TaxTMI 
TaxTMI 
2023 (6) TMI 1026
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....nsolidated order. 3. At the outset, the ld. AR has submitted that the matter pertaining to Royal Credit Co Operative Society Limited in ITA no. 221/JPR/2023 may be taken as a lead case for discussions as the issues involved in the lead case are common and inextricably interlinked or in fact interwoven and the facts and circumstances of other cases are identical except the difference in the amount in other assessment year. The ld. DR did not raise any specific objection against taking that case as a lead case. Therefore, for the purpose of the present discussions, the case of ITA No. 221/JPR/2023 is taken as a lead. Based on the above arguments we have also seen that for both these appeals are similar facts, similar arguments and similar grounds raised, therefore, were heard together these two appeals and are disposed by taking lead case facts, grounds and arguments from the folder in ITA No. 221/JPR/2023 for the assessment year 2018-19 and the order there in passed shall mutatis mutandis apply to the ITA No. 222/JPR/2023. 4. Before moving towards the facts of the case we would like to mention that the assessee has assailed the appeal in ITA No. 221/JPR/2023 on the following g....
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....d operated by members only. The assessee Co-operative Society is registered with the Registrar of Co-operative Society, Rajasthan, Jaipur under Rajasthan State Co-operative Act. The assessee accepts deposits and provide credit facilities solely to its members. The assessee provides secured loans to its members by way of overdraft facility, short term, medium/long term nature out of circulating funds available with it, which are in the form of share capital, recurring deposits, fixed deposits raised from its members. 5.2 After analyzing the particulars of income disclosed by the assessee, it can be seen that the interest amount of Rs. 3,09,71,971/- received from members of the Society for providing various credit facilities were only to be treated as business receipts. The net result after deducting the expenses claimed under various heads of Rs. 3,38,76,883/- from the business receipts of Rs. 3,09,71,971/- would be loss from business of (-) Rs. 29,04,912/-. The interest received on Fixed Deposits with Malavia Urban Cooperative bank Ltd. of Rs. 60,75,056/-, being the nature of receipts from other sources, is to be treated as income from other sources but not income from business ....
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....on that the appellant is not eligible for deduction u/s 80P(2)(d)/80P(2)(a)(i) with respect to the interest income of Rs. 31,70,144/- earned from the deposit of surplus fund in the Co-operative Bank. Accordingly, the ground raised by the appellant stands dismissed. 21. In the result, the appeal is dismissed." 7. As the assessee did not found any favour from the appeal so filed before the ld. CIT(A)/NFAC, preferred this appeal on the various grounds as reproduced here in above. To support grounds so raised by the assessee the ld. AR of the assessee relied upon the following written submissions: "The above appeal has been filed by assessee against the appeal order dated 17-03-2023 passed by Ld. CIT(A), NFAC, Delhi in appeal No. NFAC/2017-18/10039767. The assessee has raised following grounds of appeal: - 1. That on the facts and in the circumstances of the case the Ld. Assessing Officer is wrong, unjust and has erred in law in holding that interest income of Rs. 6075056 earned by the appellant co-operative society on FDR(s) with the Malviya Urban Co-operative bank Ltd is not an income derived by it from its business activities and is in the nature of rec....
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....proceedings is of the opinion that the interest income of Rs. 6075056 earned by the appellant co-operative society on FDR(s) with the Malviya Urban Co-operative bank Ltd is not an income derived by it from its business activities and is in the nature of receipts from other sources. The Ld. Assessing Officer is further opined that interest income of Rs. 6075056 derived by it from FDR(s) with the Malviya Urban Co-operative Bank is in fact income derived from a Co-operative Society within meaning of sec. 80P(2)(d) of the I.T. Act, 1961 by arbitrarily holding that income from co-operative Bank is not exempt in view of expl. To sub-section (4) of sec. 80P. 3. Order of CIT (A) The assessee filed an appeal before CIT (A) NFAC, Delhi. The Ld. CIT(A) confirmed the addition made by the Ld. A.O vide para 19 of his/her impugned order relying on the judgment of the Hon'ble Supreme Court in the case of Totgars Co-operative society Ltd. Vs Income tax officer held that fund not required immediately for business of providing credit facilities and interest earned on such fund would come under the category of 'income from other sources' taxable u/s 56 of the Income-Tax Act, 1961 and....
