TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 480
X X X X Extracts X X X X
X X X X Extracts X X X X
....found in the 'Promotions Category' of the emails. The appeal was immediately prepared and filed on 21.2.2023 before the Tribunal causing a delay of 57 days. It is submitted that the delay is unintentional since the assessee was not able to access the mail in the Promotions Category and prayed for condonation of delay. 3. We have heard both the sides on the condonation of delay of 57 days in filing the appeal before the Tribunal. We have considered the explanation of the assessee for the delay and are of the view that there is sufficient and reasonable cause for the delay in filing the appeal. Respectfully following the Hon'ble Apex Court judgment in the case of Collector, Land Acquisition Vs. MST. Katiji and Others (1987) 167 ITR 471, we condone the delay. 4. The brief facts of the case are that the assessee is a cooperative society registered under the provisions of Karnataka State Co-operative Societies Act., in the business of forming, developing and distributing residential sites to its members. The assessee filed its return of income on 24.3.2018 declaring NIL income after claiming deduction under section 80P of the Income Tax Act. for the AY 2017-18. The case was select....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t from co-operative/nationalized banks. He noted that Punjab National Bank and The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. are not co-operative societies, but these are functioning under the Banking Regulation Act, 1949. He observed that co-operative banks carry on the banking business which normally incudes all the activities of a banking business with the public at large, whereas the co-operative societies carry on the business activity of providing credit facility only to its members. Hence he sustained the disallowance made by the AO. Aggrieved by the order of the CIT(Appeals), the assessee is in appeal before the Tribunal. 6. The ld. AR reiterated the submissions made before the lower authorities and submitted the Statement of Facts, the relevant parts of the same are as under:- 12. "The Appellant submits that the above Co-operative Bank is also a part of Co-Operative Society and interest received on deposits made with it qualifies to be "income by way of interest or dividends derived by the co-operative society from its investments with any other cooperative society" as specified in Sec. 80P(2)(d) of Income Tax Act,1961. Hence, the Appellant becomes eli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inary investor; (iii) That interest on such investment is taxable under the head "Income From Other Sources" under Sec. 56 and not under Sec.28; (iv) That the Hon'ble Supreme Court in the case of Totagars, Cooperative Sale Society Ltd reported in [2010] 188 Taxman 282 (SC) has stated that the income in respect of which deduction is sought must constitute the "Operational Income" and not "Other Income". In this case, the assessee earned interest on funds which are not required for business purpose and hence, interest income falls in the category of Sec.56. (v) That the Appellant (Assessee) has shown interest income under the head "Other Sources" under Sec.56, but claimed deduction. 14. It is respectfully submitted that the Learned ITO ignored that the Hon'ble Supreme Court in the above case was considering the deduction under Sec. 80P (2) (a) (i) [and not under Sec. 80P (2) (d)]. The Hon'ble Supreme Court, in that case, held that interest on surplus funds invested in short-term deposits is not the surplus required for "Business Purpose" and such interest is "Income From Other Sources" taxable under Sec. 56 and Sec. 80P (2) (a) (i) refers to about "Business of ban....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar Karkhana Ltd. v. Principal Commissioner of Income-tax reported in [2022] 138 taxmann.com 532 (Pune - Trib.) -ANNEXURE- 12 which states that cooperative bank is part of Cooperative society." 7. In addition, the ld. AR submitted that The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. was initially registered under the Co-operative Societies Act and produced a copy of the Certificate of Registration dated 15.2.1955 and later it was granted licence from RBI to commence and carry on banking business (copy of licence dated 26.12.2011 issued by RBI is placed on record). He accordingly submitted that it was a co-operative society and relied on the decision of the coordinate Bench of the Tribunal in ITA Nos. 581 to 583/Bang/2022 dated 19.10.2022 wherein similar issue was decided by the Tribunal. He also relied on the following judgments:- (i) PCIT v. Totagars Co-operative Sale Society {2017] 78 taxmann.com 169 (Karnataka) (ii) Karnataka State Co-operative Federation Ltd. v. ACIT, [2021] 121 taxmann.com 399 (Bangalore Trib) (iii) Rena Sahakari Sakhar Karkhana Ltd. v. PCIT, [2022] 138 taxmann.com 532 (Pune Trib) 8. On the other hand, the ld. DR supported the orders of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nagar District Co-op. Central Bank Ltd. and Punjab National Bank. It is clear from the facts of the case as observed by the AO that the surplus funds were invested in Fixed Deposits as investments in Co-operative Bank & Nationalised Bank. The ld. AR has relied on the judgment dated 05.01.2017 of the Hon'ble jurisdictional High Court in the case of PCIT v. Totagars Co-operative Sale Society {2017] 78 taxmann.com 169 (Karnataka). However, the Hon'ble jurisdictional High Court in the later judgment dated 16.6.2017 in the case of PCIT v. