TaxTMI 
TaxTMI 
2024 (5) TMI 1514
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee against the Assessment, dated 16/04/2023, passed under Section 143(3) read with Sections 143(3A) & 143(3B) of the Income Tax Act, 1961 [hereinafter referred to as 'the Act']. 3. The Appellant has raised following grounds of appeal: "1. The Hon'ble CIT-(A), NFAC has aggrieved your appellant by confirming the additions made by the learned A.O. for Rs.2,46,43,418/- by disallowing deduction claimed u/s 80P(2)(d) of The Income Tax Act, 1961. 2. The Hon'ble CIT-(A), NFAC has also aggrieved your appellant by agreeing with the learned A.O. of not allowing the deductions of Rs. 1,43,20,990/- claimed u/s 80P(2)(a)(i) of Income Tax Act, 1961 by holding the appellant to be debarred from claiming the said deduction on the account of application of section 80P(4) of the Act, which conclusion is factually and legally erroneous. 3. The Hon'ble CIT-(A), NFAC has aggrieved your appellant by drawing the conclusion that the appellant co-operative society is not entitle for deduction u/s 80P(2)(d) of The Income Tax Act, 1961 in respect of interest earned on the investment made in nationalized and cooperative banks. 4. Hon'ble CIT-(A), NFAC has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith Section 143(3A) and 143(3B) of the Act was passed on 16/04/2021. The Assessing Officer computed the assessed income of the Appellant at INR 3,89,64,408/- disallowing (a) deduction of INR 2,46,43,418/- claimed under Section 80P(2)(d) of the Act; and (b) deduction of INR 1,43,20,990/- under Section 80P(2)(a)(i) of the Act. 5. Being aggrieved, the Assessee preferred appeal before the CIT(A) against the Assessment Order, dated 16/04/2021, challenging the above disallowances. The CIT(A) agreed with the Assessing Officer and vide, order dated 08/11/2023, dismissed the appeal preferred by the Appellant. 6. Being aggrieved, the Appellant has preferred the present appeal against the order passed by the CIT(A) on the grounds reproduced in paragraph 3 above. All the grounds raised by the Appellant are directed against the disallowance of deduction claimed under Section 80P(2)(a)(i) and 80P(2)(d) of the Act and are, therefore, taken up together hereinafter. 7. The Learned Authorised Representative for the Appellant placed reliance on the Written Submission, dated 04/01/2024 and the judicial precedents cited therein. Per Contra, the Learned Departmental Representative supported the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t, 1995. As operations of the assessee began to spread over States outside the State of Andhra Pradesh, the assessee got registered under the Multi-State Cooperative Societies Act, 2002 as well. The question that the Court posed to itself was as to whether the appellant was barred from claiming deduction in view of Section 80P(4) of the Income-tax Act - see paragraph 5. After setting out the findings of fact in that case, and the income tax authorities concurrent holding that the society is carrying on banking business and for all practical purposes acts like a co-operative bank, this Court then held as follows: xx xx 21. An analysis of this judgment would show that the question of law that was reflected in paragraph 5 of the judgment was answered in favour of the assessee. The following propositions may be culled out from the judgment: (I) That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee; (II)That once the assessee is ent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lted and is set aside. 27. However, this does not conclude the issue in the present case. We now turn to the proper interpretation of section 80P of the Income-tax Act. Firstly, the marginal note to section 80P which reads "Deduction in respect of income of co-operative societies" is important, in that it indicates the general "drift" of the provision. This was so held by this Court in K.P. Varghese v. ITO [1981] 7 Taxman 13/131 ITR 597 as follows: "9. This interpretation of sub-section (2) is strongly supported by the marginal note to Section 52 which reads "Consideration for transfer in cases of understatement". It is undoubtedly true that the marginal note to a section cannot be referred to for the purpose of construing the section but it can certainly be relied upon as indicating the drift of the section or, to use the words of Collins, M.R. in Bushel v. Hammond [1904] 2 KB 563 to show what the section is dealing with. It cannot control the interpretation of the words of a section particularly when the language of the section is clear and unambiguous but, being part of the statute, it prima facie furnishes some clue as to the meaning and purpose of the section....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a co-operative society from investments with other co-operative societies, are also entitled to deduct the whole of such income, the object of the provision being furtherance of the co-operative movement as a whole. 36. Coming to the provisions of section 80P(4), it is important to advert to speech of the Finance Minister dated 28-2-2006, which reflects the need for introducing section 80P(4). Shri P. Chidambaram specifically stated: "166. Cooperative Banks, like any other bank, are lending institutions and should pay tax on their profits. Primary Agricultural Credit Societies (PACS) and Primary Cooperative Agricultural and Rural Development Banks (PCARDB) stand on a special footing and will continue to be exempt from tax under section 80P of the Income-tax Act. However, I propose to exclude all other cooperative banks from the scope of that section." 