TaxTMI 
TaxTMI 
2022 (3) TMI 75
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....nd the order therein passed shall mutatis-mutandis apply to the remaining cases. Before us the assessee has assailed the impugned order on the following grounds of appeal: "1. Banking Business : 1.1. That under the facts and the law, the Ld. CIT(Appeals) erred in rejecting the deduct claimed by the appellant u/s.80P(2)(a)(i) pertaining to its banking business amounting to Rs. 7,98,705/- as rejected by the ld. AO. Prayed that Rs. 7,98,705/- is income from banking business & deduction be allowed. 1.2. Without prejudice to above, the Ld. CIT(Appeals) further erred in not deducting the interest paid amounted to Rs. 2,58,520/- from the aforesaid sum of Rs. 7,98,705/-. Prayed without prejudice to Ground No.1, interest paid to its members on their deposit at Rs. 2,58,520/-. 2.Paddy Procurement Business: - 2.1 Under the facts and laws, the Ld. CIT(Appeals) further erred in confirming the disallowance @35% out of income in paddy procurement business made by the Ld. AO claimed by the appellant u/s.80P(2)(a)(iii) out of Rs. 16,21,218/- observing that paddy is also procured from other the members. Prayed that paddy has been procured from members of appellant society & therefore....
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..... 20,80,789/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). However, the CIT(Appeals) not finding favour with the contentions advanced by the assessee upheld the assessment framed by the Assessing Officer. 5. Assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 6. At the very outset of the hearing of the appeal, the Ld. Authorized Representative (for short 'AR') for the assessee assailed the disallowance of the assessee's claim for deduction of interest income of Rs. 7,98,705/- u/s. 80P(2)(a)(i) of the Act. It was submitted by the Ld. AR that as the assessee-society had parked its surplus funds as deposits with various co-operative banks, therefore, the same being an inextricable part of its business of providing credit to its members i.e. borrowing, raising or taking up money, and lending/advancing money for the purpose of agriculture, purchase of seeds, urea etc. to its members, thus, was duly eligible for deduction u/s. 80P(2)(a)(i) of the Act. Our attention was drawn by the Ld. AR to the financial statements of assessee-society which revealed the receipt of interest income of Rs. 7,98,705/....
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....lied on the judgment of the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. Vs. ITO, Tumkur, ITA No.307/2014, dated 28.10.2014. It was claimed by the Ld. AR that the Hon'ble High Court in its aforesaid order had after referring to the judgment of the Hon'ble Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd. (supra), had observed, that in the case of a co-operative society which is engaged in the business of providing credit facilities to its members, the interest income so derived on the capital which was not immediately required, and was deposited in bank so as to earn interest income would be attributable to the profit and gains of its business of providing credit facilities to its members and thus, would be eligible for deduction u/s. 80P of the Act. It was submitted by the Ld. AR that the Hon'ble High Court while distinguishing the facts involved in the case of M/s. Totgars Co-operative Sale Society Ltd. (supra), had observed, that unlike as in the case of the assessee before them, in the aforesaid case before the Hon'ble Apex Court, the society, therein involved was apart from providing credit facilities to its memb....
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.... disallowance was excessive, considering the fact that the assessee had mainly procured paddy from its members only. Elaborating on the facts leading to part disallowance of its aforesaid claim for deduction u/s 80P(2)(a)(iii), it was submitted by the Ld. AR that the assessee as an 'agent' of Chhattisgarh Marketing Federation (CMF) had facilitated the procurement of paddy from the agriculturists, and for the said service was paid a fixed commission as per the rates prescribed by the Government. It was submitted by the Ld. AR that the gross profit of Rs. 16,21,218/- that was earned by the assessee from its aforesaid stream of business activity, i.e., paddy procurement business was claimed by it as a deduction u/s. 80P(2)(a)(iii) of the Act. However, as the aforesaid deduction was available eligible only qua marketing of the agricultural produce grown by members of the society, therefore, the Assessing Officer in the course of assessment proceedings had called upon the assessee society to produce the register maintained in respect of paddy procurement for the year under consideration. It was submitted by the Ld. AR that as the register produced by the assessee society did not reveal ....
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....tion, it was submitted by the Ld. AR that as the dividend income was earned by the assessee society on the shares of a co-operative bank, therefore, the same was duly eligible for deduction u/s.80P(2)(d) of the Act. In order to fortify his aforesaid contention the ld. A.R had relied on the order of the ITAT, Mumbai in the case of M/s Solitaire CHS Ltd Vs. Principal Commissioner of Income Tax-26, ITA No.3155/Mum/2019 dated 29.11.2019. 10. Backed by his aforesaid contentions, it was submitted by the Ld. AR that the restriction of the assessee's multi-facet claim for deduction u/s. 80P of the Act by lower the authorities being based on incorrect appreciation of the settled position of law and, misconceived facts, was thus liable to be set-aside. 11. Per Contra, the Ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities. It was submitted by the Ld. DR, that as the assessee's claim for deduction u/s.80P of the Act as regards its multiple activities did not fall within four corners of Section 80P of the Act, therefore, both the lower authorities had rightly restricted/declined its claim for deduction on the basis of their well-reasoned observatio....
