TaxTMI 
TaxTMI 
2022 (7) TMI 1261
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....f the CIT(Appeals) on the following grounds of appeal before us: "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.4,36,196/- as rejected by the ld. AO. Prayed that Rs.4,36,196/- 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.1,72,284/- from the aforesaid sum of Rs.4,36,196/-. Prayed without prejudice to Ground No.1, interest paid to its members on their deposit at Rs.1,72,284/- be deducted from 4,36,196/-. 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.10,60,017/- observing that paddy is also procured from other the members. Prayed that paddy has been procured from members of appellant society & therefore, provision of section 80P(2)....
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....llowance of the assessee's claim for deduction of interest income u/s. 80P(2)(a)(i) of the Act. Rs.4,36,196/- 2. Disallowance of the assessee's claim for deduction of profit from paddy procurement business u/s. 80P(2)(a)(iii) of the Act. Rs.4,17,910/- 3. Disallowance of the assessee's claim for deduction of profit from PDS u/s.80P(2)(c)(i) of the Act. Rs.1,47,499/- 4. Disallowance of assessee's claim for deduction of other income u/s 80P. Rs. 6,750/- 5. Disallowance of assessee's claim for deduction of dividend income u/s.80P(2)(d) of the Act. Rs. 180/- , and proportionately allocating the expenses to the extent the same related to the amount which qualified for deduction u/s.80P of the Act, the A.O vide his order u/s. 143(3) of the Act, dated 20.03.2015 assessed the total income of the assessee society at Rs. 5,46,940/-. 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 and dismissed the appeal. 5. The assessee being aggrieved with the order of the CIT(Appeals)....
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....ds which were deposited by it with Jila Sahakari Kendriya Bank, i.e, a co-operative bank. After deliberating at length on the issue in hand, we find that the aforesaid claim of the assessee hinges around the aspect that as to whether or not the interest income earned by it on its surplus funds which were parked as deposits in the normal course of its business of providing credit facilities to its members, i.e., at the point of time when there were no takers for the said funds, was eligible for deduction u/s. 80P(2)(a)(i) of the Act. We have given a thoughtful consideration to the contentions advanced by the Ld. Authorized representatives for both the parties. Before proceeding any further, we deem it fit to cull out the provisions of section 80P(2)(a)(i) of the Act, the scope and gamut of which is the primary bone of contention before us, which reads as under : "80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in subsection (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the as....
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....en so, then, the interest income earned on such short-term deposit/security with the bank would not have been eligible for deduction u/s.80P(2)(a)(i) of the Act. But then, as the amount deposited by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) was in the nature of simpliciter surplus or idle funds of the assessee society, for which there were no takers for the time being in course of its business of providing credit facilities to its members, therefore, depositing of the same by way of short-term deposits with the aforesaid bank, as stated by the ld. A.R, and rightly so, would clearly be inextricably interlinked, or in fact interwoven with its aforesaid primary business activity, i.e., providing of credit facilities to its members. At this stage, we may herein observe, that the Hon'ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. Vs. ITO, Karnataka, 322 ITR 283 (SC), had held, that in a case where the assessee-cooperative society apart from providing credit facilities to its members was also in the business of marketing of agricultural produce grown by its members, and the sale consideration of the agricultural produce due....
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.... (vi) xxx (vii) xxx the whole of the amount of profits and gains of business attributable to any one or more of such activities." 7. The word 'attributable used in the said section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME TAX, GUJARAT-II reported in ITR Vol.113 (1978) Page 842 at Page 93 as under: As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the Legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used it could have with some force been contended that a ....
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....eration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term 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. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore, it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the asses....
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.... 10. We shall now take up the grievance of the assessee that both the lower authorities had erred in law and the facts of the case in declining the assessee's claim for deduction `of the income from paddy procurement business of Rs. 4,17,910/-under Sec. 80P(2)(a)(iii) of the Act. Before adverting any further, we shall first deal with the request of the assessee for admission of compilation as regards the details of paddy purchase by the assessee-society, Page 1 to 31 that has been filed before us as "additional evidence". It is the claim of the assessee that as the said document would have a material bearing on the adjudication of the Ground of appeal No. 2, therefore, the same in all fairness be admitted. After giving a thoughtful consideration, we herein admit the compilation of paddy purchase by the assessee-society as had been furnished before us as an additional documentary evidence. 11. It is the claim of the ld. AR that the issue in hand i.e, the entitlement of a co-operative society for claim of deduction of its income from paddy procurement business under Sec. 80P(2)(a)(iii) had earlier came up before this bench of the Tribunal in the case of Gramin Sewa Sahakari Sam....
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....triction of the assessee's claim for deduction u/s 80P(2)(a)(iii) to 35% of its income of Rs. 16,21,218/-, it is the claim of the ld. A.R before us that the same is highly exorbitant, for the reason, that the assessee had mainly procured paddy from its members only. It was submitted by the Ld. AR that though as per the policy of the Government the assessee-society is obligated to purchase paddy from each and every 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 th....
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.... we are of the considered view that the matter in all fairness on the same terms be restored to the file of the AO for fresh adjudication. In the course of the set-aside proceedings the AO shall after considering the additional documentary evidence that had been filed by the asssessee before us, therein, read-judicate the assessee's claim for deduction under Sec. 80P(2)(a)(iii) i.e. after determining as to what extent the assessee society had facilitated the marketing of the agricultural produce grown by non-members, and thus, restrict the it's claim for deduction u/s. 80P(2)(a)(iii) only to the extent of the profit relatable thereto. Needless to say, the assessee shall in the course of the set-aside proceedings furnish the requisite details/documents that are called for by the A.O. Thus, the Ground of appeal No.2 raised by the assessee is allowed for statistical purposes in terms of our aforesaid observations. 14. Adverting to the assessee's claim for deduction under Sec. 80P(2)(c)(i) of the profit from PDS activity i.e, distribution of essential commodities to the ration holders through fair price shop, it was submitted by the Ld. AR that the said issue had already been adjudi....
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....in terms of our aforesaid observations." Considering our aforesaid observations in order passed in ITA No.114/RPR/2016 & Ors, dated 23.02.2022, we on the same terms restore the matter to the file of the AO, with a direction 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. Thus, the Ground of appeal No.3 is allowed for statistical purposes in terms of our aforesaid observations. 17. We shall now deal with the grievance of the assessee that both the lower authorities had erred in law and the facts of the case in declining its claim for deduction of the dividend income received on the shares of Jila Sahakar Bank, for the reason that as the same was not a co-operative socity, hence, the dividend incme received therefrom would not be eligible for deduction under Sec. 80P(2)(d) of the Act. Before us, it is the claim of the Ld. AR that the aforesaid issue is squarely covered by the order of the Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors. Vs. the ITO, Ward-1(3), Raipur in ITA No.114/RPR/2016 & Ors, dated 23.02.2022. It was submitted by the ld. ....
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....the Pr. CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of sub-section (4) of Sec. 80P, the assessee would no 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 Cooperative Agricultural and Rural Development Bank. Observing, that the cooperative 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, th....
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....ive society" means a cooperative 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;" 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 cooperative 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 i....
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....Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had observed, that the interest income earned by a co-operative 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. We find that as held by the 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)....