TaxTMI 
TaxTMI 
TaxTMI 
2024 (2) TMI 1612
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....judgment of Karnataka High Court in the case of M/s/Totgars Co-operative Sales Society reported in 83 Taxmann.com 140 for charging interest income as "IFOS" which are distinguishable on facts of the Appellant case: a. the Appellant is a 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 applying the principles laid down by the Supreme Court in the case of Mavilayi Service Cooperative Bank (123 taxman.com 161) wherein: a. Section 80P(4) of the Act is said to be applicable only to co-operative Bank which are co-operative societies engaged in banking business which have a licence in this behalf from the RBI not applicable to the facts and circumstances of the case. b. Interest income earned from-Scheduled Banks & Cooperative banks are also from non-member category and hence cannot be considered for deduction u/s 80P(2)(a) nor u/s 80P(2)(d) which is not applica....
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....ties of the District are functioning with minimum Rs. 1 crore to Rs. 20 crores deposits. Few co-operative societies are failing to maintain liquid assets by giving maximum 87% of their deposits as loans. When the depositors ask for withdrawal of deposits these societies may be unable repay the deposits and face financial crisis. To avoid such situation all the cooperative societies are hereby directed to take necessary action that all co-operative societies shall reserve 3% in cash and 25% of liquid funds and invest in the District Central Co. operative Bank." 3.1 During AY 2017-18, the Assessee has filed its Return of Income on 22.10.2017 declaring Total Income of NIL after claiming deduction of Rs. 2,52,38,729/- u/s 80P of the Act. The Return of Income was processed u/s. 143(1) of the Act. Later, the return was selected under CASS and notice u/s. 143(2) was issued to the Assessee on 10.08.2018. Details have also been called for u/s 142(1) of the Act. The AO completed the assessment making disallowance of the entire claim under section 80P of the Act. The Assessment order was passed by determining total income of the assessee as Rs. 2,52,38,729/- as against NIL total income dec....
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....d status of "Co-operative Bank". v. All the Co-operative Banks are basically co-operative Societies whereas all co-operative societies are not co-operative banks. Hence, interest earned from S.C.D.C.C bank is to be allowed as deduction u/s 80P(2)(d) of the Act. 4.2 The AO completed the assessment making disallowance of the interest income from investments in Co-operative Bank under section 80P(2)(a)(i) r.w.s 80P(2)(d) of the of the Act relying on the decision of Karnataka High Court in the case of PCIT vs. Totgars Co-operative Sale Society reported in (2017) 395 ITR 611 (Kar). The Assessment order was passed by determining total income of the assessee as Rs. 2,52,38,729/- as against NIL total income declared by the Assessee. Aggrieved by the order, an appeal was filed before Commissioner of Income-tax (Appeals). In addition to the submissions made before the learned AO, the Assessee submitted that the observation of the learned AO that the Assessee has invested excess funds in S.C.D.C.C Bank which are not required for its immediate operations is incorrect. As deposits are made as required compulsorily as per the Karnataka Co-operative Societies Act, 1959 hence it is not....
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....S Rules, a co-operative society is required to maintain reserves to meet unforeseen losses and such reserves can be invested in specified securities u/s 58 of KSC Act. We have reproduced the relevant provisions below: 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 there of on its own business, or in the (3) No Co-operative Society whose reserve fund has been separately invested or deposited shall draw upon, pledge or otherwise employ such fund, except with the sanction of the Registrar previously obtained in writing. f. Hence such interest income earned is as per statutory requirement are eligible....
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....tive Bank Ltd. (supra) does not set down the correct law and that the law is as we have put it above. The question, accordingly, is answered in the affirmative and in favour of the assessee. h. Further, reliance is placed on the decision of Commissioner of Income-tax. Nawanshahar Central Co-operative Bank Ltd.[2007] 160 Taxman 48 (SC) on parity of reasoning wherein it was held that: "This Court has consistently held that investments made by a banking concern are part of the business of banking. The income arising from such investments would, therefore, be attributable to the business of bank falling under the head "Profits and gains of business" and thus deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961. This has been so held in Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114 (SC), CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 (SC) and CIT v. Ramanathapuram District Co-operative Central Bank Ltd. [2002] 255 ITR 423 (SC)." i. Based on the above decision, the CBDT vide Circular No. 18/2015, F. No. 279/Misc./140/2015/TTJ dated 02-11-2015 has decided that no appeals shall be filed either by the Department/ Assess....
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....he manner suggested by the learned Solicitor- General, it has used the expression "derived from", as, for instance, in section- 80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.' 8. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn intere....
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.... and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessee in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances o....
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....a primary agricultural credit co-operative society is eligible for deduction u/s 80P(2)(d) of the Act (Ground no. 5). 5. The ld. D.R. strongly relied on the order of ld. CIT(A). 6. We have heard the rival submissions and perused the materials available on record. The Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (supra) had held that the co-operative societies providing credit facilities to its members is entitled to deduction u/s 80P(2)(a)(i) of the Act. The Hon'ble Apex Court after considering the judicial pronouncements on the subject, had stated the term "member" has not been defined under the Income-tax Act. It was, therefore, stated by the Hon'ble Apex Court that the term "member" in the respective State Co-operative Societies Acts under which the societies are registered have to be taken into consideration. The Hon'ble Apex Court held that if nominal / associate member is not prohibited under the said Act, for being taken as a member, the income earned on account of providing credit facilities to such member also qualify for deduction u/s 80P(2)(a)(i) of the Act. It was further held by the Hon'ble Ape....