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....e with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee (2) The sums referred to in sub-section (1) shall be the followings namely: (a) In the case of a cooperative society engaged in (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry 1, or 2[(iii) the marketing1 of agricultural produce1 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, 3[or] 3[(vi) the collective disposal of the labour of its members, or (vii) 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 members,] The whole of the amount of profits and gains of business attributable to any one or m....
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....Vavveru Co-operative Rural Bank Ltd. v. Chief Commissioner of Income-tax (2017) 88 taxmann.com 728, in which case it was held that: Section 80P of the Income-tax Act, 1961 - Deductions - Income of cooperative societies - Assessment years 2010-11, 2013-14 and 2014-15 - Assessee-society was entitled to deduction under section 80P in respect of interest income from fixed deposits with nationalised bank when source of such investment was income derived from activities listed in sub-clauses (i) to (vii) of clause (a) of section 80P(2) [In favour of assessee] If there is a co-operative society, which is carrying on several activities including activities listed in sub-clauses (i) to (vii) of clause (a) of section 80P(2), the benefit under clause (a) will be limited only to the profits and gains of business attributable to any one or more of such activities. If same co-operative society has an income not attributable to any one or more of the activities listed in sub-clauses (i) to (vii) of clause (a), the same may go out of the purview of clause (a), but the co-operative society may claim the benefit of clause (d) or (e) either by investing the income in another coopera....
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....osit of surplus funds and, therefore, income received by a cooperative bank from deposits, whether or not they are made in discharge of a statutory obligation or otherwise, being income from banking business would be eligible for exemption under section 80P. The Hon'ble jurisdictional ITAT, Jaipur bench, Jaipur also in the case of Shiksha Vibhag Karmacharigan Sahakari Samiti Ltd, Kota Vs. ITO Ward 2(3) Kota in IT Appeal No.281& 282/JP 2017 and 87/JP/2018 dated 17.06.2019 and ITO Vs Keshorai Patan Sahkari Sugar Mills, Bundi (ITA No. 418- 419/JP/2017) upheld the same view after considering the judgements of Totagar's Co-operative Sale Society Ltd. The Assessee society also relies on the following judgments: a) DCIT Vs BardoliVibhag Gram Udyog Vikas Co-op Credit Society Ltd., (2019) 102 Taxmann.Com 110, Surat b) The Jawala Cooperative Urban Thrift & Credit Society Limited Vs ACIT (ITA No. 2900-2901/Del/2015) dated 26-04-2018 c) ITO Vs M/s.Chirayinkeezhu Service Co-operative Bank Limited (ITA No. 420/Coch/2018 dated 25-10-2018) As such the interest income from FDRs is correctly declared and assessable under the Income from Busin....
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....te that Explanation begins with the phrase "For the purpose of this sub-section,-. It means that interpretation of the cooperative bank is to be drawn only and only while interpretating subsection (4) of Section 80P and not otherwise. 2.3. Contention of the assessee society are duly supported by as decided in the case of Doaba Co-operative Sugar Mills Ltd (supra), the Punjab & Haryana High Courtas held as under: '5. The contention of Mr. Gupta, learned counsel appearing for the Revenue, is that the Tribunal was wrong in allowing deduction under Section 80P(2) (d) of the Act because it is not established that the assessee had derived the interest by investing all the amount of surplus funds. It is further contended by Mr. Gupta that the assessee has paid interest to Jalandhar Central Co-operative Bank and has also received interest from the said co- operative bank, thereby showing that the assessee has on the aggregate paid interest to the bank and, therefore, no deduction under Section 80P(2)(d) can be allowed. To appreciate this argument, we have to look to the provisions of Section 80P(2)(d) of the Act, For facility of reference, it is reproduced as under: ....
