TaxTMI 
TaxTMI 
2026 (4) TMI 1181
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....ces of deduction claimed under section 80P of the Act for Rs. 3,16,97,426/- and treating the same as income from other sources. 4. The brief facts are that the assessee is a State level Federal Agri and Rural Development Credit Co-op Society. The assessee was formed as a state-level non-banking co-operative credit society in the year 1929, well before the enactment of the Karnataka Co-operative Societies Act, 1959 ("KCS Act"), the Reserve Bank of India Act, 1934, or the Banking Regulation Act, 1949 (BRA). After the enactment of KCS Act, the assessee came to be registered under KCS Act 1959. 5. The assessee is the state level apex organization whose members are mainly 180 Primary Cooperative Agricultural and Rural Development Bank (PCARD) which are operating at taluk and sub taluka level within the state of Karnataka. The assessee lends money to these PCARD under the various scheme including schemes formulated by the National Bank for Agricultural and Rural Development. In turn, the PCARD lend money to farmers for various purposes such as irrigation, land development, horticulture, plantation and animal husbandry etc. 5.1 Besides above the assessee also lend money to nomina....
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.... is found to be carrying on the business of providing credit facilities to its members. 7.1 The assessee further submitted that the judgment of the Hon'ble Supreme Court in Totgars Co-operative Sale Society Ltd (supra) relied upon by the AO was not applicable to the facts of the present case. In that case, the interest income arose from investment of funds payable to members on sale of agricultural produce was held to be non-operational in nature. In the present case, the incomes under dispute form part of operational income attributable to the business of providing credit facilities and therefore qualify for deduction under section 80P(2)(a)(i) of the Act. 7.2 The assessee submitted that interest on other advances amounting to Rs. 1,77,67,660/- are source from loans and advances to staff and nominal members to whom loan were provided under FD scheme and BO loan scheme. The assessee explained that interest earned from nominal and associate members has already been held by the Tribunal in assessee's own case for AY 2012-13 to be eligible for deduction under section 80P(2)(a)(i) of the Act. 7.3 The assessee further contended that interest on staff loans is also attributable ....
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....unt financed by the assessee ultimately. Accordingly, the assessee claimed the receipt of insurance commission form the part of lending activity and attributable to the business of credit facility to the member. Therefore, the commission income is eligible for deduction under section 80P(2)(a)(i) of the Act. 7.7 Regarding e-stamping commission of Rs. 75,682/-, the assessee submitted that although the Tribunal in earlier years treated such income as income from other sources, it had directed allowance of corresponding expenses. Accordingly, even if e-stamping income is not considered eligible for deduction under section 80P of the Act, expenses attributable thereto must be allowed. 7.8 The assessee further addressed the issue of interest on investments amounting to Rs. 16,59,75,667/- only by submitting that the AO erred in treating the entire amount as income from other sources. The assessee contended that interest earned on deployment of surplus or statutory funds is attributable to the business of providing credit facilities and is eligible for deduction under section 80P(2)(a)(i) of the Act. Reliance was placed on judicial precedents distinguishing Totgars wherein it was he....
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....us between the income claimed for deduction and the eligible activity of providing credit facilities to its members. Mere assertion that the funds were used in furtherance of the assessee's overall objectives was held to be insufficient. 8.2 The learned CIT(A) contented that the assessee failed to furnish a member-wise breakup of interest income or to demonstrate that the interest earned from investments amounting to Rs. 16.59 crores and interest on other advances amounting to Rs. 1.77 crore was directly derived from lending activities to regular class members. It was observed that loans advanced to employees and nominal members, as well as investments of surplus funds, could not automatically be treated as income attributable to the core activity of providing credit facilities to members. Reliance was placed on the decision of the Hon'ble Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO(supra), wherein it was held that interest income earned on surplus funds invested in short- term deposits and securities is assessable as "Income from other sources" and does not qualify for deduction under section 80P(2)(a)(i) of the Act, as such income is not attributable to the....
