TaxTMI 
TaxTMI 
2022 (2) TMI 40
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....rred by 89 days. This appeal ought to have been filed on or before 24.04.2020. However, on account of extension of time limit from time to time due to Covid-19 Pandemic by the Hon'ble Apex Court in the case of Cognizance For Extension of Limitation reported in (2021) 438 ITR 296 (SC), the learned AR submitted that there is no delay in filing this appeal. The learned Departmental Representative was duly heard. 4. In view of the judgment of the Hon'ble Apex Court in the case of Cognizance For Extension of Limitation (supra), which has extended the time limit for filing an appeal from time to time, we hold that there is no delay in filing this appeal and proceed to dispose of the same on merits. 5. The grounds raised read as follows:- 1. The Give effect order of the learned Income Tax Officer in so far as it is against the appellant, is opposed to law, based on weight of evidence, natural justice, probabilities, facts and circumstances of the case. 2. The learned Income Tax Officer should have appreciated the fact that The co-operative societies are bound by Section 57(2), Sec 58 and the rule 23(2) of the Karnataka Co-operative Societies Rules, 1960 which requi....
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....7, wherein, it was held that where the core activities of the assessee society were to provide credit facilities to its members and to accept deposits from its members, it was entitled to deduction in respect of the interest earned by it on the deposits made with other cooperative societies/banks under section 80P (2)(a)(i). The Honourable bench has distinguished the decision of the Karnataka High Court in PCIT Vs Totagars Co-operative sale society ltd 395 ITR 611 and Tumkur Merchants Souharda Cred it co-operative Ltd Vs ITO 230 taxman 309. Thus, the decision of the Honourable ITAT B Bench Bangalore is binding on the Income-tax Authorities. Thus, the Learned Income tax Officer should have restrained from passing the order U/s 143(3) of the IT Act 6. Without prejudice to the above, even assuming that another view is possible in the matter of allowability of deduction, Pr.CIT ought to have considered the decision of the Honourable Supreme Court in CIT Vs Max India Ltd 295 ITR 282 wherein, it is ruled that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of revenue and that when the AO adopts one of ....
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....Income by way of interest earned from Deposits in co operative Banks earned by the society. 11. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above. In view of the above and any other grounds that may be urged at the time of the hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity." 6. The brief facts of the case are as follows: The assessee is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959. It provides credit facilities to its members. For the assessment year 2015- 2016, the return of income was filed on 08.01.2016, declaring total income at `Nil' after claiming deduction u/s 80P(2)(a)(i) of the I.T.Act amounting to Rs. 15,10,256. The assessment was completed u/s 143(3) of the I.T.Act vide order dated 29.06.2017, accepting the returned income. Subsequently, the CIT issued notice u/s 263 of the I.T.Act. According to the CIT, the A.O. has wrongly allowed deduction u/s 80P(2)(a)(i) of the I.T.Act of Rs. 2,93,935 being interest income earned from Mysore & Chamaraja Nagar District Co-operative Central Bank (MCDCC Bank) and Canara Ba....
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....ers u/s 263 of the I.T.Act. The recent order of the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd. v. The Pr.CIT in ITA No.453/Bang/ 2020 (order dated 13.08.2021), after considering the judicial pronouncements on the issue held that interest income earned out of investments made from surplus funds would be taxable under the head `income from other sources' and would not be eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. It was further held by the Tribunal insofar as deduction u/s 80P(2)(d) of the I.T.Act is concerned, only those interest received from investments with co-operative societies alone would be entitled to deduction. However, the Tribunal in para 18 of its order had stated that if investments are out of statutory compulsions, then interest income earned from such investments has nexus with business of the assessee society and would be eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. The relevant finding of the Tribunal reads as follows:- "9. The Hon'ble Supreme Court in the case of the The Totgars Co-operative Sale Society Ltd. Vs. ITO 322 ITR 283 (SC) held that Income from utilisation of surplus funds was taxable under the head i....
