TaxTMI 
TaxTMI 
2025 (8) TMI 1788
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....sp;32,79,394/-, as added to the income and charged as tax as per order should be deleted considering the facts that the expenditure illegal and bad in the eye of law. 3. For that the appellant beg to adduce further ground/ grounds before or at the time of hearing." 3. Brief facts of the case are that the assessee had filed the return of income for AY 2020-21 dated 04.02.2021 showing total income of Rs. 'NIL' after claiming deduction u/s 80P of the Act of Rs.32,79,394/-. The Assessing Officer (hereinafter referred to as Ld. 'AO') disallowed the deduction u/s 80P of the Act and assessed the total income at Rs.32,79,394/-. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT (A) who, vide order dated 05.03.2024 dismissed the appeal of the assessee. Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before this Tribunal. 4. Rival submissions were considered and the details and the paper book filed have been examined. It was pointed out to the Ld. AR that the Ground no. 2 relating to the amount of Rs.32,79,394/- as added to the income and charged as tax as per order, which is requested to be deleted consid....
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.... 80P(2)(a)(i) and the interest derived by depositing surplus funds with bank not being attributable to the business carried on by assessee, could not be deducted under section 80P(2)(a)(i). In the instant case, the assessee-society regularly invested funds not immediately required for business purposes. Interest on such investments, therefore, could not fall within the meaning of the expression' profits and gains of business' as held by Hon'ble Supreme Court in the case of Totgars, Co-operative Sale Society Ltd. vs. Income-tax Officer, Karnataka. The Hon'ble Supreme Court in the case of Totgars, Cooperative Sale Society Ltd. vs. Income-tax Officer, Karnataka [2010] 188 Taxman 282 (SC) held in para 11 as under: "To say that the source of income is not relevant for deciding the applicability of section 80P would not be correct because one needs to give weightage to the words 'the whole of the amount of profits and gains of business' attributable to tope of the activities specified in section 80P(2)(a). The words the whole of the amount of profits and gains of business emphasize that the income in respect of which deduction is sought, must constitute the opera....
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....gation upon assessee to invest its surplus funds with State Bank of India. Investing surplus funds in a bank were 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 provided to its members, which is deductible under section '80P(2)(a)(i) and the interest derived by depositing surplus funds with State Bank of India not being attributable to the business carried on by assessee, could not be deducted under section 80P(2)(a)(i). If assessee wanted to avail of the benefit of deduction of such interest income, it was always open for it to deposit the surplus funds with a co-operative bank and avail of deduction under section 80P(2)(d)." 4.2.4 The deduction u/s 80P(2)(a) is available only to the income which is attributable to the business operation of the assessee co-operative society, i.e., providing credit facilities to its members. Depositing/investing funds in a co-operative bank/commercial bank is not a part of the business of providing credit facilities to its members. Such an interest income is not the 'operational income' of assessee-society from providing credit facili....
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.... an assessee co-operative Society should be out of the investments with any other cooperative society. The words' Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co-operative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act." Thus, the Hon'ble High Court has. held that though a co-operative bank may have the corporate body or skeleton of a co-operative society, its business is entirely different and that is the banking business. In effect, Hon'ble Karnataka High Court ruled that a co-operative bank was an entirely different species than that of a co-operative society. Hon'ble High Court strengthened this argument by pointing out that "the words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80....
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....e character of income, viz. the income from other sources, which is ineligible for deduction under section 80P(2)(d) of the Act. 4.3.4 Further, section 80P was amended by the Finance Act, 2006 with effect from 01.04.2007 introducing sub-section (4) which laid down specifically that: "The provision of section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. Explanation.- For the purposes of this sub-section,- 1. "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949(10 of 1949); 2. "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities." With the insertion of sub-section' 80P(4) which is in the nature of a proviso, as held by Hon'ble Supreme Court in its latest decision in the case of The Mavilayi Service Coop. B....
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....ubballi vs. Totagars Co-operative Sale Society (supra), the amendment of Section 194A(3)(v) of the Act excluding the Co-operative Banks from the definition of "Co-operative Society" by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co-operative Banks are not that species of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. {emphasis supplied} 4.3.8 The Hon'ble ITAT Indore has decided in the case of Jila Sahakari Kendriya Bank Maryadit, Ujjain vs ACIT-1(1), Indore ITA ΝΟ. 375/Ind/2012 dated: 12.02.2013 for A.Y. 2007-08 that: "Now coming to the nature of income for which deduction has been claimed u/s 80P(2) (d), we found that it was FDR interest from Apex Coop. Bank at Rs. 1,47,53,051/-. Interest income on FDR from Apex Bank is not at Par with the interest income received from agriculturists in respect of loan given to the farmers for agriculture purposes. Such FDR interest income is not eligible for deduction u/s 80P(2)(d). ....