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.... the order of the co-ordinate Bench of this Tribunal in assessee's own case reported in ITA Nos. 1052 to 1060/Bang/2023. It was submitted that in the earlier ITAT order, the Tribunal has examined the nature of investment income earned by the assessee and has held that the entire income from investments is attributable to the business of the assessee and is eligible for deduction under section 80P(2)(a)(i) of the Act. The learned AR submitted that the Tribunal, in the earlier order, has specifically considered interest income arising from statutory investments as well as non-statutory investments and has held that such income constitutes business income. It was further submitted that the Tribunal has also held that interest income earned from investments in co- operative societies, whether statutory or otherwise, is attributable to the business of the assessee. The learned AR submitted that once the investment income is held to be business income attributable to the eligible activity, the same would, as a natural corollary, qualify for deduction under section 80P(2)(a)(i) of the Act. It was further submitted that the facts and circumstances for the year under consideration are ident....
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....ording to the ld. AR all such incomes are eligible for deduction under section 80P(2)(a)(i) of the Act. 11. On the other hand, the learned Departmental Representative (Ld. DR) relied on the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals). The Ld. DR submitted that the interest income of Rs. 16,59,75,667/- earned from investments cannot be treated as income attributable to the business of providing credit facilities to members and hence is not eligible for deduction under section 80P(2)(a)(i) of the Act. It was contended that such income arises from deployment of surplus funds in deposits and securities and is assessable under the head "Income from Other Sources". The Ld. DR further submitted that the ratio laid down by the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. is squarely applicable, wherein it was held that interest earned on surplus funds invested in short-term deposits is not eligible for deduction under section 80P(2)(a)(i) of the Act. It was argued that this principle applies irrespective of whether the investments are statutory or non-statutory in nature. With regard to the reliance placed on the earlier or....
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.... PCARD Banks - Availing refinance assistance from NABARD subject to the NABARD's refinances norms. - Disbursement of Long-Term agriculture and Allied loans to the farmers through its member's constituent's viz, the PCARD Banks. - Loan and advances to employees. - Loan and advances to nominal/associate members against FD. - Management of recoveries at village levels. - Overall supervision of functioning of the PCARD Banks. 12.3 In the year under consideration the assessee from above discussed broad functions carried has earned gross income of Rs. 177,51,89,009/- which were divided into following heads: 1 Interest on loans through PCARD Rs. 158,31,14,068/- 2 Interest on investment Rs. 16,59,75,667/- 3 Interest on other advances. Rs. 1,77,67,660/- 4 Other income Rs. 83,31,614/- 12.4 By the AO, the incomes other than interest on loan through PCARD, aggregating to Rs. 19,20,74,941/- was considered as not attributable to business of providing credit facility under section 80P(2)(a)(i) of the Act. The AO after providing credit of corresponding proportionate expenses, made an addition of Rs. 3,1....
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.... money due to the members, that was deposited with the Bank, the same was held to be taxed as 'IFOS' u/s 56 of the Act (emphasis drawn from paras 10-11 of the judgment). 17.2 Now coming to the merits of the disallowance made u/s. 80P(2)(d) by the authorities below, the word 'attributable' used in the said Section is of great importance. Hon'ble Supreme Court considered the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute, in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (at page 93) as under:- "As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived fro....
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....m 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 payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such amount retained by the assessee therein 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 Act. On these facts Hon'ble Supreme Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Hon'ble Supreme Court, also clarified that, they are confining the said judgment to the facts of that case. 17.5 In the instant case, there is nothing on record to come to the conclusion that the amount which was invested in banks to earn interest was amount due to its members, and that, it was a liability. In fact this amount which is in the nature of profi....
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....he assessee TMSCC earned interest income on short term deposit with the M/s Allahabad Bank and M/s Axis Bank and the same was included in the profit claimed for the deduction under section 80P(2)(a)(i) of the Act. The learned CIT(A) disallowed the deduction to the extent of aforesaid interest income and coordinate bench of the Tribunal confirmed the disallowances by following the ratio of the Hon'ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. (supra). However, the Hon'ble High Court found that the assessee being cooperative society is only engaged in the business of providing credit facility to the members and other than that it does not engage in any other business. It was observed that the word used in the provision of section 80P of the Act is the profit and gains attributable to the business of providing credit facilities. The Hon'ble High Court referring to the ruling of the Hon'ble Apex Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) held that the word "attributable" is wider term than the word "derived from". It was held that: "A Cooperative Society which is carrying on the business of providing cred....
