TaxTMI 
TaxTMI 
2025 (9) TMI 1834
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....uction u/s 80P(2)(a)(i) of Rs. 3,00,30,803/-. The case of the assessee was selected for complete scrutiny assessment under the E-assessment Scheme, 2019 on the following issues : (i) Bonus or Commission to Employee; (ii) Investment/Advances/Loans and (iii) Deduction from total income under Chapter VI-A. Accordingly, statutory notice(s) u/s 142(1) of the Act were issued and served upon the assessee seeking information regarding the deduction claimed by the assessee, in response to which the assessee filed its part reply stating that it does not have any other business activity apart from the business of accepting deposits from the members and lending loans to members and that these activities are performed strictly as per the approved Bye-laws of the society. The Ld. Assessing Officer ("AO") noted that during the relevant AY the assessee has earned interest of Rs. 3,04,88,392 from investments in Co-operative and a show cause notice was issued as to why the said interest income claimed as deduction under section 80P(2)(a)(i)/80(P(2)(d) of the Act be not disallowed and added back as income from other sources. The show cause notice issued by the Ld. AO remained uncomplied with. 2.1 ....
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....ed upon. The appellant has raised 7 effective grounds of appeal relating to the addition made by the AO of Rs.3,04,88,392/- treating it as 'Income from Other Sources' invoking provisions of section 80P of the IT Act. The appellant in its submission has sought to withdraw ground of appeal no.6 stating it to be an inadvertently claimed. The ground of appeal no.6 is allowed to be withdrawn. In the remaining grounds of appeal, appellant challenges the action of AO disallowing the deduction claimed by the appellant u/s.80P(2)(a)(i) of Rs. 3,04,88,392/-. Since all are related grounds of appeal same are adjudicated combinedly as under :- (i) The appellant is a Co-operative credit society. The funds of the appellant were deposited in different Co-operative banks and earned interest income of Rs. 3,04,88,392/-. The appellant has claimed deduction u/s 80P on the interest income of Rs.3,04,88,392/- on account of being income in the ordinary course of business. (ii) Prima facie, the contentions of the assessee are misplaced. There is a subtle difference between the income earned from mutual operations, and, the parking of such income with a bank. In this case, the AO ....
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....in the case of this assessee is that the surplus funds with the Co-operative Societies are deposited with Co-operative Banks and interest earned from such Cooperative Banks are claimed as permissible deduction (impliedly u/s 80(P)(2)(d) and specifically under S 80(P)(2)(a) (i) of the IT Act. That Sec 80P(2)(a)(i) of the Act is not applicable for the simple reason that the surplus funds have not been utilized in the ordinary course of business of assessee. It is not the business of the assessee to deposit surplus funds in banks and earn interest thereon. The ordinary course of business is the assessee is to act as primary Agriculture Credit society for its members. When surplus funds are deposited in a NON-MEMBER, like Bank, the privity of mutuality is extinguished. It is akin to earning by transactions with Non-Member. (vi) For a context on the status of a Co-operative Bank (where funds have been deposited), the decision of ld. SC in the Mavilayi Service Co-op Bank case, in para 22 and 23 should be seen (CA No. 7343- 7350 of 2019). Hon. SC has given a mechanism to test as to when a Co-op Society can be called a Cooperative Bank. The relevant extracts are as follows: ....
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....erived from the FDRs from the Cooperative Bank and Nationalized Bank are not admissible for deduction in view of Section 80P(2)(d) of the Act. (emphasis supplied) Para 9-10 (part): Katlary Kariyana 9. We have extensively heard both the learned Counsels appearing for the respective parties and have perused the record, examined relevant provisions as well as a/so carefully gone through the judgments relied upon. 10. Before this Court dwells into the issue on hand, it would be apt to reproduce section 80P of the Income Tax act, 1961, which reads as under: " Section 80P : Deduction in respect of income of co-operative societies 80P (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) in the case of a co-operative society engaged in (i) carrying on the business of....
