AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (1) TMI 764
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....accepting assessee's section 80P deduction in issue, and therefore, the impugned revision proceedings u/s.263 need to be vacated. 4. The Revenue has drawn strong support from the Pr.CIT's detailed revision discussion reading as follows : "2. On examination of assessment records, It is seen that the assesses has made investments with Co-operative Banks. Further, it is seen that the assesses has earned interest income of Rs. 1,07,27,570/- on this investment. As this interest income earned by the assessee society from its investments with the co-operative banks do not constitute operational income or business income of the assessee society it should be taxed under the head "Income from Other Sources". What is allowed to be eligible for deduction u/s 80P(2)(a) is the "business income" which arises from the assessee's business of banking or providing credit facilities to its members, wherein the principle of mutuality is fulfilled. The interest income from investment earned by the assessee society is out of its surplus funds, not immediately required for its business, and that which is parked as "investment". Thus, the interest income earned by the assessee society from its investmen....
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....to its members and on perusal of case it is notice that the assessment order passed by the Assessing Officer Ward -ITO 13(4) Pune under section 143(3) of the Income Tax Act, 1961 for A.Y. 2017-18 appears to be erroneous in so far as it is prejudicial to the interest of Revenue for the following reasons- 1. It is seen that assessee has made investments with Co-operative banks. Further it is seen that the assessee has earned interest income of Rs.1,07,27,570/- on this investment with Co-operative banks do not constitute operational income or business income of the assessee society it should be taxed under the head income from other sources. What is allowed to be eligible for deduction u/s 80P (2) (a) is the business income which arise from the assessee's business of banking or providing credit facility to its members, where in the principal of mutuality is fulfilled. The interest income from investment earned by the assessee society is out of its surplus funds, not immediately required for its business, and that which is parked as investment. Thus the interest income earned by the assessee society from its investments with other co- operative banks, not being operational income, do....
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....o in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assesses. (2) The sums referred to in sub-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) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vi) 'fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its the whole of the amount of profits and gains of business attributable to any one or more of such activities: Provided....
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....not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22. Explanation- For the purposes of this section, an "urban consumers' cooperative society" means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment. A) For explanation purpose assessee society reproduce Para 3.1 of the notice as below- Para 3.1 - It is seen that assessee has made investments with Co-operative banks. Further it is seen that the assessee has earned interest income of Rs. 1,07,27,570/- on this investment with Co-operative banks do not constitute operational income or business income of the assessee society it should be taxed under the head income from other sources. What is allowed to be eligible for deduction u/s 80P (2) (a) is the business income which arise from the assessee's business of banking or providing credit facility to its members, where in the principal of mutuality is fulfilled. The interest income from investment earned by the assessee society is out of its surplus fun....
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....on 70 of the MCS,Act,1960 is attached in vide annexure-3 for your kind reference 3). The 1TAT, Pune Bench in the case of Mahavir Nagari Sahakari Pathsanstha Co Op Society Limited Vs. DCIT(2002) 74 TJ 793(Pune) held that credit society is carrying on business of banking and providing credit facility to its members is eligible for deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961. In said decision in para 29 Hon'ble IT AT has termed the credit society i.e. Patsanstha as banking concern. 4) In regards to further part of the Para3.1 of the notice assessee society submit that if we look at the Balance Sheet of the assessee as on 31.03.2017 and profit and loss account for the period ended on 31.03.2017 enclosed in annexure -4 for your kind reference, it clearly state that assessee society was engaged in the business of providing credit facility to its members out of loan received from members itself as interest bearing deposits are the operational fund for the society. No any other funds are available with the society. The surplus amount which on account of amount received from its members only which had not been advanced to any of the members was investment in the banks as ....
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....With respect to para 3.2 assessee society submitted that it is a co-operative society registered under The Maharashtra Co-operative Society Act, 1960. 2. As per Section 2(19) of the Co-operative Society Act, 1912 term cooperative society has been defined as under Section 2(19) "Co-Operative Society Means a co- operative society registered under the co - operative Society Act, 1912( 2of 1912) or under any other law for the time being in force in any state for the registration of co- operative society." As per the above definition/term co- operative bank continue to be cooperative society form by birth of itself and due registration under any law for the time being in force in any state. 1. On perusal of section 80P (2)(d), it can be safely be gathered that interest income derived by an assessee co-operative society from its investment held with any other co-operative society shall be deducted in its total income. And Assessee society reliance on that income should be derived from the investment held with other cooperative society (Co-operative Banks) has eligible for deduction u/s 80P (2) (d) of the Income Tax Act, 1961. 2. During the period under assessment proceedings as....