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....ciety that is assessed to tax under the head of 'Profits and Gains of Business or Profession' is of the whole of the amount of profits and gains of business attributable to any one or more of its activities. Thus, all amounts as can be attributable to the conduct of the specified businesses by a Co-operative Society will be eligible for the deduction envisaged under the statutory provision. The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of i....
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....om marketing agricultural produce of its members was retained in many cases and retained amount which was payable to its members from whom produce was bought, was invested in a short term deposit/security. 12. The facts of the case of the assessee before us is entirely different as the amount which was deposited in the bank was not an amount due to the members and it was not the liability of the society to the members and, therefore, the interest earned from such deposits in the bank should be held to be eligible for deduction under section 80P(2)(a)(i) of the Act. Yet again in Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO [2015] 55 taxmann.com 447/ 230 Taxman 309 (Kar) identical issue was considered and it was held that where Cooperative Society was engaged in the business of providing credit facilities to its members, they deposited excess amount for short term in banks, interest earned was entitled to be deducted under section 80P of the Act. 14.6 From the preceding discussion of the ratio laid down by the Hon'ble High Court of Karnataka, Kerala, and Calcutta, we hold the dispute whether the interest income earned from deposit or investment of surplus/idle....
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.... its territorial jurisdiction. Under Art. 227 it has jurisdiction over all courts and tribunals throughout the territories in relation to which it exercise jurisdiction. It would be anomalous to suggest that a tribunal over which the High Court has superintendence can ignore the law declared by that court and start proceedings in direct violation of it. If a tribunal can do so, all the sub-ordinate courts can equally do so, for there is no specific, provision, just like in the case of Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior tribunal that all the tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer. We, therefor, hold that the law declared by the highest court in the State is binding on authorities or tribunals under its superintendence, and that they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such a proceeding. If that be so,....
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....on can at best have persuasive effect and not the force of binding precedent on the Madras High Court. Referring to the States Reorganisation Act, it was observed that there was nothing in the said Act or any other law which exalts the ratio of those decisions to the status of a binding law nor could the ratio decidendi of those decisions be perpetuated by invoking the doctrine of stare decisis. The doctrine of stare decisis cannot be stretched that far as to make the decision of one High Court a binding precedent for the other. This doctrine is applicable only to different Benches of the same High Court. It is also well-settled that though there is no specific provision making the law declared by the High Court binding on subordinate courts, it is implicit in the power of supervision conferred on a superior Tribunal that the Tribunals subject to its supervision would confirm to the law laid down by it. It is in that view of the matter that the Supreme Court in East India Commercial Co, Ltd. v. Collector of Customs, AIR 1962 SC 1893 (at page 1905) declared : "We, therefore, hold that the law declared by the highest court in the State is binding on authorities or T....
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....e for which it has been established. We therefore hold that, the interest earned by the assessee from loan give to its employees cannot be considered for deduction under section 80P(2)(a)(i) of the Act. It has to be treated as income from other sources. Accordingly, we hold that the interest earned from the credit activities of the assessee to its members including nominal / associate is allowable under section 80P(2)(a)(i) of the act. We also hold that the interest earned by the assessee from loan to its employees are to be treated as Income from other sources, not eligible for deduction under the provisions of Section 80P. 15.2 Hence respectfully following the finding of the Tribunal in own case of the assessee for earlier year, we hold that the assessee is not entitled to deduction under section 80P(2)(a)(i) of the Act on the receipt of interest on staff loan for Rs. 59,24,664/- only. 16. Coming to the issue of interest on loans against the FD, we note that the consistent argument of the assessee is that the loan under this scheme was exclusively extended to the nominal/associate member as well as to the staff. The issue of interest arising from loan to nominal/as....
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....; under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i)." 16.2 Accordingly, respectfully following the above ratio, we allow the claim of the assessee u/s. 80P(2)(a)(i) of the act in respect of the interest earned by the assessee from credit facilities extended to members that includes nominal / associate members. 16.1 Hence, respectfully following the finding of the Tribunal in own case of the assessee for earlier year, we hold that the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act on the receipt of interest on loan against FD to nominal/associate members. However, deduction for interest received from staff on such loan against FD shall not be allowed unless such staff is also a nominal/associate member of the assessee. Considering the fact that interest on loan against FD includes staff as well as member, we hereby restore the issue to the file of the AO. The AO shall verify the necessary details and work out the amount of interest from members or non-members staff and accordingly decide the issue afresh as per law. If any amount of interest on loan against FD is held n....