37. Likewise, a Circular dated 28-12-2006, containing explanatory notes on provisions contained in the Finance Act, 2006, is also important, and reads as follows: "Withdrawal of tax benefits available to certain cooperative banks ** ** ** 22.2 The cooperative banks are funct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tment, of deposits of money from the public. Likewise, under section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, 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 RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. 40. As a matter of fact, some primary agricultural credit societies applied for a banking licence to the RBI, as their bye-laws also contain as one of the objects of the Society the carrying on of the business of banking. This was turned down by the RBI in a letter dated 25-10-2013 as follows: "Application for license Please refer to your application dated April 10, 2013 requesting for a banking license. On a scrutiny of the application, we observe that you are registered as a Primary Agricultural Credit Society (PACS). In this connection, we have advised RCS vide letter dated UBD (T) No. 401/10.00/16....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m deduction under Section 80P(2)(a)(i) of the Act being a cooperative society not holding a license issued by Reserve Bank of India and transacting only with its members. 10. Next issue that arises for consideration is whether deduction under 80P(2)(d) of the Act would be available to the Appellant in respect of interest income received from co-operative bank. The contention of the Revenue is that the interest income is in the nature of 'Income from Other Sources' and therefore, deduction under Section 80P(2)(a)(i) of the Act would not be available to the Assessee. It has also been contended by the Revenue that deduction from interest income would not be available under Section 80P(2)(d) of the Act since the same has been received from a co- co-operative bank which is not a co-operative society. In our view, even if for the sake of arguments the first contentions of the Revenue is accepted, the Assessee would still be able to claim deduction under Section 80P(2)(d) of the Act. The judgment of the Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) was rendered in the context of Section 80P(2)(a) of the Act (wherein expressio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are unable to persuade ourselves to be in agreement with the view taken by the lower authorities. Before proceeding further we may herein reproduce the relevant extract of the said statutory provision, viz Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. "80P(2)(d) (1) Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following namely:- (a)......................................................................... (b)......................................................................... (c)........................................................................ (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income" Thus,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....operative society from its investments held with a cooperative bank, would be entitled for claim of deduction under Sec.80P(2)(d) of the Act. 8. We shall now advert to the judicial pronouncements that had been relied upon by the authorized representatives for both the parties and the lower authorities. We find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) for the interest income derived from its investments held with a cooperative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 32 (Mum) (ii) M/s Sea Green Cooperative Housing and Society Ltd. Vs. ITO21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITORange-20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 38....
X X X X Extracts X X X X
X X X X Extracts X X X X
....R on the judgment of the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), the High Court had concluded that a co-operative society would not be entitled to claim of deduction under Section 80P(2)(d). We however find that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom), where there is a conflict between the decisions of non-jurisdictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Thus, taking support from the aforesaid judicial pronouncement of the Hon'ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a co-operative society on its investments held with a co operative bank would be eligible for claim of deduc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 is at....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(3)(v) of the Income-tax act, it has also excluded the cooperative 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." (Emphasis Supplied) 10.3. In view of the above, we hold that the Appellant is entitled to claim deduction under Section 80P(2)(d) of the Act in respect of interest income from co-operative banks amounting to INR 2,46,43,418/-. 11. Accordingly, the order passed by Assessing Officer and CIT(A) is overturned and the Assessing Officer is directed to allow deduction of INR 1,43,20,990/- and INR 2,46,43,418/- as claimed by the Appellant under Section 80P(2)(a)(i) and 80P(2)(d) of the Act, respectively. Thus, Ground No. 1 to 3 raised by the Appellant are allowed while rest of the Grounds raised by the Appellant are dismissed as....