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TMI Blog2024 (5) TMI 1514X X X X Extracts X X X X X X X X Extracts X X X X ..... 023, passed under Section 143(3) read with Sections 143(3A) & 143(3B) of the Income Tax Act, 1961 [hereinafter referred to as 'the Act']. 3. The Appellant has raised following grounds of appeal: "1. The Hon'ble CIT-(A), NFAC has aggrieved your appellant by confirming the additions made by the learned A.O. for Rs.2,46,43,418/- by disallowing deduction claimed u/s 80P(2)(d) of The Income Tax Act, 1961. 2. The Hon'ble CIT-(A), NFAC has also aggrieved your appellant by agreeing with the learned A.O. of not allowing the deductions of Rs. 1,43,20,990/- claimed u/s 80P(2)(a)(i) of Income Tax Act, 1961 by holding the appellant to be debarred from claiming the said deduction on the account of application of section 80P(4) of the Act, which conclusion is factually and legally erroneous. 3. The Hon'ble CIT-(A), NFAC has aggrieved your appellant by drawing the conclusion that the appellant co-operative society is not entitle for deduction u/s 80P(2)(d) of The Income Tax Act, 1961 in respect of interest earned on the investment made in nationalized and cooperative banks. 4. Hon'ble CIT-(A), NFAC has erroneously passed the order with pre-conceived notion and overlooki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted the assessed income of the Appellant at INR 3,89,64,408/- disallowing (a) deduction of INR 2,46,43,418/- claimed under Section 80P(2)(d) of the Act; and (b) deduction of INR 1,43,20,990/- under Section 80P(2)(a)(i) of the Act. 5. Being aggrieved, the Assessee preferred appeal before the CIT(A) against the Assessment Order, dated 16/04/2021, challenging the above disallowances. The CIT(A) agreed with the Assessing Officer and vide, order dated 08/11/2023, dismissed the appeal preferred by the Appellant. 6. Being aggrieved, the Appellant has preferred the present appeal against the order passed by the CIT(A) on the grounds reproduced in paragraph 3 above. All the grounds raised by the Appellant are directed against the disallowance of deduction claimed under Section 80P(2)(a)(i) and 80P(2)(d) of the Act and are, therefore, taken up together hereinafter. 7. The Learned Authorised Representative for the Appellant placed reliance on the Written Submission, dated 04/01/2024 and the judicial precedents cited therein. Per Contra, the Learned Departmental Representative supported the stand taken by the Assessing Officer by placing reliance on the judgment of the Hon'ble Karnataka H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee got registered under the Multi-State Cooperative Societies Act, 2002 as well. The question that the Court posed to itself was as to whether the appellant was barred from claiming deduction in view of Section 80P(4) of the Income-tax Act - see paragraph 5. After setting out the findings of fact in that case, and the income tax authorities concurrent holding that the society is carrying on banking business and for all practical purposes acts like a co-operative bank, this Court then held as follows: xx xx 21. An analysis of this judgment would show that the question of law that was reflected in paragraph 5 of the judgment was answered in favour of the assessee. The following propositions may be culled out from the judgment: (I) That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative 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 men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act. Firstly, the marginal note to section 80P which reads "Deduction in respect of income of co-operative societies" is important, in that it indicates the general "drift" of the provision. This was so held by this Court in K.P. Varghese v. ITO [1981] 7 Taxman 13/131 ITR 597 as follows: "9. This interpretation of sub-section (2) is strongly supported by the marginal note to Section 52 which reads "Consideration for transfer in cases of understatement". It is undoubtedly true that the marginal note to a section cannot be referred to for the purpose of construing the section but it can certainly be relied upon as indicating the drift of the section or, to use the words of Collins, M.R. in Bushel v. Hammond [1904] 2 KB 563 to show what the section is dealing with. It cannot control the interpretation of the words of a section particularly when the language of the section is clear and unambiguous but, being part of the statute, it prima facie furnishes some clue as to the meaning and purpose of the section (vide Bengal Immunity Company Limited v. State of Bihar [1955] 2 SCR 603])." 28. Secondly, for purposes of eligibility for deduction, the assessee must be a "co-operative so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. 36. Coming to the provisions of section 80P(4), it is important to advert to speech of the Finance Minister dated 28-2-2006, which reflects the need for introducing section 80P(4). Shri P. Chidambaram specifically stated: "166. Cooperative Banks, like any other bank, are lending institutions and should pay tax on their profits. Primary Agricultural Credit Societies (PACS) and Primary Cooperative Agricultural and Rural Development Banks (PCARDB) stand on a special footing and will continue to be exempt from tax under section 80P of the Income-tax Act. However, I propose to exclude all other cooperative banks from the scope of that section." 37. Likewise, a Circular dated 28-12-2006, containing explanatory notes on provisions contained in the Finance Act, 2006, is also important, and reads as follows: "Withdrawal of tax benefits available to certain cooperative banks ** ** ** 22.2 The cooperative banks are functioning at par with other commercial banks, which do not enjoy any tax benefit. Therefore section 80P has been amended and a new sub-section (4) has been inserted to provide that the provisions of the said section shall not apply in relation to any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. 