TaxTMI 
TaxTMI 
2017 (4) TMI 663
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3. At the outset, it should be pointed out that the petitioners have an effective statutory alternative remedy of an appeal, as against the impugned orders of assessment, to the Commissioner of Income Tax (Appeals). But the petitioners have come up with these writ petitions on the ground that the denial of the benefit of deductions under Section 80P(2)(a) of the Act to the petitioners, by the Assessing Officer is completely contrary to statutory provisions and that since the issue goes to the root of the question of jurisdiction on the part of the Assessing Officer, they have chosen to come up with the present writ petitions bypassing the alternative remedy of appeal. 4. Therefore, the only issue that arises for our consideration in this batch of writ petitions is as to whether the denials, by the Assessing Officers, of the benefit of deduction under Section 80P(2)(a) to the petitioners is correct or not. 5. Though the petitioners in these writ petitions are named as Co-operative Rural Banks, the petitioners claim that they are Primary Agricultural Co-operative Credit Societies, registered under the Co-operative Societies Act, 1932. The Assessing Officer has also treated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds, fruits or vegetables raised or grown by its members to (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or (ii) the Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business; (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,-- (i) where such co-operative society is a consumers co-operative society, one hundred thousand rupees; and (ii) in any other case, fifty thousand rupees. Explanation.In this clause, consumers co-operative society means a society for the benefit of the consumers; (d) in r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the scope of the controversy, it would be better to present in simple terms, the ambit of clause (a) of sub-section (2) of Section 80P. This clause is intended for the benefit of (1) certain types of co-operative societies but (2) confined only to the activities listed in sub-clauses (i) to (vii). In other words, clause (a) of sub-section (2) confers a benefit only upon co-operative societies, but the benefit is restricted only to some and not to all of the activities of such co-operative societies. To put it differently, an institution claiming the benefit of clause (a) of sub-section (2) of Section 80P should cross 2 check-posts. In the 1st check-post, the institution will have to establish that it is a co-operative society. In the 2nd check- post, the institution has to establish that the deduction sought represents profits and gains of business attributable to one or more of the activities in sub-clauses (i) to (vii). 11. But the manner in which clause (a) is worded appears to be little clumsy. This is due to the reason that though sub-clauses (iii) to (vii) actually describe activities such as marketing, purchase, processing, collective disposal or fishing or allied activi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion Bench of the Madras High Court was confirmed by the Supreme court in a very brief order reported in (2001) 249 ITR 330 (SC). 16. In CIT v. Nawanshahar Central Cooperative Bank Ltd. (2007) 289 ITR 6 (SC), the Supreme Court was concerned with a case where a cooperative society carrying on the business of banking and which is statutorily required to park a part of its funds in approved securities would be entitled to deduction under Section 80P (2) (a) of the interest income arising from such investments. 17. In CIT v. Ponni Sugar and Chemicals Ltd. (2008) 306 ITR 392 (SC), one of the two questions that arose for the consideration of the Supreme Court was whether the interest received from the members of the society could be allowed as deduction under Section 80P (2) (a) or not. But the Supreme Court did not answer the question in view of the fact that the Memorandum of Association, the Articles of Association and the Returns of income filed by the assessee had not been examined by the Tribunal on facts. 18. In Udaypur Sahkari Upbhokta Thok Bhandar Ltd., v. CIT (2009) 315 ITR 21 (SC), , the issue that arose for consideration actually revolved around Section 80P (2) (e) an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Act, would be eligible for deduction. The word income has been defined under Section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The Parliament has included specifically business profits into the definition of the word income. Therefore, we are required to give a precise meaning to the words profits and gains of business mentioned in Section 80P(2) of the Act. In the present case, as stated above, assessee-Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression profits and gains of business. Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee- Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under Section 80P(2)(a) is not in respect of interest received from members. In this case, we are only concerned with interest which....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... attributable to one of the activities indicated in the Section. The Punjab and Haryana High Court not only followed Totgars but also followed the decision of the Gujarat High Court in SBI v. CIT (2016) 389 ITR 578 (Guj). 25. In CIT v. South Eastern Railway Employers Co- operative Credit Society Ltd. (2016 73 Taxman.com 123, , a Division Bench of the Calcutta High Court indicated that the judgment of the Supreme Court in Totgars is a binding authority for the proposition that interest income arising on the surplus invested in short-term deposits and securities would come under the category of income from other sources. 26. Thus a line of decisions rendered by various High Courts such as the High Court of Punjab and Haryana, the High Court of Calcutta and the High Court of Gujarat, rendered after the decision of the Supreme Court in Totgars simply followed the ratio decidendi of Totgars. But, one judgment of this Court attempted a distinction and that was in CIT v. Andhra Pradesh State Co-operative Bank Ltd., (2011) 336 ITR 516 (AP). In the said case, the assessee was a Co-operative society engaged in the business of banking. The assessee had invested statutory reserves in sho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in Totgars may perhaps be relied upon in cases where the amount payable to the members was retained for a short duration and invested by the society, as a consequence of which the amount so retained would be a liability for the society. But in the case on hand, what was invested by the writ petitioners in fixed deposits was not something that formed part of its liability. Therefore, the learned Senior Counsel maintained that the decision of this Court in Andhra Pradesh State Co-operative Bank Ltd., would hold the field. 28. We have carefully considered the above submissions. Before considering the effect of the various decisions cited on both sides, we think it would be ideal to look at the statutory prescription in pure and simple form. As we have indicated earlier, Section 80P(2) is actually divided into six parts, categorised under clauses (a), (b), (c), (d), (e), and (f). Each one of these clauses deal with different types of co-operative societies engaged in different types of activities. The benefit made available to each one of them is also different from the other. Therefore, it may be useful to present a tabular form, the six categories of co-operative societies cover....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y carrying on transport business; 4) A society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed Rs. 20,000/- (twenty thousand rupees) The income by way of interest on securities and the income from house property chargeable under Section 22. 29. From the Tabular form presented above, it may be clear that the deductions available under Clauses (a) to (c) are activity-based. The deduction available under Clauses (d) and (e) are investment-based and the deduction under Clause (f) is institution-based. To put it differently, (A) to be eligible for deduction under Clause (a), the claim should relate to the profits and gains of business attributable to anyone or more of the activities listed in Clause (a), (B) to be eligible for deduction under Clause (b), the society should be a primary society engaged in supplying milk, oilseeds, fruits, etc. to named institutions, such as, Government, Local Authority, Federal Co-operative Society, or Government Company, (C) to be eligible for deduction under Clause (c), the institution must be engaged in activities other than those covered by Clauses (a) and (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the benefit conferred by Clause (d) upon all types of Co-operative Societies is restricted only to the investments made in other Co-operative Societies. Such a restriction cannot be read into Clause (a), as the temporary parking of the profits and gains of business in nationalised Banks and the earning of interest income therefrom is only one of the methods of multiplying the same income. To accept the stand of the Department would mean that Co-operative Societies carrying on the activities listed in Clauses (i) to (vii), which invest their profits and gains of business either in other Co-operative Societies or in the construction of godowns and warehouses, may benefit in terms of Clause (d) or (e), but the very same Societies will not be entitled to any benefit, if they invest the very same funds in Banks. Such an understanding of section 80P(2) is impermissible for one simple reason. The benefits under Clauses (d) and (e) are available in general to all Co-operative Societies, including Societies engaged in the activities listed in Clause (a). Section 80P(2) is not intended to place all types of co-operative societies on the same pedestal. The section confers different types of b....