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....able to its members from whom produce was bought, was invested in a shortterm deposit/security. Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. The Court also observed that even the Hon'ble Supreme made it clear that they are confining the said judgment to the facts of that case. The Court therefore concluded that Hon'ble Supreme Court was not laying down any law. Similar view taken in Guttigedarara Credit Cooperative Society Ltd. vs. ITO [2015] 377 ITR 464 (Karnataka). In the case of PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE SOCIETY 392 ITR 0074 (Karn) in the context of deduction u/s.80P(2)(d) of the Act, it was held that Sec.80P(2)(d) of the Act allows deduction in respect of any income by way of int....
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....s 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT (Appeals) were justified in holding that such interest income was 100% deductible under Section 80P(2)(d) of the Act?" 11. The Hon'ble Court held that such interest income is not income from business but was income chargeable to tax under the head income from other sources and therefore there was no question of allowing deduction u/s.80P(2)(d) of the Act. The following points can be culled out from the aforesaid decision: 1. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a cooperative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Ba....
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....of the Judgment) 5. On the decision of the earlier decision of the Hon'ble Karnataka High Court referred to in the earlier part of this order, the Court held that it did not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee (Totagars Sales Co-operative society) and hence unable to follow the same in the face of the binding precedent laid by the Hon'ble Supreme Court. The Hon'ble Court observed that in paragraph 8 of the said order passed by a coordinate bench that the learned Judges have observed that "the issue whether a co-operative bank is considered to be a co- operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases..............". No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Cooperative Bank is a specie of the genus co- operative Society, with which we agree, but as far as applicability of Section 80P(2) of the Act is concerned, the applicability of the Supreme Court's decision cannot be restricted only if the income ....
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....hat decision in the case of Totagar Co-operative Sales Society rendered by the Hon'ble Supreme Court is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression "profits and gains of business" and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under section 80P(2)(a)(i) of the Act. (Paragraph-13 of the Judgment) 13. It can thus be seen that the ratio laid down by the Hon'ble Karnataka High Court in the case of Totalgars Cooperative ....
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....ecision in Totgars Co-operative Sale Society (supra) stands explained by the later decision in the case of Totagar co-operative sales society 395 ITR 611 (Karn.). 17. We however find that the Assessee has raised the following grounds of appeal in its appeal, viz., "5. Without prejudice to the above, the learned Principal Commissioner ought to have considered the submissions of the appellant to the effect that interest received by it amounting to Rs. 1,32,726 from deposits with Mysore & Chamarajanagar District Central Co-operative Bank made out of Reserve Fund in compliance with rule 23(2) of the Karnataka Co-operative Societies Rules, 1960 constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the Income Tax Officer rightly allowed deduction thereof under section 80-P(2)(a)(i) of the Income Tax Act, 1961. 6. Without prejudice to the above, the learned Principal Commissioner ought to have taken note of the submissions made by the appellant that interest received by it amounting to Rs. 1,32,726 from deposits with Mysore & Chamarajanagar District Central Co-operative Bank made in compliance with....
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.... in (2021) 431 ITR 1 (SC) had settled various issues for claiming deduction u/s 80P(2)(a)(i) of the I.T.Act. The gist of the judgment of the Hon'ble Apex Court are as follows:- (i) Section 80P is a benevolent provision enacted by the Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, if there is ambiguity, in favour of the assessee (para 45 of the judgment). (ii) The co-operative societies extending credit facilities are entitled to deduction u/s 80P(2)(a)(i) and if there are loans to non-members, only profits attributable to the transactions with the non-members alone is liable to be excluded from the deduction. That is to say that the transactions with non-members per se would not disentitle a co-operative society from claiming the deduction under the section. If the state Act (the Cooperative Law) provides for enrollment of 'nominal members', the loans given to such nominal members would qualify for the purpose of deduction u/s 80P(2)(a)(i). (Para 30 to 46 of the Judgment) (iii) Under clause (d) of section 80P(2), the interest or dividend income derived by a co-operative society fr....