TaxTMI 
TaxTMI 
2023 (3) TMI 1137
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....e for the deduction as business income u/s 80P(2)(a)(i) of the Act. (ii) That the decision of the Hon'ble Jurisdictional Tribunal in the assessee's own case for the AY 2014- 15 in ITA No.l724/Bang/2019 order dated, 22-11- 2021 was binding on him and therefore, the interest income was eligible for the deduction u/s 80P(2)(a)(i) of the Act. 3. The learned assessing officer erred in charging interest u/s 234A & 234B of the Act. 4. The grounds are taken without prejudice to one another and the Appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon'ble ITAT." 3. The brief facts of the case are that the assessee, a primary agricultural credit society, filed its return of income on 27.10.2017 declaring total income at Rs, Nil after claiming deduction of Rs.25,77,335/- under Section 80 P of the Income Tax Act, 1961 (the Act). The case was selected for scrutiny and statutory notices were issued to the assessee. Its activities are dealing among the members, trading in food grains, sale of fertilizers and providing credit facilities. On perusal of the P&L Account it was observed that the assessee h....
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....nced by him and dismissed the appeal of the assessee. Aggrieved by the order of the learned CIT(A)/NFAC, Delhi assessee filed appeal before the Tribunal. 5. The learned A.R. reiterated the submissions made before the CIT(A)/AO and submitted that the interest received on investments was the interest from the other cooperative society and the fund was invested for maintaining the requirement of Karnataka Co-operative Societies Act Section 57(2) r.w. Rule 22 as well Section 58 r.w.s Rule 23(2). The learned A.R. of the assessee also referred to Section 56 of the Karnataka Co-operative Societies Act and Rule 28. He also referred to the statement of facts submitted before the CIT(A) which is placed in the appeal set. He also referred to pages 92 to 96 in which he has given details on the legal issues according to which he was required to maintain liquidity positions and in page 96 he has given details of the calculations. The learned A.R. further submitted that in assessee's own case in ITA No. 1724/Bang/2019 for AY 2014-15 order dated 22.11.2021 the coordinate bench has decided the case in favour of the assessee. Accordingly he submitted that the case is similar as decided by the coo....
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....credit facilities are entitled to deduction u/s 80P(2)(a)(i) and if there are loans to non-members, only profits attributable to the transactions with the non-members alone is liable to be excluded from the deduction. That is to say that the transactions with non-members per se would not disentitle a co-operative society from claiming the deduction under the section. If the state Act (the Cooperative Law) provides for enrollment of 'nominal members', the loans given to such nominal members would qualify for the purpose of deduction u/s80P(2)(a)(i). (Para 30 to 46 of the Judgment) (iii) Under clause (d) of section 80P(2), the interest or dividend income derived by a cooperative society from investments with other co-operative society is also eligible for the deduction whole of such income. (Para 35 of the Judgment) (iv) The restrictive clause in sub-section (4) of section 80P applies only a co-operative bank and not to cooperative societies or to co-operative societies extending credit facilities to its members. Further, only a bank having obtained the license under the Banking Regulation Act, 1949, shall be covered under the said restrictive clause u/s 80P....
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....ecord and orders of the authorities below I observe that the assessee is a primary agricultural credit society and its income is derived from trading in food grains, fertilizers and providing credit facilities to it members. It has received interest from BDCC bank of Rs.36,55,182/- as noted supra on which it has claimed deduction under Chapter VIA but the AO has denied the claim and the CIT(A) has also confirmed the order of the AO that the assessee is not eligible to claim deduction under Section 80P(2) of the act on interest received from BDCC bank. The learned A.R. has also submitted that the assessee has to maintain an investment as per the requirement of the Karnataka Co-operative Societies Act and therefore it is a business income. I observed during the course of hearing that the learned A.R. relied on assessee's own case for AY 2014-15 order dated 22.11.2021 in ITA No. 1724/Bang/2019. Similar issue was raised by the learned Pr.CIT applying Section 263 of the Act and in the judgement the coordinate bench decided similar issue is assessee's own case. Relevant part of the judgement is as under: - 7. We have heard rival submission and perused the material on record. On ....
