Act. It was submitted that the provisions of section 80P(2)(a)(i) and section 80P(2)(d) are to be read together as section 80P applies to the cooperative societies whose entire income is entitled to deduction. 23. It was further submitted that the respondent-assessee has claimed the deduction under section 80P(2)(d) as per the provisions of the Act and reliance placed by the on behalf of the Revenue on section 80P(4) of the Act would not be applicable in the facts of the case as the respondent-assessee is not a cooperative bank. It was pointed out that provision of section 80P(4) of the Act would be applicable when the cooperative bank claims deduction under section 80P of the Act as the same is excluded from the purview of section 80P by virtue of insertion of sub-section (4) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the controversy arising in these tax appeals, we are of the opinion that the controversy sought to be canvassed with regard to deduction under section 80P(2)(d) of the Act is no more res integra in view of the decision of this Court in case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. as well as in case of State Bank of India (supra) wherein it was held that the deduction of under section 80P(2)(d) of the Act is available to the cooperative societies on the income earned as interest on the investment made with the cooperative bank which in turn, is a cooperative society itself. 29. Reliance placed by the learned advocate for the revenue on decisions of the Hon'ble Karnataka High Court and Hon'ble Supreme Court in case of Totgars' Cooperative Sale Society Ltd, the Hon'ble Karnataka High Court appears to have taken into consideration the amendment in section 194A(3)(v) of the Act wherein the cooperative bank is excluded from the applicability of tax to be deducted at source. However, it appears that the interpretation made by the Hon'ble Karnataka High Court to the effect that the cooperative banks have been excluded from the definition of the cooperative societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;" 32. After considering the above interpretation of various provisions and the Case laws, the Hon'ble Apex Court has analyzed the provisions as under: "14.1. In Apex Co-operative Bank of Urban Bank of Maharashtra and Goa Ltd., it was categorically held that under Section 56 of the BR Act, 1949 only three co-operative banks have been defined, namely, state co- operative bank, central co-operative bank and primary co-operative bank which are covered under Section 56 (cci) read with (ccvii) read with the provisions of the NABARD Act, 1981. Thus, it is only these three banks which are co-operative banks which require a licence under the BR Act, 1949 to engage in banking business. If any bank does not fall within the nomenclature of the aforesaid three banks as defined under the NABARD Act, 1981, it would not be a co-operative bank within the meaning of Section 56 of BR Act, 1949 irrespective of whatever nomenclature it m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the scope of sub-section (4) of Section 80P. 14.3. While analysing Section 80P of the Act in depth, the following points were noted by this Court: i) Firstly, the marginal note to Section 80P which reads "Deduction in respect of income of co-operative societies" is significant as it indicates the general "drift" of the provision. ii) Secondly, for purposes of eligibility for deduction, the assessee must be a "co-operative society". 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India requiring a licence for its business. 14.6. Thereafter in paragraph 48 of the judgment, it was observed that a deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication. That sub- section (4) of Section 80P which is in the nature of a proviso specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from Reserve Bank of India." 33. In view of the above dictum of law as well as the provisions of the Act which are considered we are of the opinion that the provisions of section 80P(2)(d) would be applicable in the facts of the case and the PCIT was not justified in invoking revisional powers under section 263 of the Act which is rightly reversed by the Tribunal holding that the cooperative bank is a cooperative society registered under the Gujarat State Cooperative Societies Act and in view of the various decisions of the Court, the Tribunal after following the same has come to the conclusion that the assessment was not erroneous allowing deduction of section 80P(2)(d) of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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