TaxTMI 
TaxTMI 
2024 (5) TMI 489
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....barring professional commitments of GST & audits 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 tr....
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....erative societies only (not cooperative banks as clarified above) and the 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 Ba....
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....th as ANNEXURE 1. 1.5 From the above table, it can clearly be seen that the appellant has invested funds which are their own funds and not the liability payable to members or any outsiders, which they do not want immediately for the 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 agricultura....
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....sessee-Cooperative Society ......... 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. ..............." Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue." Copy of this decision is enclosed as ANNEXURE 2 herewith. 1.10 The above 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 eli....
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.... cost & expenditure incurred and administrative expenditure incurred towards earning the interest income from co-operative banks & co-operative societies under section 57(iii) while arriving at the income chargeable under the head Income from other sources. At this juncture, the appellant would like to rely on the decision of Hon'ble Karnataka High Court in the case of Totagar's Co-operative Sale Society Ltd cited in 58 Taxmann.com 35 dt. 15th March 2015 in which 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....
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....(2)(a)(i) on the interest income earned on its investments amount made with SBI out of internal fund (Share Capital plus other Funds) of Rs. 5,17,72,069/- constituting its income from the business of providing credit facilities to the members. The Ld.CIT(A) has not accepted the claim of the assessee by relying on the judgment of Hon'ble Karnataka High Court in case of Totgars' Co-operative Sales Society Ltd. 395 ITR 611. The ld. DR also relied on the judgment of Hon'ble Gujarat High Court in case of Katlary 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 indi....
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....ns, which made it ineligible for deduction under Section 80P of the Act, as held by the Hon'ble Supreme Court." 12. Further in the case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. reported in (2022) 140 taxmann.com 602 (Gujarat) the Hon'ble Gujarat High Court has held as under:- 12. It is in light of this limited details furnished during original assessment, the AO while processing return under section 143(1) of the IT act, found interest income of Rs. 87.41 lacs and interest expense of Rs. 54.11 lac acceptable for deductions 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 co....
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....ther societies as are mentioned in the objects. When such a society lends out its monies so that they may be readily available to meet the demands of its depositors if and when they arise, it is a legitimate mode of carrying on its banking business. In case of a credit society like the present one, the business of the society is limited to providing credit to its members and the income that is earned from providing such credit facilities to its members is deductible under section 80P(2)(a)(i) of the Act. However, investing its surplus funds with the State Bank of India is no part of the 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 ....
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....3)(v) of the Income-tax act, it has also excluded the co-operative banks from the definition of "co-operative society" by the Finance act, 2015. The High Court of Karnataka has taken note of this amendment in the case of Totagars Co-op/sale society (supra) thereby holding that the effect of the aforesaid amendment explicitly makes clear intention of legislation that co-operative banks are not specie of genus co-operative society, which would entitled to exemption or deduction under the special provisions of Chapter VI-A in the form of section 80P of the Act. 15. In view of aforesaid settled legal position, 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 inve....