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....vour of the assessee.' [Emphasis supplied] 2.4. It is correctly appraised in para 11.0. of the assessment order that Cooperative bank even though might be registered as a Co-operative Society is not a co-operative society eligible for receiving the benefit of exemption or 100 % deduction under section 80P of the Act, as its Banking business is governed by the provisions of a special law like Banking Regulation Act, 1949. But here in the case of assessee society it is not a co-operative bank but a co-operative society eligible for deduction u/s 80P (2)(a)(i) as well as under sub-section 80P (2) (d) of the Income Tax Act,1961. 2.5. In para 12.0 of the assessment order amendment of section 194A(3) (v) of the Act by Finance Act, 2015 have been enumerated that w.e.f. 01.06.2015 the said section excludes the co-operative bank from the genus category of co-operative society and making it liable to make TDS on the interest paid by it to other person further indicates that the legislative intent is to exclude Co-Operative Banks from the beneficiary category of co-operative society entitled to exemption or 100% deduction of its income u/s 80P of the Act. It is kindly su....
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....anking or providing credit facilities to its members and consequently no deduction is allowable u/s 80P(2)(a)(i) of the Act. Thus, from a perusal of the provisions of u/s 80P(2)(a)(i) and 80P(2)(d) it is clear that the former deals with deduction in respect of profits and gain of business in case of the cooperative society carrying on business of banking or providing credit facilities to its members if the said income is assessable as income from business whereas latter provides for deduction in respect of income by way interest and dividend derived by assessee from its investments with other cooperative society. Thus it is amply clear that a cooperative society can only avail deduction u/s 80P(2)(a)(i) in respect of its income assessable as business income and not as income from other sources if it carries on business of the banking or providing credit facilities to its members and has income assessable under the head business whereas for claiming u/s 80P(2)(d) it must have income of interest and dividend on investments with other Co-operative society may or may not be engaged in the banking for providing credit facilities to its members and the head under which the income is asse....
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.... jurisdictional Hon'ble ITAT Jaipur Bench decision in the case of Shiksha Vibhag Karmacharigan Sahakari Samiti Ltd, Kota Vs. ITO Ward 2(3) Kota in IT Appeal No. 281& 282/JP 2017 and 87/JP/2018 dated 17.06.2019[Copy of order attached], where in the Hon'ble ITAT has reiterated in the concluding para while deciding in favour of the appellant society as under: "The Hon'ble High Court has again considered the decision of Hon'ble Supreme Court in case of Totagars Co-operative Sale Society Ltd. vs. ITO (supra) and held that the interest earned on the deposits of the assessee's own fund made in the banks is eligible for deduction under section 80P(2)(a) being the said income is attributable to the business activity of the assessee. Though there are divergent views on this issue, however, by following the decision of Hon'ble Jurisdictional High Court as well as the decision of this Tribunal, we decide this issue in favour of the assessee and allow the deduction under section 80P/80P(2)(d) in respect of interest earned on deposits made with the banks/cooperative banks. Hence the addition made by the AO on this account for all the three years is deleted." 2.10 The Hon'ble IT....
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....e the Supreme Courtin Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Courtin Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) alongwith other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belongin....
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....aterial before the authorities below to prove that it has invested surplus funds in FDR and earned interest. These funds were available to assessee for utilisation for providing credit facilities to its Members. The interest on FDR have been pledged with the same Bank and O.D. facility have been obtained. The O.D. facility obtained were used for providing credit facilities to its Members. The assessee also filed Certificate that Bombay Mercantile Cooperative Bank Ltd., is a Cooperative Society. The findings of the Tribunal in the case of assessee for A.Y. 2008-2009 have already been reproduced above in which it was held that Bombay Mercantile Cooperative Bank Ltd., have been assessed as a Cooperative Society and its income was allowed to be exempt under section 80P(2)(a)(i) of the I.T. Act by the Mumbai Bench. It was, therefore, held that fixed deposits placed with this Bank falls within the exemption granted by Section 80P(2)(d) of the I.T. Act and assessee was also eligible for deduction under section 80P(2)(a)(i) of the I.T. Act. The order of the Tribunal has become final because Departmental Appeal have been dismissed by the Hon'ble Delhi High Court, though, on tax effect. Thus....
