2024 (5) TMI 1115

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....he case for AY 2017-18 are that the assessee is a co-operative society registered under the Karnataka Souharda Sahakari Act, 1997 and engaged in the business of providing credit facilities only to its member. filed its return of income on 03.11.2017 declaring NIL income after claiming deduction u/s. 80P of Rs. 51,71,711. The case was selected for scrutiny and statutory notices were issued to the assessee. During the assessment proceedings, the AO noted that assessee is not eligible to claim deduction u/s. 80P since it is not a cooperative society and relying on various judgments of coordinate Bench of Tribunal disallowed deduction u/s. 80P on the net profit of Rs. 49,35,990. 5. Aggrieved, the assessee filed appeal before the CIT(Appeals). The CIT(Appeals) after considering the detailed submissions made by the assessee and relying on jurisdictional High Court judgment in the case of Pr.CIT Hubballi vs. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka) 395 ITR 611 and coordinate Bench of Tribunal decision in the case of M/s.Vasavamba Co-operative Society Ltd. (ITA No.453/Bang/2020, order dated 13.08.2021), held that interest income received on investments wi....

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....o-operative Limited (55 taxmann.com 447) has distinguished this aspect from the decision of the Honourable Supreme Court in Totgars Co-operative Sale Society Ltd. (55 taxmann.com 447). The relevant portion of the decision is reproduced below: "In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee- Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its 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 A....

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....o refer to Section 2(b1) of the Karnataka Co-operative Societies Act, 1959 wherein a Co-operative bank has been defined as below; 2(b1) "Co-operative Bank" means a Co-operative Society which is doing the business of banking. Explanation.-For the purpose of this clause "banking" shall have the meaning assigned to it in section 5 of the Banking Regulation Act, 1949 (Central Act 10 of 1949).] From the above, it is clear that a co-operative bank is also a cooperative society and interest earned from a co-operative bank is tantamount to receiving interest from a co-operative society that would qualify for deduction under clause (d) of sec 80(P)(2). Further it is also submitted that the co-operative banks essentially continue to be co-operative societies and while 'cooperative societies' is a genus term, the 'co-operative banks' are species thereto. Therefore, such co- operative banks are essentially cooperative societies notwithstanding their engagement in banking business. Consequently, it is claimed that the investment in cooperative banks are to be treated at par with investment in cooperative societies for the purposes of eligibility of ded....

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....ciety Ltd. reported in (2017) 395 ITR 611 (Karnataka) dated 16.06.2017 which is a later judgement. He also submitted that the status of the payer of interest also should be seen whether it is co-operative bank or co-operative society. He relied on the judgment of Hon'ble Apex Court in case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. (KSCARDB) vs. The Assessing Officer, Trivandrum & Ors. reported in (2023) 154 taxmann.com 305 (Supreme Court). He further submitted that the interest received from Co-operative bank is also not eligible for deduction u/s 80P(2)(d) of the Act because it was received from the co-operative bank which is carrying banking business . 8. Considering the rival submissions, we note that here the issue is that whether the assessee is eligible to claim of deduction u/s. 80P(2)(a)(i) or 80P(2)(d) on the interest income earned on its investments amount made with co-operative banks. 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. (supra) and subsequent decision of ITAT Bangalore including in the case of M/s.Vasavamba....