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....peal is confined to the limited aspect, i.e, as to whether or not the interest income earned by the assessee-society by depositing its surplus funds with a bank can be brought within the meaning of "income from carrying on the business of banking or providing credit facilities to its members", and thus, would fall within the realm of the deduction contemplated in Section 80P(2)(a)(i) of the Act. At this stage, we may herein observe, that it is the claim of the assessee, that as depositing of its surplus funds, i.e, the funds for which there were no takers at the relevant point of time, in the course of its business of providing credit facilities to its members, is inextricably interlinked; or in fact interwoven with its said stream of its business activity, therefore, the interest income received on such short-term deposits was duly eligible for deduction under the aforesaid statutory provision, i.e., Sec. 80P(2)(a)(i) of the Act. We may herein observe, that though the assessee-society in addition to its business of providing credit facilities to its members was also engaged in other multiple activities for its members, viz. business of paddy procurement, sale of fertilizers, seeds....
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....considered by the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. (supra) in ITA No.307/2014, dated 28.10.2014, wherein the Hon'ble High Court had after exhaustive deliberations held as under : "6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs. 1,77,305/- represents the interest earned from short term deposits and from savings bank account. The assessee is a cooperative society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e. section 80P(2)(a)(i): "Deduction in respect of income of cooperative societies: 80P. (1) Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accord....
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....ve a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A cooperative society which is carrying on the business providing credit facilities to its members, earns profit and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under section 80P of the Act. 9. In this context whe....
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.... allowed. The impugned order is hereby set aside. Parties to bear their own cost." In the backdrop of the aforesaid observations of the Hon'ble High Court, we are of a considered view, that as in the case of the assessee before us the surplus funds parked by way of short-term deposit with the co-operative bank, viz. Jila Sahakari Kendriya Bank are inextricably interlinked, or in fact interwoven with its business of providing credit facilities to its members, therefore, the same as claimed by the Ld. AR, and rightly so, would duly be eligible for deduction u/s. 80P(2)(a)(i) of the Act. We, thus, in terms of our aforesaid observations, direct the Assessing Officer to allow deduction of Rs. 7,98,705/- u/s. 80P(2)(a)(i) of the Act on the interest income earned by the assessee society on its deposits with the co-operative bank. Thus, the Ground of appeal No.1 raised before us is allowed in terms of our aforesaid observations. 14. We shall now advert to assessee's claim that both the lower authorities had erred in scaling down its claim for deduction of the income earned from paddy procurement business u/s 80P(2)(a)(iii) to 35% of its claim. 15. Before adverting any further, we shal....
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....very farmer, whether member or non-member, i.e whosoever approaches it, but transactions with the non-members during the year under consideration was minimal and by no means exceeded 25% of the total transactions. In order to buttress his aforesaid claim the Ld. AR had taken us through the compilation of paddy purchase by the assessee-society, Page 1 to 55 of additional documentary evidence that was placed on our record. By drawing support from compilation of paddy purchase from its members, i.e. Page 1A to 255 of the additional documentary evidences filed before us, it was submitted by the ld. A.R that only a small fraction of the paddy procurement was carried out by the assessee society from non-members. In the backdrop of his aforesaid contentions, the Ld. AR had claimed that the restriction of its claim for deduction u/s 80P(2)(a)(iii) to 35% of the profit from paddy procurement business so made by the Assessing Officer was not only on the higher side, but in fact exorbitant and unrealistic. 17. After giving a thoughtful consideration to the aforesaid issue, we find substantial force in the claim of the Ld. AR that now when only a small fraction of the procurement of paddy was....
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....th his aforesaid claim, but then, the same cannot be accepted on the very face of it and would require factual verification. Therefore, for the said limited purpose, we restore the matter to the file of the Assessing Officer for doing the needful. During the course of the set-aside proceedings, the Assessing Officer is directed to restrict the assessee's claim for deduction as regards its profit from PDS only to the extent of its net profit, i.e., after considering the proportionate expenses. Needless to say, the assessee shall in the course of set-aside proceedings furnish the requisite details/documents as would be called for by the Assessing Officer. The Ground of appeal No.3 is allowed for statistical purposes in terms of our aforesaid observations. 20. Now, we shall advert to the claim of the Ld. AR that the CIT(Appeals) had erred in confirming the rejection of the assessee's claim for deduction of Rs. 1,16,224/- u/s. 80P(2)(d) of the Act, i.e, deduction of the dividend income received on the shares of Jila Sahakari Kendriya Bank, Raipur, i.e a co-operative bank. 21. On a perusal of the assessment order, we find that the Asessing Officer holding a conviction that as the afor....
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....o more be entitled for claim of deduction under Sec. 80P(2)(d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with co-operative banks, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Observing, that the co-operative banks from where the assessee was in receipt of interest income were not co-operative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act. 7. After necessary deliberations, we are unable to persuade ourselves to be in agreement with the view taken by the Pr. CIT. Before proceeding any further, we may herein reproduce the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. "80P(2)(d) (1). Where in the case 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 su....
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.... We are of the considered view, that though the co-operative banks pursuant to the insertion of subsection (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a co-operative bank continues to be 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 co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act. 8. We shall now advert to the judicial pronouncements that have been relied upon by the ld. A.R. We find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co-operative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum) (ii) M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) M....
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....Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (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. Accordingly, 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 cooperative 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. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and therein concluded that the assessee would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income earned on its inv....