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....ome under Section 80P of the Act. 8.1. In the said decision, the Judgment of Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd., (supra) have been considered by the High Court and it was held that the said decision is confined to facts of that case. The appeal of assessee was allowed. The Ahmedabad Bench of the Tribunal in the case of Arbuda Credit Co-op. Society Ltd., vs. ACIT (supra), followed the Order in the case of same assessee for A.Y. 2008-2009 and decision of the Hon'ble Karnataka High Court above and decided the issue in favour of the assessee and held that assessee is eligible for deduction under section 80P(2)(a)(i) of the I.T. Act for the interest income earned on unutilized idle funds kept for business purposes of the Society being deposited with Banas Bank. The Ld. CIT(A) in the case of the same assessee for A.Y. 2013-2014 vide order dated 15.02.2018 following the order of the Tribunal for A.Y. 2008-2009 allowed the claim of assessee. Therefore, there were no justification for Ld. CIT(A) in not following the order of the Tribunal in the case of same assessee for A.Y. 2008-2009. The Hon'ble Madhya Pradesh High Court in the case of Agra....
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.... "Where assessee, co-operative society, earned interest income on surplus funds invested in deposits with banks and Government securities, since neither said amount of deposit was due to its members nor it was liability to its members, same would qualify for deduction under section 80P(2)(a)(i)". 2.15 In view of the aforesaid various decisions by jurisdictional Hon'ble High Court and Hon'ble ITAT the assessee society is rightly entitled to claim the deduction of interest income of FDRs with Co-operative Bank under Section 80 (2) (d) of the Act. In view of the above facts and settled legal position of law the deduction u/s 80P of the Act, is correctly and legally claimed by assessee society and accordingly allowable as such. It is prayed to your honors to set aside the order of Ld. CIT(A) and addition made in the assessment order may kindly be deleted. Ground No. (4) General ground. The appellant prays accordingly." 8. In this appeal the ld. AR of the assessee submitted compilation of judgment(s), the same is reiterated here in below. S. No. Name of Case Name of Court Date of order Page No. 1 Pr. CIT vs. Gunja Sama....
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....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 Malviya Urban Co-operative Bank Ltd., 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. 10.2 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 an assessee being a co-operative soci....
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....ave 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. Malavia Urban Co-operative Bank Limited (supra) was 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 Totgars Co-operative Sale Society Ltd. (supra), had held, that in a case where the assessee-cooperative society apart from providing credit facilities to its members was also in the business of marketing of agricultural produce grown by its members, and the sale consideration of the agricultural produce due towards its members was the....
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.... 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. v. CIT, 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 expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the bu....
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....s 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 instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore, they had deposited the money in a bank so as to earn interest. The sai....
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....ng credit to their own members only and the Banks providing banking services including the credit to the public at large also.There are concurrent findings recorded by CITA, ITAT and the High Court that the respondent/Assessee cannot be termed as Banks/Cooperative Banks and that being a credit society, they are entitled to exemption under Section 80(P)(2) of the Income Tax Act. Such finding of fact is not required to be interfered with by this Court in exercise of powers under Article 136 of the Constitution of India. Even otherwise, on merits also and taking into consideration the CBDT Circulars and even the definition of Bank under the Banking Regulation Act, the respondent/Assessee cannot be said to be Co-operative Bank/Bank and, therefore, Section 80(P)(4) shall not be applicable and that the respondent/Assessee shall be entitled to exemption/benefit under Section 80(P)(2) of the Income Tax Act. In view of the above and for the reasons stated hereinabove, the present appeal deserves to be dismissed and is accordingly dismissed, answering the question against the Revenue and in favour of the Assessee. 10.5 In the backdrop of the aforesaid discussion and judicial deci....