AI Drafter 
TaxTMI 
TaxTMI 
2019 (3) TMI 381
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....hat on facts and circumstances of the case, the afresh addition made of Rs. 3,30,062/- be deleted. 2. The Ld CIT(A) has erred in law and on facts in non granting the deduction of interest income claimed u/s 80P(2)(d) of the Act. On the facts and circumstances of the case, the incorrect addition made of Rs. 3,30,062/- deserves to be deleted. It may held so now. 3. Without prejudice to the above, Ld. CIT(A) has erred in considering the interest income received on investment with bank of Rs. 3,30,062/- as fully taxable u/s. 56 of the Act without allowing the Pro-rata expenditures incurred u/s 57 of the Act. It is submitted that the only net interest income received after allowing the Pro-rata expenditure incurred be taxed." 3. The assessee, a co-operative credit society, filed its return of income which inter alia included interest income amounting to Rs. 3,28,923/- derived from Ahmedabad District Co-operative Bank (ADC) and Rs. 1,139/- derived from Axis Bank. The return was subjected to scrutiny assessment and certain additions were made by the AO. The assessee preferred appeal before CIT(A) on those additions with which we are not presently concerned as the asse....
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....eal No. 473 of 2014. 8. The learned DR, on the other hand, relied upon the order of the AO and submitted that Section 80P(2)(d) of the Act provides for deduction towards interest derived by the co-operative society from its investments with other co-operative societies. The investment of surplus in co-operative bank is thus not covered for the purposes of deduction, more so, in the light of Section 80P(4) of the Act. The learned DR further submitted that the deduction is also not available under s.80P(2)(a)(i) of the Act either, in view of the decision of the Hon'ble Supreme Court in the case of The Citizen Co-Operative Society Ltd. v. Asstt. CIT (2017) 88 Taxmann.com 279 (SC). 9. We have carefully considered the rival submissions. The dispute concerns section 80P of the Act which provides for deduction of income of a co-operative society engaged in specified activity catalogued in Section 80P(2) of the Act. The principal controversy in the captioned appeal is towards maintainability of deduction under s.80P(2)(d) of the Act in the hands of the credit co-operative society towards interest earned from deposit placed with co-operative banks, more so, in the light of insertion o....
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....tled to benefit of 80P owing to exclusions made, a co-op society not being a co-op bank remains unaffected by S. 80(4) and can enjoy the benefits of S. 80P(2)(d) conferred on the societies on fulfillment of pre-requisites. 9.2 Before we proceed to deal with the issue in hand, it would be apt to quote the relevant provisions governing the controversy in hand. 9.2.1 Section 2(19) defines the meaning of expression 'Co-op Society' as under: "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912 ), or under any other law for the time being in force in any State for the registration of cooperative societies; 9.2.2 Income under S. 2(24) of the Act also includes: the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members 9.2.3 The relevant portion of S. 80-P governing deduction available to co-operative societies is also quoted hereunder: "Deduction in respect of income of co-operative societies. 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes....
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....them in the National Bank for Agriculture and Rural Development (NABARD) Act, 1981. NABARD, in turn defines these two terms as under: Section 2(d) of NABARD defines 'central co-operative bank' means the "d. "central co-operative bank" means the principal co- operative society in a district in a State, the primary object of which is the financing of other co-operative societies in that district:.........." u. "State co-operative bank" means the principal co- operative society in a State, the primary object of which is the financing of other cooperative societies in the State:.................." 9.3 Having noted the relevant provisions in earlier para, it would be expedient to firstly refer to the decision of The Citizen Co-Operative Society Ltd. (supra) to gather the rules of interpretation of various sub- sections of the beneficial provision of S. 80P. The Hon'ble Supreme Court inter alia has observed that different heads of exemption enumerated in the Section 80P of the Act should be treated as separate and distinct head of 'exemption'. If any particular category of an income falls within any one head of 'exemption', the assessee would be free from tax notw....
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....come derived by a co-operative society from investments placed with co-operative bank under S. 80P(2)(d) of the Act. In this context, it would be interesting to note that the aforesaid clause 80P(4) itself holds that a co-operative bank may also possibly include 'a credit society'; for instance, a primary agricultural credit society. Therefore, on an incisive reading of Section 80P(4) of the Act, it appears that co operative banks can also be co-operative society for the purposes of Section 80P(2)(d) of the Act. Thus, on a conjoint reading of Section 80P(2)(d) and 80P(4), it would appear that while the co-operative banks in certain cases [as specified in Section 80P(4)] may not qualify for deduction under s.80P of the Act, a co-operative society per se would not come within the mischief of sub-section 4 of the Act of Section 80P of the Act and would continue to avail the benefit of Section 80P(2)(d) of the Act. Thus, simply put, while a co-operative bank has been stripped of the benefit of Section 80P of the Act on its various income by insertion of S. 80P(4), the investment in such co operative bank [ bearing the legal trappings of a co-op society ] by a co-op society as envisaged....
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....with plea of assessee for allowability of deduction on interest income derived from co operative society in the form of Co-operative bank on first principles. The issue is accordingly resolved in favour of the assessee and against the Revenue. 9.10 We are conscious of the decision of the Hon'ble Karnatka High Court in Pr.CIT vs. Totagars Co.operative Sales Society (2018) 395 ITR 611 (Karn) wherein it was held that interest income not arising from business operations is not eligible for deduction under s.80P of the Act. A reading of the judgment of the Hon'ble High Court shows that it was guided by nature of activity to determine the character of income for the purposes of Section 80P(2)(d) of the Act. Placing reliance upon the judgments rendered in the context of 80P(2)(a)(i) of the Act, the Hon'ble High Court concluded that the deduction of interest income is not permissible unless it arises from business operations. Clearly, the distinction between Section 80P(2)(a) and 80P(2)(d) of the Act of substantial nature (as discussed in para 9.4 of this order) was not brought to the notice of Hon'ble High Court. The deduction under s. 80P(2)(a) or (b) or (c) of the Act is available....
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....society equally. 11 The interest income of Rs. 1,139/- derived by the assessee society from investment with private bank i.e. Axis Bank is however, neither qualified under s. 80P(2)(a)(i) of the Act in the light of the ratio of The Citizen Co-Operative Society Ltd. (supra) nor under s.80P(2)(d) of the Act. Thus, the assessee is not entitled for deduction or interest derived from the private bank. 12. In the result, appeal of the assessee is partly allowed. ITA No. 1671/Ahd/2018-AY 2015-16 13. The grounds of appeal raised by the assessee read as under: "1. The Ld CIT(A) has erred in passing the order without granting opportunity of being heard to the Appellant. It is submitted the order passed by Ld CIT(A) is completely erroneous , incorrect and unlawful. Thus order passed by Ld CIT(A) be set aside and incorrect addition made and confirmed of Rs. 6,07,377/- be deleted in view of natural justice. 2. The Ld CIT(A) has erred in confirming the addition made of Rs. 6,07,377/- disallowing the interest income claimed u/s 80P of the Act. It is submitted that the Appellant has never been informed regarding fixing of hearing by issuing notice or by any other comm....