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.... 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment Year 1995-1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total Income under Section 80P of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT(Appeals) were justified in holding that such interest income was 100 percent deductible under section 80P(2)(d) of the Act?" That while holding the aforesaid issues in favour of the revenue department, the Court followed the decision of the Hon'ble Supreme Court in the case of same assessee which was later on followed by this Court in the case of State Bank of India Vs. CIT, reported in MANU/GJ/1053/2016 : (2016) 389 ITR 578 (Guj), relevant paras are reproduced as under: "16. In case where the co-operative society is a bank, one of its objects would be to carry on the general business of banking. Like other banks, money would be ifs stock-in....
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....posit the surplus funds with a co-operative bank and avail of deduction under section 80P(2)(d) of the Act. 17. Section 71 of the Gujarat Co-operative Societies Act, 1961 permits a society to invest or deposit its fund in the State Bank of India. Therefore, while investment in the State Bank of India is permissible under section 71 of that Act, there is no statutory obligation cast upon the appellant to deposit funds as a part of its business. The said provision also permits investment of funds in any co-operative bank or any banking company approved for this purpose by the Registrar on such conditions as the Registrar may from time to time impose. However, insofar as the provisions of the Income Tax Act are concerned, under section 80P(2)(d) thereof, it is only the income by way of interest or dividends derived by a cooperative society from its investments with any other cooperative society which is required to the deducted while computing the total income of the assessee." Thus, following the decision of the Hon'ble Supreme Court in the case of Totagar's Co-operative Sale Society Ltd., (2010) 322 ITR 283(SC) it was held that interest earned from investme....
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.... PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS COOPERATIVE SALE SOCIETY, (2017) 99 CCH 0126 Kar HC(2017) 154 DTR 0025 (Kar), (2017) 297 CTR 0158 (Kar), (2017) 395 ITR 061 1 (Kar) for ready reference: (Totagars 2017) 9. We have heard the learned counsels at length and perused the record and the judgments cited at the Bar 10. Admittedly and undoubtedly, the respondent assessee is a Co-operative Society engaged mainly in the activity of marketing of agricultural produces grown by its members. The assessee co-operative society also accepts deposits from its members and provides credit facility to its members, runs Kirana Stores, rice mills, live stocks, van section, medical shops, Areca-nut trading section, lodging, plying and hiring of goods carriage, etc. 11. The Assessment Years involved in the present batch of appeals are Assessment Years 2007-2008 to 2011-2012. The bone of contention is that the deduction under Section 80P(2) of the Act is now claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act. The reason is that now the investments and deposits after the Supreme Court's de....
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....the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub-section (4) in Section B)P of the Act was to exclude the applicability of Section B)P of the Act altogether to any co-operative bank and to exclude the normal banking business income from such exemption/ deduction category. The words used in Section 80P(4) are significant. They are: "The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society ..... ". The words "in relation to" can include within its ambit and scope even the interest income earned by the respondent- assessee, a co-operative Society from a Co-operative Bank. This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. The depository Kanara District Central Bank Limited in the present case is admittedly not such a primary agricultural credit society. 15. The amendment of Section 194A(3)....
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....ecome ineligible for deduction under Section 80P(2) of the Act. The case in Udaipur Sahakari Upbhokta Thok Bhandar Ltd. (supra) was that of Section 80P(2)(e) of the Act, whereas in the present case, it is under section 80P(2)(d) of the Act. Hence, the income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a cooperative bank and thus, clause (d) of Section 80P(2) of the Act would not apply in the facts and circumstances of the present case. The person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible for deduction under Section 80P of the Act, as held by the Hon'ble Supreme Court. Conclusion: Deduction u/s 80P(2)(d)-Deduction in respect of income of co-operative societies-Interest income-Eligibility for deduction-Lower authorities held that, assessee-Co-operative Society was genus term and co-operative Bank was also specie of Co-operative Society and since, clause 80P(2)(d) of Act permi....
