TaxTMI 
TaxTMI 
2023 (12) TMI 970
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.... 3. The learned Commissioner of Income-tax (Appeals) erred in applying the ratio of judgment of Supreme Court in the case of M/s Totgars Cooperative Sales Society reported in 322 ITR 283 (SC) which are distinguishable on facts of the Appellant' case: a. the Appellant is a primary agricultural credit co-operative society and not engaged in marketing of agricultural produce; and b. The Appellant has earned interest from investment of its operational funds used in business of investing and lending to members and not by investing surplus funds in short term deposits. 4. The learned Commissioner of Income-tax (Appeals) erred in not considering the principles laid down by the judgement of the Hon'ble Supreme Court in the case of The Mavilayi Service Cooperative Bank Ltd., & Ors. Vs. Commissioner of Income Tax, Calicut & Anr. [2021] 123 taxmann.com 1 where the primary agricultural credit societies are entitled to the benefit of the deduction contained in section 80P(2)(a)(i) of the Act on interest income earned from lending to members including nominal members. 5. The learned Commissioner of Income-tax (Appeals) erred in considering intere....
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....tice and equity." 3. The brief facts of the case are that the assessee is a primary agricultural cooperative society engaged in the business of acceptance of deposits from members, lending loans to members and providing public distribution services. The assessee filed return of income on 24/10/2017 declaring total nil income after claiming deduction of Rs. 64,97,640/- u/s 80P(2)(a)(i) of the Income-tax Act, 1961. The case was selected for scrutiny under CASS and other statutory notices were issued to the assessee. In response, the ld.AR submitted the details as called for. From the documents submitted by the ld.AR, the AO observed that the assessee has claimed deduction u/s 80P(2)(a)(i) of the Act in respect of the income of cooperative society engaged in carrying on the business of banking and providing credit facilities to its members, which was required to be examined. Accordingly, the AO from the documents submitted by the assessee observed that there are four classes of members viz., A Class, B Class, C Class and D class members. The AO further observed that the A class members who were regular members having voting right and entitled to receive divided and B class members ....
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....ess purpose is require to be taxed under the head 'income from other sources'. He did not allow deduction u/s 80P(2)(d) of the Act on the interest/dividend income received by the assessee of Rs. 24,47,530/- and added back into the total income of the assessee. 4. The AO further noted that from the profit and loss account, the assessee provided the following provisions;- 1. Reserve for NPA Rs. 1,06,167/- 2. Staff Leave Encashment Rs. 1,15,466/- 3. State Govt. Interest Rs.1,96,376/- 4. Central Govt. Interest Rs.17,16,120/- Total Rs.21,34,129/ Since the above provisions are merely provisions and neither expenditure incurred by the assessee nor an ascertained liability, the same is not admissible as allowable expenditure and added back into the income of the assessee. Accordingly, the AO completed the assessment and assessed the total income at Rs. 86,31,769/-. 5. Aggrieved from the above order, the assessee filed appeal before the CIT(A). The CIT(A) after discussing in details and relying on various judgments allowed deduction u/s 80P(2)(a)(i) of the Act of Rs. 40,50,110/- and sustained the amount of Rs. 24,47,530/-. On this....
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....the order of the CIT(A) should be upheld. 10. The ld.DR further submitted that in respect of disallowance of provisions of Rs. 21,34,129/-, it is merely provision but not an expenditures. The provisions are not allowed as per sec.37 of the Act, therefore, he requested that order of the CIT(A) should be upheld. 11. After hearing both sides and perusing the entire material on record and orders of the authorities below, we note that the assessee is primary agricultural cooperative society and has claimed deduction u/s 80P(2)(a)(i) of the Act of Rs. 64,97,640/- to which, the AO has not allowed. Further on appeal, the CIT(A) allowed deduction u/s 80P(2)(a)(i) of Act of Rs. 40,50,110/- and no deduction has been allowed u/s 80P(2)(d) of the Act on the interest/dividend income earned by the assessee on the investments made with the cooperative banks/scheduled banks. Therefore, we have to decide first whether the assessee is eligible for deduction u/s 80P(2)(d) of the Act on the Rs. 24,47,530/-. On going through the statement of facts submitted before the CIT(A), we note that the assessee has received interest/dividend from cooperative societies of Rs. 36,446/- and interest and divide....
