TaxTMI 
TaxTMI 
2023 (1) TMI 764
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....d indeed carried out detailed inquiries before 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 ....
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....ee is a co-operative credit society engaged in the business of providing credit facilities 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 asse....
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....f co-operative societies. 80P. (1) Where, in the case of an assesses 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 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 ....
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....f commodities, the whole of such income; (i) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does 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 inco....
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....e liquid fund as mentioned in clause 52 of the byelaws of the society i.e. 20% to 30% (approx.} of the deposits accepted by the assessee society. That's why assessee society submitted that it had invested in co-operative banks in manner mentioned in the section 70 of The Maharashtra Co-Operative Society Act, 1960 and clause 52 of the byelaws of the society, the copy of the section 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 so....
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....80P (2)(d) of the Income Tax Act, 1961. In view of the elaborate discussion made above it is clear that the interest income earned by the assessee society amounting to Rs. 1,07, 27,570/- on its investment with co-operative banks not being co-operative societies is not eligible for deduction u/s 80P (2) (a) and 80P (2) (d) of the Income Tax Act, 1961 and is required to be treated as Income from Other Sources and taxed accordingly. 1. 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 ....
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....by the Assessing Officer is unsustainable, the assessment order passed by the Assessing Officer is liable for revision u/s 263 of the Act. 7. As per the Balance Sheet, assessee has received deposits from members of Rs. 38.87 Cr, Share Capital Rs. 2.42 Cr, Reserve Fund Rs. 5.41 Cr and provisions including interest payable to members of Rs. 2.76 Cr.. Against the same, the assessee has advanced Rs. 30.59 Cr. only to its members. Thus, around Rs. 18.87 Cr. have not been utilized for the activity of lending to 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....
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.... As mentioned in Para 7, the assessee received deposits from members of Rs, 38.87 Cr, Share Capital Rs. 2.42 Cr, Reserve Fund Rs. 5.41 Cr and provisions including interest payable to members of Rs. 2.76 Cr.. Against the same, the assessee has advanced Rs. 30.59 Cr. only to its members. Thus, around Rs. 18.87 Cr. have not been utilized for the activity. Loans/Advances/Deposits received from members by the society including paid up capital, reserve fund & interest payable to assessee 49.46 Cr. Loans/Advances given to members by the society 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 ou....
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.... CIT, that the A.O while framing the assessment had allowed the aforesaid claim of deduction raised by the assessee. Observing, that as co-operative banks were commercial banks and not a co-operative society, therefore, the Pr.CIT was of the view that the assessee was not eligible for claim of deduction under Sec.80P(2)(d). In the backdrop of his aforesaid conviction, the Pr. CIT was of the view that the assessment order passed by the A.O under Sec.143(3), dated 07.03.2016, therein allowing the assesses claim for deduction under Sec. 80P(2)(d), had therein rendered his order as erroneous, insofar it was prejudicial to the interest 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 t....
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.... Per contra, the ld. Departmental Representative (for short "D.R") relied on the order passed by the Pr. CIT under Sec.263 of the Act. It was submitted by the ld. D.R, that as the assessee was not eligible for claim of deduction under Sec.80P on the interest income received on the investments/deposits lying with the co-operative banks, therefore, the Pr. CIT finding the assessment order passed by the A.O under Sec.143(3), dated 07.03.2016 as erroneous, insofar it was prejudicial to the interest of the revenue, had rightly "set aside" his assessment with a direction to re-adjudicate the issue therein involved. Our attention was also drawn by the ld. 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 investme....
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....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) to Sec. 80P of the Act, 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 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 b....
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.... 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 co-operative 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. Although, in all fairness, we may herein observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), as had been relied upon by the ld. D.R before us, had held, that a co-operative society would not be entitled to claim deduction under Sec. 80P(2)(d); but then, the Hon'ble High Court 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), 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 ....