40. As a matter of fact, some primary agricultural credit societies applied for a banking licence to the RBI, as their bye-laws also contain as one of the objects of the Society the carrying on of the business of banking. This was turned down by the RBI in a letter dated 25-10-2013 as follows: "Application for license Please refer to your application dated April 10, 2013 requesting for a banking license. On a scrutiny of the application, we observe that you are registered as a Primary Agricultural Credit Society (PACS). In this connection, we have advised RCS vide letter dated UBD (T) No. 401/10.00/16A/2013-14 dated October 18, 2013 that in terms of Section 3 of the Banking Regulation Act, 1949 (AACS), PACS are not entitled for obtaining a banking license. Hence, your society does not come under the purview of Reserve Bank of India. RCS will issue the necessary guidelines in this regard xx xx 45. To sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived from co-operative bank. The contention of the Revenue is that the interest income is in the nature of 'Income from Other Sources' and therefore, deduction under Section 80P(2)(a)(i) of the Act would not be available to the Assessee. It has also been contended by the Revenue that deduction from interest income would not be available under Section 80P(2)(d) of the Act since the same has been received from a co- co-operative bank which is not a co-operative society. In our view, even if for the sake of arguments the first contentions of the Revenue is accepted, the Assessee would still be able to claim deduction under Section 80P(2)(d) of the Act. The judgment of the Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) was rendered in the context of Section 80P(2)(a) of the Act (wherein expression 'the whole of the amount of profits and gains of business attributable to any one or more of ssuch activities' has been used), whereas in Section 80P(2)(d) of the Act expression used is 'any income by way of interest'. Thus, the nature of income is not a relevant consideration while considering the eligibility for deduction under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following namely:- (a)......................................................................... (b)......................................................................... (c)........................................................................ (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income" Thus, from a perusal of the aforesaid Sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee cooperative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Sec. 80P(2)(d) for the interest income derived from its investments held with a cooperative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 32 (Mum) (ii) M/s Sea Green Cooperative Housing and Society Ltd. Vs. ITO21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITORange-20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had also held that the interest income earned by the assessee on its investments held with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, as had been relied upon by the ld. A.R, also makes it clear beyond any scope of doubt, that the purpose behind enactment of sub-section (4) of Sec. 80P was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Bom), where there is a conflict between the decisions of non-jurisdictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Thus, taking support from the aforesaid judicial pronouncement of the Hon'ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a co-operative society on its investments held with a co operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9. We thus in the backdrop of our aforesaid observations are unable to persuade ourselves to be in agreement with the view taken by the lower authorities that the assessee would not be entitled for claim of deduction under Sec. 80P(2)(d), in respect of the interest income on the investments made with the co-operative bank. We thus set aside the order of the lower authorities and conclude th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 80P(2)(a)(i) of the Act. However, investing its surplus funds with the State Bank of India is no part of the business of the appellant of providing credit to its members and hence, it cannot be said that the interest income derived from depositing surplus funds with the State Bank of India is profits and gains of business attributable to the activities of the appellant society. The character of the interest is different from the income attributable to the business of the society of providing credit facilities to its members. The interest income derived from investing surplus funds with the State Bank of India must be closely linked with the business of providing credit facilities for it to be held that it is attributable to the business of the assessee. Therefore, the profits and gains can be said to be directly attributable to the business of providing credit facilities to its members if there is a direct and proximate connection between the profits gains and the business of the appellant. In the present case there is no obligation upon the appellant to invest its surplus funds with the State Bank of India. Investing surplus funds in a bank is no part of the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the special provisions of Chapter VI-A in the form of section 80P of the Act." (Emphasis Supplied) 10.3. In view of the above, we hold that the Appellant is entitled to claim deduction under Section 80P(2)(d) of the Act in respect of interest income from co-operative banks amounting to INR 2,46,43,418/-. 11. Accordingly, the order passed by Assessing Officer and CIT(A) is overturned and the Assessing Officer is directed to allow deduction of INR 1,43,20,990/- and INR 2,46,43,418/- as claimed by the Appellant under Section 80P(2)(a)(i) and 80P(2)(d) of the Act, respectively. Thus, Ground No. 1 to 3 raised by the Appellant are allowed while rest of the Grounds raised by the Appellant are dismissed as being infructuous. ITA No. 57/Mum/2024 (Assessment Year 2020-21) 12. We would now take up appeal for the Assessment Year 2020-21 which has been preferred by the Assessee challenging the order, dated 08/11/2023, passed by the CIT(A), whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Assessment, dated 16/09/2022, passed under Section 143(3) read with Sections 144B of the Income Tax Act, 1961 [hereinafter referred to as 'the Act']. 13. Both the sides agree ..... X X X X Extracts X X X X X X X X Extracts X X X X
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