TaxTMI 
TaxTMI 
2024 (5) TMI 489
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....its and later intimated that he was not handing appeals before ITAT. Later the assessee was forced to consult new counsel for filing appeal which led to delay of 10 days. It is submitted that the delay is due to sufficient and reasonable cause and requested for condonation of delay. 3. After hearing both the parties, it is observed that there are sufficient reasons for the delay and following the judgment of the Hon'ble Apex Court in the case of Collector, Land Acquisition Vs. MST. Katiji and Others (1987) 167 ITR 471, delay in filing the appeal before the Tribunal is condoned. 4. The sole common issue arising in both the appeals is denial of deduction u/s. 80P(2)(a)(i) of the Act and without prejudice to the same, allowing the proportionate interest paid to the members of the society as well as administrative expenses u/s. 57(iii) of the Act. We first take up AY 2016-17 and the decision shall apply mutatis mutandis for AY 2018-19. 5. The brief facts of the case for AY 2016-17 are that the assessee is registered under Karnataka Co-operative Societies Act, 1959. The case was reopened u/s. 147/148. The assessee requested to treat the return u/s. 139(1) declaring Rs. 2,91,030 a....
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....interest earned from members and non-members respectively. Hence, the relevant grounds of appeal raised in this regard are hereby Partly allowed." 7. Aggrieved from the above order, the assessee filed appeal before the ITAT. 8. The ld. AR reiterated the submissions made before the lower authorities and filed written submissions as under:- 1.0 In respect of denial of 80P(2)(a)(i) deduction, the appellant would like raise the following grounds, 1.1 That the learned CIT(A) has erred on facts and in circumstances of the case and in law by confirming the assessment order passed by the learned Assessing Officer who has held that the interest received by the appellant on deposits with State Bank of India is taxable under the head 'Income from Other Sources' and is not eligible for deduction u/s 80P(2)(a)(i) of the Act. [Ground No. 2.1] 1.2 Without prejudice to the above, that the learned CIT(A) has erred on facts and in circumstances of the case and in law by confirming the disallowance of deduction u/s 80P(2)(a)(i) of The Act on the interest income earned from deposits with State Bank of India as rule 23(2) of the Karnataka Co-operative Societies Rules, 1960 requires co-operative....
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.... purpose of carrying out their business operations of providing credit facility to its members. 1.6 At this juncture, the appellant would like to bring to your kind notice that the provisions of section 80P(2)(a)(i) of The Income Tax Act which states as follows: "Section 80P - Deduction in respect of income of co-operative societies. (2) The sums referred to in sub-section (1) shall be the following, namely :- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce 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, or (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....
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....bove decision has been further followed by Karnataka High Court in the case of Guttigedarara Credit Cooperative Society Ltd. vs ITO, cited in 60 taxmann.com 215 / 234 Taxman 476 / 377 ITR 476 it has been held that "interest on deposits in bank was amount of profits and gains attributable to activity of carrying on business of providing credit facilities to its members by assessee-society, it was liable to be deducted from gross total income under section 80P" (para 10). The copy of this decision has been enclosed as ANNEXURE 3. 1.11 The Co-ordinate bench of this Hon'ble Income Tax Appellate Tribunal, Bengaluru, in appellant's own case for the AY 2009-10, in ITA No. 727(B)/2015 dt. 26.08.2015, has held that the interest earned by the society from deposits with banks is eligible for deduction u/s 80P(2)(a)(i) as the said interest is attributable to the business of providing credit facility to its members. Relevant extracts in para 7 & 8 of the said decision is provided herewith for your ready reference and also copy of the decision is enclosed as ANNEXURE 4 herewith. "7. The learned AR on the other hand, produced copy of the decision of the Co-ordinate Bench of the Bangalore Benc....
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....ch it has been held that eligible deduction towards of cost of earning interest income must be allowed u/s 57. The extract of the relevant para is provided below for ready reference In Totagar's... cited in 58 Taxmann.com 35 in para 12 & 13 are herebelow, '12. It is no doubt true that the appellant did initially claim deduction under Section 80P(2). Upon the pronouncement of the order by the Apex Court, in these appeals referred to supra, the income earned on the interest is declared as "other income" falling under Section 56 of the Income Tax Act. Then the next immediate question that follows is as to whether the entire fund i.e., in deposit with the Bank is taxable or the proportionate expenditure incurred by the appellant requires deduction. It is logical that when the Revenue is permitted to assess and recover taxes from assessee under Section 56 by treating the income earned by interest as income from "other sources", the appellant shall be entitled for proportionate expenditure cost incurred in mobilizing the deposit placed in the Bank/s. What can be taxed is only the net income which the appellant earns after deducting cost and expenditure incurred and administrative e....