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....f the Income Tax Act, 1961 (hereinafter referred to as "the Act" for the sake of convenience). The High Courts in the impugned judgments have uniformly held that the interest earned on the bank deposits made by the clubs is liable to be taxed in the hands of the clubs and that the principle of mutuality would not apply. Para 30-35: Secundrabad Club 30. We have considered the arguments advanced at the Bar on behalf of the respective parties; and considered the nuances of the principle of mutuality in the context of the applicability of the said principle with regard to the interest income earned on fixed deposits made in banks/financial institutions by the appellant Clubs, in the backdrop of the dictum of this Court in the case of Bangalore Club. 31. While considering the triple test for applying the principle of mutuality, we find that in the case of Bangalore Club, the aforesaid triple test was applied. It was reiterated that the principle of mutuality envisages: (i) Complete identity between the contributors and participators; (ii) Action of the participators and contributors must be in furtherance of the mandate of the associations or....
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....mbers of the clubs, the fact remains that when the fixed deposits were made by the clubs in the banks, they were exposed to transactions with third parties, i.e., between the banks and its customers and this would snap the principle of mutuality breaching the triple test. When the reasoning of this Court in Bangalore Club is considered in light of the judgments of overseas jurisdictions, it is noted that this proposition would squarely apply even to fixed deposits made in banks which are members of the clubs. In other words, it is only profit generated from the payments made by the members of the clubs, which would not be taxable. This was also the reasoning in the case of Royal Western India Club (supra), wherein it was observed that where services are rendered by the club to both members and non-members, the dealings of the Club with non-members is in the ordinary course of the business carried on with a view to earn the profits, as in any other commercial concern and hence, subjected to tax. This is on the principle that complete identity between the contributors and the recipients is absent. 34. The question asked therefore is - at what point does the relationship of m....
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....n of such interest earned from general public to the appellant assessee. As such, the amount of interest income is not generated on account of transactions by and within the members of Cooperative Society - the present appellant instead from non-member co-operative banks. Since the income is not earned by applying privity of mutuality, it is outside the purview of deduction u/s 80P of the IT Act, from both 80P(2)(a)(i) as well as 80P(2)(d). This amount of Rs.3,04,88,392/- cannot be permitted as deduction. The action of AO is upheld and the grounds of appeal nos. 1 to 5 &7 are dismissed." 4. Aggrieved, the assessee is in appeal before the Tribunal raising the following grounds of appeal :- "1. On the facts and circumstances of the case and in law, the honourable CIT (A) erred in confirming the addition made by the Learned AO of Rs 3,04,88,392/- without appreciating the facts of the case in proper perspective. The appellant hereby prays that the addition of Rs 3,04,88,392/- may please be deleted. 2. On the facts and circumstances of the case and in law, the honourable CIT (A) erred in confirming the addition made by the Learned AO of Rs 3,04,88,392/- being intere....
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....(ITAT Pune) vi. Nivruttisheth Gramin Bigarsheti Sahakan Patsanstha Ltd. Versus ITO (ITA No. 1502/Pun/2018) (ITAT Pune) vii. Talegaon Nagari Sahakan Patsanstha Limited Vs ITO (ITA No. 743/PUN/2024) (ITAT Pune) viii. Kolhapur District Central Co-Op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs ITO (ITA No. 1365/PUN/2023) (ITAT Pune) ix. Annapurna Nagari Sahkari Vs ITO Ward-1 (4), Jalgaon (ITA No. 2471/PUN/2024) (ITAT Pune) x. PCIT Vs Ashwinkumar urban co-operative Society Ltd (Appeal No 538 of 2024) (Gujarat HC) xi. Babanrao Awatade Nagari Bigarsheti Sahakari Patsanstha Maryadit Mangalwedha Vs ITO Pandharpur (ITA No. 647/PUN/2022) (ITAT Pune) xii. Annapurna Nagari Sahkari Pathsanstha Maryadit Yawal Vs ITO, Ward-1(4), Jalgaon (ITA 313/PUN/2025) (ITAT Pune) xiii. Pragati Gramin Bigarsheti Sahakari Patsanstha Maryadit Vs PCIT-4 (ITA No. 303/PUN/2022) (ITAT Pune) xiv. Rena Sahakari Sakhar Karkhana Ltd VS PCIT-2 (ITA No. 1249/PUN/2018) (ITAT Pune) xv. Shri Laxmi Narayan Nagari Vs. ITO Ward 1(3), Kolhapur (ITA No. 604/PN/2014) (ITAT Pune) xvi. Income Tax Commissioner Vs Mahanagar Co-Op....