TaxTMI 
TaxTMI 
2022 (8) TMI 597
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned appeals, therefore, the same are being taken up and disposed off together by way of a consolidated order. 2. We shall take up the appeal in ITA No.126/RPR/2017 for the assessment year 2014-15 as the lead matter, and the order therein passed shall apply mutatis-mutandis to the remaining cases. Before us the assessee has assailed the impugned order of the CIT(Appeals) on the following grounds of appeal before us: "1. For Rs.45,89,232, that the ld CIT(A) has erred in sustaining the additions made by the Id AO and assessing the total income at Rs.47,61,530 by not allowing deductions u/s80P. The additions are made as under:- (i) That the Id CIT(A) has erred in sustaining the disallowance of deduction u/s.80P(2) made by the ld AO at Rs.1,39,450 being net loss from banking activities done by the assessee-society by assuming that, the assessee-society has invested its surplus funds with banks while, the real facts is that, the funds invested in FDR/ saving accounts with Co-op. banks, are (i) own funds of the assessee-society, and (ii) member's funds, thereby, the interest income earned by the assessee-society from the banking activities carried out for its memb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of interest income u/s. 80P(2)(a)(i) of the Act. Rs.1,39,450/- 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.41,69,739/- 3. Disallowance on account of TDS deducted from commission received on paddy procurement business Rs. 4,15,517/- 4. Disallowance of the assessee's claim for deduction of profit from PDS u/s.80P(2)(c)(ii) of the Act. Rs.5,54,758/- 5. Disallowance of assessee's claim for deduction of dividend income u/s.80P(2)(d) of the Act. Rs. 23,15,409/- After making the aforesaid disallowances, the A.O vide his order u/s. 143(3) of the Act, dated 11.02.2016 assessed the total income of the assessee society at Rs. 47,61,530/-. 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) has carried the matter in appeal before us. As the assessee appellant (in ITA No.157/RPR/2019) despite hav....
X X X X Extracts X X X X
X X X X Extracts X X X X
....c. 80P(2)(a)(i) of the Act, observing as under: "13. We shall first advert to the assessee's grievance that the lower authorities had erred in declining its claim for deduction u/s. 80P(2)(a)(i) of the Act, i.e, as regards the interest income that was earned on the surplus funds 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) were the amounts that were payable by the society to its members, and the same having being retained were for the time being invested as a short-term deposit/security with the bank. If that would have been 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, Kar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....b-section (1) shall be the following, namely:- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) xxx (iii) xxx (iv) xxx (v) xxx (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 expr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Sale Society Ltd, on which reliance is placed, the Supreme Court was dealing with a case where the assessee co-operative society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration 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 ins....
X X X X Extracts X X X X
X X X X Extracts X X X X
....low the same. We, thus, in terms of our aforesaid observations direct the AO to allow the assessee's claim for deduction under Sec. 80P(2)(a)(i) of Rs.1,39,450/-. The Ground of appeal No.1 (i) raised by the assessee is allowed in terms of our aforesaid observations. 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.41,69,739/-under Sec. 80P(2)(a)(iii) of the Act. 11. It is submitted by the Ld. AR that the A.O had declined the assessee's claim for deduction of profit earned under the head paddy procurement business u/s.80P(2)(a)(iii), for the reason that as the assessee society was an agent of Chhattisgarh Marketing Federation (CMF) and was in receipt of commission income for the services therein rendered and was not into marketing of agricultural produce grown by its members, therefore, not entitled for deduction u/s.80P(2)(a)(iii) of the Act. Rebutting the aforesaid observations of the A.O, it was submitted by the Ld. AR that the Tribunal while disposing off the appeal in the case of Gramin Sewa Sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid fact had restricted the assessee's claim for deduction u/s.80P(2)(a)(iii) of the Act on an adhoc basis to 35% (i.e. nearly 1/3rd of the aforesaid gross profit) of the profit that was earned by it from paddy procurement business, and had disallowed assessee's claim for deduction as regards the balance amount of profit. Assailing the restriction 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 assessee18 Gramin Sewa Sahakari Samiti Maryadit ( a group of 22 cases) 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the Ld. AR, and rightly so, the assessee society in the present case was principally entitled for deduction of its income from the business of paddy procurement u/s.80P(2)(a)(iii) of the Act. However, as observed by us while disposing off the appeals in ITA Nos.114/RPR/2016 & Ors (supra), the claim of deduction of the assessee society