2021 (11) TMI 103

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....ey are eligible for deduction u/s 80P of the Income Tax Act in respect of interest and dividend earned from their investment with the South Canara District Co-operative Bank Ltd. 3. Your appellant submits that the decision of the honorable Supreme Court in the case of Citizens co-op. Society is not applicable to their case and provide the following comparative analysis: Case of Citizen Co-operative Society Limited Position of our Society Citizen Co-operative Society is governed under the Andhra Pradesh Mutually aided Co-op Societies Act, 1995 (APMACSA). Whereas there is separate Andhra Pradesh Co-op. Societies Act, 1964 governing primary agricultural credit Co-op Societies. Ours is a Primary Agricultural Credit Co-operative Society governed by the Karnataka Cooperative Societies Act, 1959, which is akin to Andhra Pradesh Co-op. Societies Act, 1964. No statutory provision regarding having nominal members, but the societies can have nominal members only as per the provisions of their respective by-laws. Societies are statutorily allowed to have nominal members as per the provisions of section 2(f) and section 18 of the Karnataka Cooperative Societies Act, 1....

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....cts, and on such other grounds that may be urged at the time of hearing of the appeal, the appellant prays to allow the appeal and impart justice." 2. The brief facts of the case are as follows: The assessee is a primary agricultural credit society registered under the Karnataka Co-operative Societies Act, 1959. It is engaged in providing credit facilities to its members. For the assessment year 2016-2017, the return of income was filed declaring total income of Rs. 8,435 after claiming deduction u/s 80P of the I.T.Act amounting to Rs. 60,71,501. The return of income was selected for scrutiny by issuance of notice u/s 143(2) of the I.T.Act. The assessment u/s 143(3) was completed vide order dated 10.12.2019 wherein the claim of deduction u/s 80P of the I.T.Act was denied by the Assessing Officer. The Assessing Officer held that the assessee has violated the principles of mutuality by placing reliance on the judgment of the Hon'ble Apex Court in the case of The Citizen Co-operative Society Ltd. v. ACIT reported in 397 ITR 1 (SC). The Assessing Officer also denied the claim of deduction u/s 80P(2)(d) of the I.T.Act since interest / dividend income was earned out of investments ....

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...., for being taken as a member, the income earned on account of providing credit facilities to such member also qualify for deduction u/s 80P(2)(a)(i) of the I.T.Act. It was further held by the Hon'ble Apex Court that section 80P(4) of the I.T.Act is to be read as a proviso. It was stated by the Hon'ble Apex Court that section 80P(4) of the I.T.Act now specifically excludes only co-operative banks which are co-operative societies engaged in the business of banking i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. The Hon'ble Apex Court had enunciated various principles in regard to deduction u/s 80P of the I.T.Act. On identical factual situation, the Bangalore Bench of the Tribunal in the case of M/s.Ravindra Multipurpose Cooperative Society Ltd. v. ITO in ITA No.1262/Bang/2019 (order dated 31.08.2021) had remanded the issue to the files of the A.O. for de novo consideration. The Tribunal directed the A.O. to follow the dictum laid down by the Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (supra). The relevant finding of the Co-ordinate Bench of the Tribunal in the case of M/s.Ra....

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....n the category of "other income" what falls for consideration is to answer the question as to whether the Tribunal was right in law in holding that the income by way of interest was chargeable to tax under Section 56 of the Income Tax Act without allowing deduction in respect of proportionate costs incurred as permissible under Section 57. 12. It is no doubt true that the appellant did initially claim deduction under Section 80P(2). Upon the pronouncement of the order by the Apex Court, in these appeals referred to supra, the income earned on the interest is declared as "other income" falling under Section 56 of the Income Tax Act. Then the next immediate question that follows is as to whether the entire fund i.e., in deposit with the Bank is taxable or the proportionate expenditure incurred by the appellant requires deduction. It is logical that when the Revenue is permitted to assess and recover taxes from assessee under Section 56 by treating the income earned by interest as income from "other sources", the appellant shall be entitled for proportionate expenditure cost incurred in mobilizing the deposit placed in the Bank/s. What can be taxed is only the next income whi....