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka) for AYs 2007-08 to 2011-12 has decided in the issue in favour of the revenue by observing as under for claiming deduction u/s 80P(2)(d) on interest received from Cooperative bank:- 9. We have heard the learned counsels at length and perused the record and the judgments cited at the Bar. 10. Admittedly and undoubtedly, the respondent assessee is a Co-operative Society engaged mainly in the activity of marketing of agricultural produces grown by its members. The assessee co-operative society also accepts deposits from its members and provides credit facility to its members, runs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ay have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation 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. 14. 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-a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter of the income earned by it. The interest income of assessee continues to be not attributable to its business operations even in these subsequent years. 18. The contention of the learned counsel for the assessee that a coordinate bench of this Court dismissed the Revenue's appeals by referring, but not applying the decision of the Hon'ble Supreme Court, we observe with greatest respects that we do not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee in the said order passed by the co-ordinate Bench and therefore, we are unable to follow the same in the face of the binding precedent laid by the Hon'ble Supreme Court. We find in paragraph 8 of the said order passed by a co- ordinate bench that the learned Judges have observed that "the issue whether a co-operative bank is considered to be a co- operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases..............". No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Co-operative Bank is a specie of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emption. Any income derived by the society unconnected with such letting or use of the godown would not fall under clause (e). The High Court was right in coming to the conclusion that the assessee was storing the commodities in question in its godowns as part of its own trading stock and hence, it was not entitled to claim the deduction under Section 80P(2)(e). In this case, the issue price was set off against the sale price which clearly indicated that the netting/difference between the two prices constituted receipt on a commercial basis or net profit. A. Venkata Subbarao v. State of Andhra Pradesh AIR 1965 SC 1773 applied. CIT v. South Arcot District Co-operative Marketing Society Ltd. [1989] 176 ITR 117 (SC) distinguished. Surath Venkar Sahakari Sangh Ltd v. CIT [1971] 79 ITR 722 (Guj) approved. Decision of the Rajsthan High Court in CIT v. Udaipur Shahakari Upbhokta Thok Bhandara Ltd. [2007] 295 ITR 164 Affirmed." 21. The aforesaid decision of the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd. (supra) was followed by a Division Bench of the Gujarat High Court in the case of State Bank of India v. CIT [2016] 389 ITR 578/241 Taxma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts 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." 22. Again, the Division Bench of Punjab and Haryana High Court in still a later decision reported in the same volume of ITR in the case of CIT v. Punjab State Co-operative Agricultural Development Bank Ltd. [2016] 389 ITR 607/76 taxmann.com 307 (Punj. & Har.) concurred with the aforesaid view of the Gujarat High Court, distinguishing the view taken by the Andhra Pradesh High Court and Karnataka High Court, held in the following terms: '30. We are entirely in agreement with the judgment of the Gujarat High Court especially the observation that the judgment of the Supreme Court is not restricted only to the investments made by the assessee from the amounts retained by it which were payable to its members and that the judgment also applies in respect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eipts from sources other than the actual conduct of the business. A co-operative 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 the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under section 80P of the Act. 9. In this context when we look at the judgment of the apex court in the case of Totgar's Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-co-operativ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the business of banking and, therefore, liable to be deducted under section 80P(2)(a)(i) of the Act. At the cost of repetition, we have not considered whether the assessee carries on the business of banking. If it is established upon remand that the assessee carries on the business of banking the result may be different. In any event assuming that the judgment is not distinguishable on this ground, we would with respect disagree with the same in view of the judgments that we have already referred to and on the basis of our interpretation of Totgar's case. In any event, we are with respect unable to agree with the observations that the Supreme Court in Totgar's case (supra) did not lay down any law. 33. For the same reason, the judgment of the Karnataka High Court in Guttigedarara Credit Co-operative Society Ltd. v. ITO [2015] 377 ITR 464 (Karn); [2015] 60 taxmann.com 215 (Karn) is of no assistance to the respondent-assessee.' 23. Thus, the aforesaid judgments supports the view taken by this Court that character of income depends upon the nature of activity for earning that income and though on the face of it, the same may appear to be falling in any of the speci....