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....on 80P(2) of the Act to the extent of Rent on building for Rs. 15,57,093/- is directed to be deleted. 18.2 Likewise, we are of the considered opinion that the receipts such as vehicle hire charges from PCARD of Rs. 2,96,000/-, service charges from PCARD for sale of books and form of Rs. 2404, Rent on jewel safe locker of Rs. 15,605, processing fee of Rs. 67,983/-, share fee of Rs. 77,866/- and nominal membership fee of Rs. 51,820/-, are directly linked to the assessee's business of carrying banking business and providing credit facility to the members. Therefore, we hold that the assessee is eligible for deduction under section 80P(2)(a)(i) of the Act on such receipts attributable to the business of the assessee. Hence, the AO is directed to delete the disallowance or addition to that extent. 18.3 Coming to receipt of counter interest on loan for Rs. 4,35,019/- only. The learned AR before us submitted that the impugned receipt represents the amount received at branch/HO from PCARD as final interest computed at the time of discharge of loan. Accordingly, the learned AR claimed that the impugned interest income arising from members. At the outset, we note the AO made disallowan....
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....ture-wise explanation of these receipts to establish that the same are arising from or are attributable to the business of providing credit facilities to the members. In the absence of proper particulars, it is not possible to ascertain whether these receipts have any direct nexus with the core activity of the assessee. The onus is on the assessee to demonstrate that the income qualifies for deduction u/s 80P(2)(a)(i) of the Act. Mere classification of receipts as miscellaneous, without substantiating their nature and nexus with the eligible activity, is not sufficient to claim deduction. In our considered view, such unspecified and unsubstantiated receipts cannot be presumed to be attributable to the business of providing credit facilities. In the absence of any material to establish a proximate nexus, the same cannot be brought within the ambit of section 80P(2)(a)(i) of the Act. Accordingly, we hold that the miscellaneous receipts of Rs. 1,43,307/- are not eligible for deduction u/s 80P(2)(a)(i) of the Act. The orders of the AO and the Ld. CIT(A) on this issue are upheld. However the AO shall provide the deduction of corresponding expenditure as per the provision of the Act. ....
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....ction u/s 80P(2)(a)(i) of the Act. Hence, the orders of the AO and the Ld. CIT(A) on this issue are upheld. 19.4 In view of the above detailed discussion the grounds of appeal raised by the assessee on the issue of disallowances of deduction claimed under section 80P(2)(a)(i) of the Act is partly allowed in favour of the assessee for statistical purposes. 20. The second issue raised by the assessee is related to the disallowance of provision for bad and doubtful debts to the tune of Rs. 1,15,39,244/- and contribution towards welfare fund to the tune of Rs. 3,12,323/- only. 21. The brief facts are that the assessee in the Profit & Loss account debited a sum of Rs. 1,15,39,244/- under the nomenclature of provision of doubtful debts. The AO in the SCN issued to assessee, called upon the assessee to furnish justification for the said expenditure. As no justification was filed before the AO, the AO disallowed the claim of the assessee. 21.1 Likewise, the AO noted that the employee's contribution toward welfare fund contribution fund for Rs. 3,12,323/- was deposited after due date and therefore the same was proposed to bring to tax as per section 36(1)(ii) of the Act. In abse....
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.... wherein it was held that employees' contributions deposited beyond the due date prescribed under the respective welfare statutes are not allowable deduction, even if paid before the due date of filing of return of income. The Ld. CIT(A) held that both the disallowances are in accordance with settled legal position and do not call for any interference. It was further held that the assessee is not entitled to deduction under section 80P(2)(a)(i) on income enhanced due to such disallowances, as the deduction is allowable only on income attributable to eligible business activity and not on income resulting from tax adjustments. Accordingly, the grounds raised by the assessee were dismissed. 25. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 26. The Ld. AR before us submitted that the disallowances made on account of provision for doubtful debts and delayed deposit of employee welfare contributions merely result in enhancement of business income. The Ld. AR further contended that such enhanced income continues to be eligible for deduction under section 80P(2)(a)(i) of the Act. The Ld. AR placed reliance on the decision of the ITAT in Shar....