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....'ble Supreme Court in the case of Totgars Co-Operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC). The Hon'ble court held as follows: 'The words "the whole of the amount of profits and gains of business" emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the Society. In this particular case, the evidence shows that the assessee-Society earns interest on funds which are not required for business purposes at the given point of time. Therefore, on the facts and circumstances of this case, in our view, such interest income falls in the category of "Other Income" which has been rightly taxed by the Department under Section 56 of the Act.' The appellant has sought to distinguish its case from that of Totgars' on the ground that Totgars Cooperative Sale Society Ltd. was engaged in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing of agricultural produce of its members was retained in many cases and invested in short term deposit. The amount so retained was a liability on it and th....
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....edit facilities to its members, income from investments made in banks does not fall in any of the categories mentioned under section 80P(2)(a) of the Act. In the case of Totgar's Co-operative Sale Society (supra), as rightly submitted 'by the learned counsel for the respondent, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. This is further clear when one peruses the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the ag....
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.... (emphasis supplied) 6.3 The stand taken by the Gujarat High Court was reiterated by the Karnataka High Court in the later decision in the case of the same assessee in the case of PCIT V. Totagars Co-operative Sale Society, [2017] 395 ITR 611 and the Court held as under: "12. The sheet anchor of the contention of the learned counsel for the assessee misses two essential points required for claiming the exemption or 100% deduction from gross total income for a cooperative society: (i) that the character or nature of income, namely interest on investments or deposits, does not change irrespective of the fact whether it is earned or received from a Schedule Bank or Cooperative Bank, (ii) that what the Hon'ble Supreme Court held in the case of the respondent assessee itself, against the assessee, was that such interest income on its surplus and idle funds not immediately required for its business, is not income from business taxable under Section 28 of the Act, but was taxable as income from other sources under Section 56 of the Act, whereas for availing the exemption or 100% deduction under Section 80P of the Act the income is specified in clauses (a) to ....
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....a)(i). 6.5 The next issue is whether the appellant is eligible for deduction u/s 80P(2)(d) on the income received from the Mugberia Central Co-operative Bank Ltd. (MCCBL). In this regard, the Hon'ble Karnataka High Court, in the case of PCIT v/s Totagars Cooperative Sale Society Ltd. [2017] 395 ITR 611 (Kar) has deliberated on the meaning of the term 'cooperative society' as appearing in section 80P(2)(d) and has held as follows: "13. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words Cooperative Banks are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to i....
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....material would clearly indicate that the limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from section 3 read with section 56 is that a primary co-operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, 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 cooperative bank and holds a licence issued in that behalf by the RBI. As opposed to this, a primary agricultural credit society is a cooperative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities" The ratio decidendi of the aforesaid decis....
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....) dated 16.10.2023 was filed. However, no computation in this regard was filed. Our attention was drawn to Certificate Of Registration at page 46 of the paper book which also contains the amendment of bye laws of the Society in which the documents have been registered on 19.12.1927. Our attention was also drawn to the decision of the Hon'ble Gujarat High Court in the case of Principal Commissioner of Income-tax vs. Ashwinkumar Arban Co Operative Society Ltd. [2024] 168 taxmann.com 314 (Gujarat)[24-09-2024] specifically para 33 thereof. However, in that case the Hon'ble High Court has held that in the facts of the case, the provisions of section 80P(2)(d) of the Act would be applicable and reference was made to para 42 of Mavilayi Service Co-operative Bank that the primary agricultural credit Society concerned is a cooperative society. Therefore, the facts being different, the decision is not applicable to the facts of the case of the assessee. The facts of the other cases relied upon are also different. The assessee contended that the interest income of Rs.32,79,394/- was arising out of the investment with the Apex bank and details of the bank was stated to be mentioned in ....
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....it 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. 401/10.00/16A/2013-14 dated October 18, 2013 that in terms of Section 3 of the Banking Regulation Act, 1949 (AACS), PACS are not entitled for obtaining a banking license. Hence, your society does not come under the purview of Reserve Bank of India. RCS will issue the necessary guidelines in this regard." ..... ..... 45. To sum up, th....
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....that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under: "2. (n) 'Member' means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;"" Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i). 47. Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non-members under section 59(2) and (3), which reads as follows: "59. Restrictions on loans.- (1) A society shall not make a loan to any person or ....