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....o the members by the assessee and have been invested in time deposits with various banks. The Investment made with the bank in the form of FDs/Shares are at Rs. 14.50 Cr. Thus the deposits with Banks are made out of deposits received from the members or the surplus fund available with the society has not been verified. This aspect clearly has not been verified by the AO. The interest income of Rs. Rs. 1,07,27,570/- shown in the Profit & Loss account, has been received by way of interest on investments with banks. Thus, in the assessee's case, a considerable portion of its income is earned by way of interest on deposits made with other nationalized/co-operative banks. As has been held by the Hon'ble Supreme Court in the case of Totgar's Cooperative Sale Society Ltd. Vs. ITO (supra) and also by Hon'ble Karnataka High Court in the case of Pr. Commissioner of Income Tax, Hubali Vs. Totgars Cooperative Sale Society (supra) this act of making deposits out of-the deposits received from members cannot be considered to be attributable to the business of carrying on of the business of providing credit facilities to its members. In view of the aforesaid decisions of the Hon'ble Supreme Court ....
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....ociety 30.59 Cr Excess of Loans/Advances/Deposits from members available with the society 18.87 Cr. It implies that the deposits accepted from the members were not used by the society in its business of providing credit facilities to its members. Instead they are put in to deposits to earn interest. Investments made in FDs with institutions by the society out of Loans/Advances made by members 14.50 Cr. This act of making deposits out of the deposits received from members cannot be considered to be attributable to the business of providing credit facilities to its members. Thus, making deposits to the bank out of the deposits received from Members is not in accordance to the principles of mutuality. 9. In the light of these facts, the Assessment Order dt 30/11/2019 is hereby set aside to the Assessing Officer for proper verification of facts and to re-examine the assessee's claim of deduction under section 80P of the Income-tax Act, 1961. However, before arriving at any conclusion, the Assessing Officer shall give reasonable opportunity to the assessee to adduce the evidence and information with regard to: a. the Source of deposits made with all institutions from which ....
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....rest of the revenue. Accordingly, the Pr.CIT not finding favour with the reply of the assessee, wherein the latter had tried to impress upon him that it was duly eligible for claim of deduction under Sec.80P(2)(d) of the Act, therein "set aside" the order of the A.O with a direction to redecide the issue afresh and reframe the assessment. 4. The assessee being aggrieved with the order of the Pr.CIT has carried the matter in appeal before us. As the present appeal involved a delay of 52 days, therefore, the ld. A.R took us through the reasons leading to the same. It was submitted by the ld. A.R that as the then counsel of the assessee society who was looking after its tax matters, viz. Shr. Ravikiran Pandurang Todkar, Chartered Accountant was taken unwell due to kidney failure and had undergone kidney transplant, therefore, due to his unavailability the appeal could not be filed within the stipulated time period. Our attention was drawn towards the "affidavit" of the assessee society wherein the aforesaid facts were deposed. On the basis of the aforesaid facts, it was submitted by the ld. A.R that the delay involved in filing of the present appeal in all fairness may be condoned. ....
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..... D.R to his written submissions and certain judicial pronouncements in support of his aforesaid contention. 7. We have heard the ld. authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether or not the claim of the assessee for deduction under section 80P(2)(d) in respect of interest income earned from the investments/deposits made with the co-operative banks is in order. In our considered view, the issue involved in the present appeal hinges around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by 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/deposi....
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....ve 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 would jeopardize the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of its interest income on investments/deposits parked with a co-operative bank. In our considered view, as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find that the term "co-operative society" had been defined under Sec. 2(19) of the Act, as under:- "(19) "Co-operative 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 sub-section (4) to Sec. 80P would no more be entitled for claim of deduction....
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....2 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 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. Backed by the aforesaid conflicting judicial pronouncements, we may herein observe, 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 that of the 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 i....