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....ABARD Act, 1981. Thus, it is only these three banks which are co-operative banks which require a licence under the BR Act, 1949 to engage in banking business. If any bank does not fall within the nomenclature of the aforesaid three banks as defined under the NABARD Act, 1981, it would not be a co-operative bank within the meaning of section 56 of BR Act, 1949 irrespective of whatever nomenclature it may have or structure it may possess or incorporated under any Act. It was further stated that if a bank has to be a state co-operative bank, there has to be a declaration made by the State Government in terms of section 2(u) of NABARD Act, 1981. Hence, it is necessary to go into the question as to, whether, the appellant herein has been so declared as a state co-operative bank. This question would need not detain us for long as the Kerala High Court in A.P. Varghese case (supra) had categorically stated that the "Kerala State Co-operative Bank" is a "state co-operative bank" as defined under the NABARD Act, 1981. Therefore, the appellant bank has not been declared as a state co-operative bank under the provisions of NABARD Act, 1981. Further, in the case of Mavilayi Service Cooperative....
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.... facilities to its members. (v) Fifthly, the burden is on the assessee to show, by adducing facts, that it is entitled to claim the deduction under section 80P. (vi) Sixthly, the expression "providing credit facilities to its members" does not necessarily mean agricultural credit alone. It was highlighted that the distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be deducted. (vii) Seventhly, under section 80P(1)(c), the co-operative societies must be registered either under Co-operative Societies Act, 1912, or a State Act and may be engaged in activities which may be termed as residuary activities i.e. activities not covered by sub-clauses (a) and (b), either independently of or in addition to those activities, then profits and gains attributable to such activity are also liable to be deducted, but subject to the cap specified in sub-clause (c). (viii) Eighthly, sub-clause (d) states that ....
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....from the point of view of the applicable provisions of law. 15.1 section 80P speaks about deduction in respect of income of co-operative societies from the gross total income referred to in sub-section (2) of the said section. From the said income, there shall be deducted, in accordance with the provisions of section 80P, sums specified in sub-section (2), in computing the total income of the assessee for the purpose of payment of income tax. Sub-section (2) of section 80P enumerates various kinds of co-operative societies. Sub-section (2)(a)(i) states that if a co-operative society is engaged in carrying on the business of banking or providing credit facilities to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities shall be deducted. The sub-section makes a clear distinction between business of banking on the one hand and providing credit facilities to its members by cooperative society on the other. Thus, the definition of banking under section 5(b) of the BR Act must be borne in mind as opposed to providing credit facilities to its members. 15.2 section 80P was inserted to the Act with effect ....
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....e definition of banking company in section 5(c) thereof which means any company which transacts the business of banking in India. "Banking" is defined in section 5(b) of the said Act to mean the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. Therefore, a banking company must transact banking business vis-à-vis the public. Thus, in the first place a co-operative society must be engaged in banking business as defined in section 5(b) of the said Act. For that, section 22 of the BR Act, 1949, speaks about licence to be obtained by a bank to do banking business which is modified as per clause (o) of section 56 thereof which states that no co-operative society shall carry on banking business in India unless it is a co-operative bank and holds a licence issued in that behalf by the Reserve Bank, subject to such conditions, if any, as the Reserve Bank may deem fit to impose. Secondly, a co-operative society must obtain a licence under section 22 of the BR Act, 1949, only if it functions as a co-operative bank and not otherwise. Thus, a co-operative socie....
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....BI Act has to be seen. When the RBI Act is perused, it is noted that clause (i) of section 2 defines "co-operative bank", "co-operative credit society", "director", "primary agricultural credit society", "primary co-operative bank" and "primary credit society" to have the meanings respectively assigned to them in Part V of the BR Act, 1949. Therefore, we have to again fall back on Part V of the BR Act, 1949 which has defined a co-operative bank in section 56 (c)(i)(cci) to be a state co-operative bank, a central co-operative bank and a primary co-operative bank and central co-operative bank and state co-operative bank to have the same meanings as NABARD Act, 1981. 15.8 Since the words 'bank' and 'banking company' are not defined in the NABARD Act, 1981, the definition in sub-clause (i) of clause (a) of section 56 of the BR Act, 1949 has to be relied upon. It states that a co-operative society in the context of a co-operative bank is in relation to or as a banking company. Thus, co-operative bank shall be construed as references to a banking company and when the definition of banking company in clause (c) of section 5 of the BR Act, 1949 is seen, it means an....
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....ety reported in (2017) 392 ITR 74 and Hon'ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, we hold that, the interest income earned by a cooperative society on its investments held with a cooperative bank that do not have licence under section 22 of the Banking Regulation Act 1949, falls outside the definition the term, 'Banking Company" as per section 2(c ) of the Banking Regulations Act, 1949, would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. The Ld.AO is thus directed to carry out necessary verification in respect of the that same to consider the claim of deduction u/s.80 P(2)(d) of the Act. 5.8 It is directed that in the event it is found that the interest is earned by the assessee from such commercial/cooperative banks that fall within the definition of "banking company' as per section 2(c ), Section 5(b) and holds license under section 22 of the Banking regulation Act 1949, such interest are to be considered under the head 'income from other sources' however, relief may be granted as available to the assessee u/s 57 of the Act in accordance with law.With the above directions, we remit th....