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....sources, and therefore not eligible for deduction u/s 80P. The Hon'ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (230 Taxman 309), was dealing with a case where deduction u/s.80P(2)(a)(i) of the Act was claimed on interest from the deposits made in a nationalized bank out of the amounts which was used by the assessee for providing credit facilities to its members. The Assessee claimed that the said interest amount is attributable to the business of providing credit facilities by the assessee and forms part of profits and gains of business. The Hon'ble Karnataka High Court after considering SC judgment in case of Totgars(supra) held that since the word income is qualified by the expression "attributable" to the business of Banking is used in Sec.80P(2)(a)(i) of the Act, it has to receive a wider meaning and should be interpreted as covering receipts from sources other than the actual conduct of business. The Court held a Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or ....
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....ds derived by the co-operative society from its investments with any other co-operative society, the whole of such income. The Hon'ble Court held that that the aforesaid Supreme Court's decision in the case of Totgars (supra), was not applicable to deduction u/s.80P(2)(d) of the Act, because the said decision was rendered with regard to deduction under Section 80P(2)(a)(i) of the Act and not under Section 80P(2)(d) of the Act. 10. However, the Hon'ble Karnataka High Court in the case of PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS COOPERATIVE SALE SOCIETY 395 ITR 0611 (Karn) took a different view and held that interest income earned on deposits whether with any other bank will be in the nature of income from other sources and not income from business and therefore the deduction u/s.80P(2)(d) of the Act cannot be allowed to the Assessee. The Hon'ble Court followed decision of Hon'ble Gujarat High Court in the case of SBI Vs. CIT 389 ITR 578(Guj.) in which the Hon'ble Gujarat High Court dissented from the view taken by the Hon'ble Karnataka High Court in the case of Tumkur Merchants case (supra) The Hon'ble Court had to deal with the following substantia....
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.... Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act. (Paragraph 13 of the Judgment). 2. The banking business, even though run by a Co-operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub-section (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any co-operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in Section 80P(4) are significant. They are: "The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society .....". The words "in relation to" can include within its ambit and scope even the interest income earned by the respondent-assessee, a co-operative Society from a Co-operative Bank. This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) of the Act is suff....
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.... fall under Section 80P(2)(a) of the Act and not under Section 80P(2)(d) of the Act.(Paragraph-18 of the Judgment) 6. The Court finally concluded that it would not make a difference, whether the interest income is earned from investments/deposits made in a Scheduled Bank or in a Co-operative Bank. Therefore, the said decision of the Co-ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon'ble Supreme Court." (Paragraph 19 of the Judgment) 12. The Hon'ble Karantaka High Court in the aforesaid decision also placed reliance on a decision of the Hon'ble Gujarat High Court in the case of STATE BANK OF INDIA (SBI) vs. COMMISSIONER OF INCOME TAX 389 ITR 0578 (Guj) did not agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision of the Supreme Court in Totgars Co-operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of ....
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.... Society in 395 ITR 611 (Karn) is that in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act. 14. The CIT was therefore justified in exercising his powers of revision u/s.263 of the Act and directing the AO to tax interest income in question as it is neither of the nature specified in Sec.80P(2)(a)(i) or 80P(2)(d) of the Act. 15. The argument of the learned counsel for the Assessee has been that the AO has applied his mind and allowed ....
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....ce with section 58 of the Karnataka Cooperative Societies Act, 1959 constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the deduction under section 80-P(2)(a)(i) of the Income Tax Act, 1961 in respect thereof was rightly allowed by the Income Tax Officer. 7. Without prejudice to the above, the learned Principal Commissioner ought to have considered the submissions of the appellant to the effect that the interest received by it amounting to Rs. 1,32,726 from deposits with Mysore & Chamarajanagar District Central Co-operative Bank made in compliance with rule 28 of the Karnataka Co-operative Societies Rules, 1960 constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the appellant was eligible for deduction thereof under section 80-P(2)(a)(i) of the Income Tax Act, 1961." 18. The issue raised by the Assessee in the aforesaid grounds require examination because if there are statutory compulsions that the money should be invested in a particular manner to run business of the Assessee then the interest income arising from ....