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....as it is imperative to carry on the business of providing banking or credit facilities to the members. Further, the Appellant has no liability appearing in the balance sheet which is payable to the members. Hence, it is clear that the investments are made out of operational funds and not surplus funds. She submitted that the case law relied on by the learned CIT(A) is M/s Totgars Co-operative Sales Society reported in 322 ITR 283 (SC) which are distinguishable on facts being: ● It is primarily engaged in the business of providing credit facilities to its members and marketing their agricultural produce. ● At the time of marketing the produce, if the amounts are retained and as the funds are not immediately required, the same was deposited and interest is earned. The funds used for investment are out of amount payables to the members retained by them. ● As interest is earned on surplus money deposited with the Bank not immediately required for business purposes, the same was held to be taxed as 'IFOS' u/s 56 of the Act 7.2 She submitted that alike banking business, investments made are attributable to the business of banking as....
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....v. ACIT Circle -6(3)(1) (ITA. 319/Bang/2023) ● Bhavasar Kshtriya Co-operative Credit Society Ltd. vs. ITO/ADIT in ITA Nos. 581 to 583/Bang/2022 ● Patharev Prabhu Co-operative Housing Society Ltd. v. Income-tax Officer [2023] 153 taxmann.com 714 (Mumbai - Trib.) ● Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. v. Principal Commissioner of Income-tax [2023] 152 taxmann.com 548 (Surat-Trib.) ● Gramin Sewa Sahakari Samiti Maryadit v. Income-tax Officer [2022] 138 taxmann.com 476 (Raipur - Trib.) 7.6 Therefore, she submitted that interest income earned from co- operative banks are eligible for deduction u/s 80P(2)(d) of the Act. However, in the recent past with the amendment to 80P(4) of the Act w.e.f 1.04.2007 which has denied the benefit of 80P to co-operative banks other than primary agricultural credit society or a primary co- operative agricultural and rural development bank, the courts have taken a view that deduction of interest income from District/State/ Central Co-operative Banks earned by a co-operative society are not eligible for deduction u/s 80P(2)(d) of the Act as they are not co- operative societies as ....
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....Subject: Clarification regarding admissibility of deduction under section 80P of the Income-tax Act, 1961. ** ** ** 2. In this regard, I have been directed to state that sub-section(4) of section 80P provides that deduction under the said section shall not be allowable to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. For the Purpose of the said sub-section, co-operative bank shall have the meaning assigned to it in part V of the Banking Regulation Act, 1949. 3. In part V of the Banking Regulation Act, "Co-operative Bank" means a State Co-operative bank, a Central Co- operative Bank and a primary Co-operative bank. 4. Thus, if the Delhi Co-op Urban T & C Society Ltd. does not fall within the meaning of "Co-operative Bank" as defined in part V of the Banking Regulation Act, 1949, sub-section(4) of section 80P will not apply in this case. 5. Issued with the approval of Chairman, Central Board of Direct Taxes. " 39. The above material would clearly indicate that the limited object of section 80P(4) is to exclude co-ope....
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....nition referred to above that it becomes a co-operative bank and in such a case, section 22 of the BR Act, 1949 would apply wherein it would require a licence to run a co-operative bank. In other words, if a co- operative society is not conducting the business of banking as defined in clause (b) of section 5 of the BR Act, 1949, it would not be a co-operative bank and not so within the meanings of a state co-operative bank, a central co- operative bank or a primary co-operative bank in terms of section 56(c)(i)(cci). Whereas a co-operative bank is in the nature of a banking company which transacts the business of banking as defined in clause (b) of section 5 of the BR Act, 1949. But if a co-operative society does not transact the business of banking as defined in clause (b) of section 5 of the BR Act, 1949, it would not be a co-operative bank. Then the definitions under the NABARD Act, 1981 would not apply. If a co-operative society is not a co-operative bank, then such an entity would be entitled to deduction but on the other hand, if it is a co-operative bank within the meaning of section 56 of BR Act, 1949 read with the provisions of NABARD Act, 1981 then it would not be entitle....
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....repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. 7.9 Hence, she submitted that the S.C.D.C.C Bank is a co- operative society registered under Karnataka Co-operative Societies Act, 1959 (refer Page 135 of the Paper book 1) and not co-operative Banks carrying on banking business in terms of in clause (c) of section 5 of the BR Act, 1949. This is because the Central Co-operative Banks is established with the primary object of financing of other co- operative societies in that district and not for carrying on banking business with the public. She reproduced the section 2(d) of The National Bank For Agriculture And Rural Development Act, 1981 below: "(d) "central co-operative bank" means the principal co-operative society in a district in a State, the primary object of which is the financing of other co-operative societies in that district: Provided that in addition to such principal society in a district, or where there is no such principal society in a district, the State Government may declare any one or more cooperative societies carrying on the business of financing other co-operative societies in that district to be also or to be a....