AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (12) TMI 970
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.... 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 interest income earned by the Appellant from investment into other co-operative societies as taxab....
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....tance 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 are from Government Organization. C class members are nominal members and D class members are associated members. Both C and D class members are those w....
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....end 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 amount the CIT(A) neither granted deduction u/s 80P(2)(a)(i) of the Act nor u/s 80P(2)(d) of the Act and confirmed the order of the AO on this issue. The CIT(A) also confirmed the order ....
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....ovisions 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 dividend from cooperative banks of Rs. 24,11,084/-. As per sec. 80P(2)(d) of the Act, if the assessee has received interest/dividends from the cooperative society from its investments with any other cooper....
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....he 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 Bank Ltd., case (supra) this Court observed that a co-operative bank would engage in banking business on obtaining a licence under section 22(1b) of the BR Act, 1949. In the instant case, the appellant herein is ....
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....rily 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 where interest or dividend income is derived by a co-operative society from investments with other co-operative societies, the whole of such income is eligible for deduction, the object of the provision being furtherance of the co-operative movement as a whole. 14.4 In paragraph 4....
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....f 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 from 1-4-1968, however, subsection (4) was reinserted with effect from 1-4-2007, in the present form. Earlier sub-section (4) was omitted with effect from 1-4-1970. Sub-section (4) of section 80P in the present form is in the nature of an exception which states that the provisions of section 80P shall apply in relation to a....
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....herefore, 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 society including a co-operative credit society which is not a co-operative bank does not require a licence to function as such. 15.5 Further, section 2(d) of NABARD Act, 1981 defines central co-operative bank while section 2(u) defines a state co-operative bank to mean the principal cooperative society in a State, the primary object of which is financing of other cooperativ....
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....he 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 any company which transacts the business of banking in India and as already noted banking business is defined in clause (b) of section 5 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. Thus, it is only when a co-operative society is conducting banking business i....
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....f 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 this issue to the Ld.AO 11.2 Respectfully following the above judgment we direct the AO to carry out the necessary verification in the light of the above noted judgements and allow the deduction u/s. 80P(2)(d) on the interest income of Rs. 24,11,084. If the AO finds otherwise, the AO shall follow the judgment of the jurisdictional High Court of Karnataka reported in PCIT vs Totgars Co-operative Sales Society reported in (2....