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....y Kariyana Merchant Sahkari Sarafi Mandali Ltd. (2022) 140 taxmann.com 602 (Gujarat) dated 04.01.2022. He further submitted that interest received from scheduled bank out of surplus fund should be treated as income from other sources and not eligible for deduction u/s 80P(2)(a)(i) / 80P(2)(d) of the Act. We note from the grounds of appeal that Rule 23(2) of the Karnataka Cooperative Society Rules, 1960 requires co-operative society to use the reserve fund in any scheduled bank as under:- "23. Object and investment of Reserve Fund.-(1) A reserve fund maintained by a Co-operative Society shall belong to the society and is intended to meet unforeseen losses. It shall be indivisible and no member shall have any claim to a share in it. (2) A Co-operative Society shall not invest or deposit its reserve fund except in one or more of the modes mentioned in clauses (a) to (d) of Section 58 of the Act: Provided that the Registrar may, by general or special order, permit any Co-operative Society or any class of Co-operative Societies to invest the reserve fund or a portion thereof on its own business, or in the construction or purchase of buildings or lands required for carrying on the ....
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....s in terms of section 80P(2)(a)(i) of Chapter VI-A the Income-tax act. Now, it is worth to note that the assessee for reasons best known has not truly explained the interest derived from the investment of surplus funds in other cooperative banks, which otherwise falls under the head of "income from other sources" and in no manner can be related to 'attributable to the activities of the society', and therefore, this Court finds that it will in no manner falls under the category to be qualified for deductions under section 80P(2)(a)(i) of the act. 13. Similar issue arose for consideration before the Hon'ble High court of Karnataka (Dharwad Bench) in the case of Pr. CIT v. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140/395 ITR 611. The substantial questions of law which arose for consideration as recorded in Para 1 are reproduced as under : "(I) Whether the assessee, Totagar Co-operative Sale Society, Sirsi, is entitled to 100% deduction under section 80P(2)(d) of the Income-tax Act, 1961 (for short 'the Act') in respect of whole of its income by way of interest earned by it during the relevant Assessment Years from 2007-2008 to 2011-2012 on the d....
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....business of the appellant of providing credit to its members and hence, it cannot be said that the interest income derived from depositing surplus funds with the State Bank of India is profits and gains of business attributable to the activities of the appellant society. The character of the interest is different from the income attributable to the business of the society of providing credit facilities to its members. The interest income derived from investing surplus funds with the State Bank of India must be closely linked with the business of providing credit facilities for it to be held that it is attributable to the business of the assessee. Therefore, the profits and gains can be said to be directly attributable to the business of providing credit facilities to its members if there is a direct and proximate connection between the profits gains and the business of the appellant. In the present case there is no obligation upon the appellant to invest its surplus funds with the State Bank of India. Investing surplus funds in a bank is no part of the business of the assessee of providing credit facilities to its members. Therefore, it is only the interest derived from the credit ....
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.... and having held that the allowance of deduction of the income derived by way of interest from the investment in the form of FDR's with other banks was incorrect, the only question which arises for our consideration is whether wrong claim made by the assessee on which no opinion is formed by the Assessing Officer could be considered valid ground for the Assessing Officer to assume jurisdiction in reopening the case for reassessment proceedings under section 147 of the Income-tax Act?" 12. From the above judgments, it is clear that the interest received on such investments by assessee is not eligible for deduction u/s. 80P(2)(a)(i)/80P(2)(d) on such interest received from State Bank of India (SBI). Since the interest income received on such investments from State Bank of India is not attributable to main business of the appellant, hence needs to be assessed as "income from other sources". The issue regarding the word "attributable" has been discussed elaborately by the Hon'ble Apex Court in the case of M/s Totagar's Co-operative Sales Society (2010) reported in [2010] 188 Taxman 282 (SC) where it is held by the Hon'ble Supreme Court that the deduction u/s 80P is available only ....