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....ction 80P(2)(d) of the Act which are as under: "80P(2)(d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income". Thus, section 80P(2)(d) states that the income by way of interest or dividends derived from investments with any other co-operative society is eligible for deduction. 12. Further, we have to examine as to whether the Tripura State Cooperative Bank Ltd. is a co-operative bank or merely a co-operative society. The Tripura State Co-operative Bank Ltd. is a Co-operative Bank and there is no dispute. In this connection, we may refer to the definition of Co-operative bank as defined under the Tripura Co-operative Societies Act, 1974 which defines the Co-operative Bank as under: "Co-operative Bank"" means a society registered under this Act and doing the business of banking as defined in clause (b) of sub-section (1) of section 5 of the Banking Regulation Act, 1949. Thus, a Co-operative Bank is a Co-operative society which is doing the business of banking and is distinguishable from a society not doing the busines....
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....1965); ^1[(iii) references to "memorandum of association" or "articles of association" shall be construed as references to bye-laws; (iv) references to the provisions of the Companies Act, 1956 (1 of 1956), except in Part III and Part IIIA, shall be construed as references to the corresponding provisions, if any, of the law under which a cooperative bank is registered; (v) references to "Registrar" or "Registrar of Companies" shall be construed as references to "Central Registrar" or "Registrar of Co-operative Societies", as the case may be, under the law under which a co-operative bank is registered;] (b) in section 2, the words and figures "the Companies Act, 1956 (1 of 1956), and" shall be omitted; (c) in section 5,- 2[(i) after clause (cc), the following clauses shall be inserted namely:- (cci) "co-operative bank" means a state co-operative bank, a central co-operative bank and a primary co-operative bank; (ccii) "co-operative credit society" means a co-operative society, the primary object of which is to provide financial accommodation to its members and includes a co-operative land mortgage bank; ....
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....ty,- (1) the primary object or principal business of which is the transaction of banking business; (2) the paid-up share capital and reserves of which are less than one lakh of rupees; and (3) the bye-laws of which do not permit admission of any other co-operative society as a member: Provided that this sub-clause shall not apply to the admission of a cooperative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose. Explanation.-If any dispute arises as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi), a determination thereof by the Reserve Bank shall be final; (ccvii) "central co-operative bank", 1*** "primary rural credit society" and "state co-operative bank" shall have the meanings respectively assigned to them in the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981);] 2[(ii) clauses (ff), (h) and (nb) shall be omitted;] 16. Thus, both "co-operative bank" as well as "co-operative credit" soc....
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.... to the memorandum to the Finance Act, 2007 which explains the rationale behind amendment in Sections 80P and 36(1) of the Act. In the Memorandum to the FINANCE BILL, 2007 for PROVISIONS RELATING TO DIRECT TAXES, the substance of the main provisions in the Bill relating to direct taxes is explained in the paragraphs following therein. Under the RATIONALISATION AND SIMPLIFICATION MEASURES - Deduction in respect of any provision for bad and doubtful debts to be allowed in the case of co-operative banks under section 36(1)(viia), it is explained as under: Under the existing provisions of clause (viia) of sub-section (1) of section 36, deduction of an amount not exceeding seven and one-half per cent. of the total income (computed before making any deduction under the said clause and Chapter VIA) and an amount not exceeding ten per cent. of the aggregate average advances made by the rural branches of a scheduled bank or a non-scheduled bank computed in the prescribed manner is allowed as deduction in the computation of income of such banks. "Scheduled bank", as defined in the Explanation to clause (viia) of sub-section (1) of the section 36, does not include a co-operative bank....
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....e amendments will take effect, retrospectively, from 1st April, 2007 and will, accordingly apply in relation to the assessment year 2007-2008 and subsequent years. [Clauses 6 and 12 ] 18. Thus, the legislative intention behind the amendments was to bring Cooperative Banks at par with commercial Banks and the provisions of Clause (d) of sub-Section (2) of Section 80P of the Act apply in respect of any income by way of interest or dividend derived by the co-operative Society from its investments with any other Society. Since Co-operative Bank and cooperative Society have been specified at different places in Section 80P of the Act, the reference to co-operative Society in Section 80P(2)(d) of the Act is a reference to the co-operative Society which is not a Co-operative Bank and is not carrying on any banking activity while the reference to Cooperative Bank in sub-Section (4) of Section 80P of the Act is to an entity which is a cooperative Society but is carrying on the business of banking and is governed by the rules and regulations of the RBI. Simultaneous to the insertion of sub-Section (4) to Section 80P of the Act, the Co-operative Banks were treated at par with the oth....