would be limited to the extent it had facilitated the marketing of the agricultural produce of its members. We, though concur with the claim of the Ld. AR that the assessee society is entitled for deduction of its income from paddy procurement business u/s.80P(2)(a)(iii), but restore the matter to the file of the A.O for the limited purpose of restricting the said claim of deduction to the extent of the profit relatable to the marketing of the agricultural produce of the members of the assessee society. In the course of the set-aside proceedings the AO shall re-adjudicate 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 its members, and thus, restrict it's claim for deduction u/s. 80P(2)(a)(iii) only to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve given a thoughtful consideration to the aforesaid issue in the backdrop of the contentions advanced by the ld. Authorised Representatives of both the parties. As stated by the ld. AR, and rightly so, the Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. ITO, Ward-1(3), Raipur in ITA No.114/RPR/2016 & Ors., vide its order dated 23.02.2022 had after necessary deliberations on the issue in hand remanded the matter to the file of the A.O, with a specific direction i.e, to restrict its claim for deduction as regards its profit from PDS only to the extent of its net profit i.e., after considering the proportionate expenses, observing as under : "19. Before us, it is the claim of the assessee that as the profit from PDS activities after considering the proportionate expenses amounted to Rs.3,08,338/-, therefore, its claim for deduction u/s.80P(2)(c)(i) of the Act was liable to be restricted only to the said extent. After having given a thoughtful consideration to the claim of the Ld. AR, we though principally concur with his aforesaid claim, but then, the same cannot be accepted on the very face of it and would require factual verification. Therefore, for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tive society on the shares of a co-operative bank held by it would be eligible for deduction under Sec. 80P(2)(d) of the Act. It was observed by the Tribunal as under: "22. After having given a thoughtful consideration to the aforesaid issue in hand, we are unable to concur with the view taken by the lower authorities. In our considered view, as a Co-operative bank falls within the realm of the definition of "Co-operative Society" as contemplated in Section 2(19) of the Act, therefore, the view taken by the lower authorities that dividend income received by the assessee from Jila Sahakari Kendriya Bank, Raipur, i.e a Cooperative Bank, would not eligible for deduction u/s. 80P(2)(d) of the Act cannot be sustained. Our aforesaid view is fortified by 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 (wherein one of us, i.e, the JM was a party), had after exhaustive deliberations held as under: "6. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial....
X X X X Extracts X X X X
X X X X Extracts X X X X
..................................................... (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;" On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other co-operative society shall be deducted in computing its total income. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other co-operative society. We are in agreement with the view taken by the Pr. CIT, that with the insertion of sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. However, at the same time, we are unable to subscribe to his view that the aforesaid amendment w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tagars 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), had held, that the interest income earned by the assessee on its investments with a cooperative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the cooperative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Insofar the reliance placed by the Pr. CIT on the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) is concerned, we are of the considered view that the same being distinguishable on facts had wrongly been relied upon by him. The adjudication by the Hon‟ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a cooperative society towards deduction under Sec. 80P(2)(d) on the interest income on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ribunal in the case of Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum). Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we "set aside‟ his order and restore the order passed by the A.O under Sec. 143(3), date 14.09.2016. 10. Resultantly, the appeal filed by the assessee is allowed." Backed by our aforesaid observations, we not being able to persuade ourselves to subscribe to the view taken by the lower authorities, therein vacate the disallowance of the assessee's claim for deduction of Rs.1,16,224/- u/s. 80P(2)(d) of the Act. The Ground of appeal No.4 is allowed in terms of the aforesaid observations." We find that as stated by the Ld. AR, and rightly so, as the aforesaid issue in hand i.e, entitlement of a co-operative society for claim of deduction under Sec. 80P(2)(d) qua the dividend received on shares of a co-operative bank is squarely covered by the aforesaid decision of the Tribunal in ITA No.114/RPR/2016 & Ors (supra), d....