TaxTMI 
TaxTMI 
2024 (3) TMI 1561
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.... contention of assessee that said interest receipt is otherwise eligible for deduction u/s 80P(2)(d) of the Act and (c) not allowing proportionate claim of deduction of Rs. 24,88,833/- u/s 80P(2)(a)(i) on the income assessed by AO at Rs.1,00,66,166/-. 2. The appellant craves to alter, amend and modify any ground of appeal. 3. Necessary cost be awarded to the assessee." 3. Briefly, the facts of the case are that the appellant is engaged in the business of providing credit facilities to its members. The AO stated that the assessee's society has made an investment in Cooperative Bank not in Cooperative Society and earned interest income of Rs. 5,17,43,725/- during scrutiny assessment. The ld. Assessing Officer placed reliance on the judgment of Hon'ble Apex Court in the case of Mavilayi Service Coop. Bank Ltd. & Ors. v. CIT Civil Appeal Nos. 7343-7350 of 2019 dated 12.01.2021 where the Coop. Bank are excluded from the ambit of section 80P of the Act. He reproduced relevant observation of the Apex Court vide para 5.4 of pg. 11 of the assessment order as under: "The section 80P(4) is in the nature of a proviso to the main provision contained in sect....
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..... 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 therefore, to that extent, the interest income was held not to be income attributable to the activity carried out by the society. This view was also taken by the Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. [2015] 55 taxmann.com 447 (Karnataka). However, the interpretation that the SC decision in Totgars case was rendered and would be applicable only ....
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....d 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 agricultural products of its members. This court is, therefore, of the view that the above decision is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall wit....
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....two essential points required for claiming the exemption or 100% deduction from gross total income for a co-operative 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 Co-operative 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 (f) of Subsection (2) of Section 80P of the Act should be its business or operational income. 17. As stated above, it is the character and nature of income which determines its taxability or exemption from taxability. It is needless to say that the provisions relating to exemption and deduction need to be strictly construed and no liberal interpretation or intendment can be i....
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....arned from FDRs with co-operative banks. In this regard, the Hon'ble Karnataka High Court, in the case of PCIT v/s Totagars Co-operative 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 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. 15. The am....
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....on 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 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." The ratio decidendi of the aforesaid decision is that a co-operative bank which is working under a license from the Reserve Bank of India falls within the ....
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....eated as 'income from other sources and is therefore, not eligible for deduction u/s 80P(2)(a)(i). At Para 6.5 he further held that assessee is not eligible for deduction u/s 80P(2)(d) on the interest income earned from FDRs with co-operative banks for which he relied on the decision of Hon'ble Karnataka High Court in case of PCTT v/s Totagars Co-operative Sale Society Ltd. [2017] 395 ITR 611 and the decision of Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. [2021] 123 taxmann.com 161. Further at Para 6.7 he rejected the claim of allowing proportionate claim of deduction of Rs. 24,88,833/- u/s 80P(2)(a)(i) by holding that only expenses directly attributable to the earning of income from other sources can be allowed. Submission :- 1. It is submitted that assessee is a credit cooperative society engaged in the business of providing credit facility to its members. As per the Income & Expenditure A/e it has declared net profit of Rs. 1,00,66,116/- on which deduction u/s 80P(2)(a)(i) was claimed (PB 18). This section provides that where assessee is a cooperative society engaged in providing credit facilities to its members, who....
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....ith some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression "derived from", as, for instance, in s. 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." Therefore, interest earned on investment in FDR with cooperative banks is an operational income attributable to carrying on business of providing credit facility to its members eligible for deduction u/s 80P(2)(a)(i) 3. The lower authorities have observed that interest received from investment in FDR with other cooperative banks is taxable u/s 56 and for this proposition they had relied upon the decision of Hon'ble Supreme Court in case of Totgars Cooperativ....
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....ive Bank or Gramin Bank Ltd. is not allowable deduction u/s 80P(2)(a)(i) of the Act as this entity is not a cooperative society as provided u/s 80P(2)(a)(i) of the Act. The Ld. DR explained that as per clause 22.02 of Circular No. 141/2006 dated 28.12.2006 of the Finance Act, 2006 explanatory notes on provisions relating to Direct Taxes, it has been explained that the co-operative banks are functioning at par with other commercial banks, which do not enjoy the tax benefit. Therefore, section 80P has been amended and a new sub-clause (4) has been inserted to provide that the provisions of the said section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative society agricultural land and rural development bank. Accordingly, the AO has disallowed exemption claimed u/s 80P(2)(d) and 80P(2)(a)(i) of the Act.Also, he relies on the latest judgement of Apex Court in the case of "Kerala State Co-Operative Agricultural & Rural Development Bank Ltd. v. Assessing Officer", [2023] 154 taxmann.com 305 (SC). 7.1 Further the Ld. DR argued that interest earned on FDR is income from investment which not attributable to car....
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.... in the case of co-operative society, being a primary society engaged in supplying milk raised by its members to a federal milk co-operative society, the whole of the amount of profits and gains of such business; (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause(b) [either independently of, or in addition to, all or any of the activities so specified], so much of its profits and gains attributable to such activities as does not exceed [fifteen thousand rupees]; (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; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income; (f) in the case of a co-operative society, not being a housing society or an urban consumers' society, or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, whe....
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....f 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. 10. The Hon'ble Supreme Court has observed that interest on such FDR's investments, cannot fall within the meaning of the expression profits and gains of business and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under section 80P(2)(a)(i) of the Act. Thus, in the light of the principles enunciated by the Supreme Court in Totgar's Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments in FDRs made in banks does not fall within any of the c....
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....ction 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 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." The ratio decidendi of the aforesaid decision is that a co-operative bank which is working under a....
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.... from the expression "attributable" occurring in the phrase "profits and gains attributable to the business of the specified industry (here generation and distribution of electricity),it cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. He contended that 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 and so the appellant society receipts shall cover the interest receipt from FDRs as business receipt and consequential deductions u/s 80P (2)(d) and 80(P) (2)(a)(i). However, the judgement is distinguishable on peculiar facts of the present case. In the present case the appellant society has earned an interest income of Rs. 5,17,43,725/- from FDRs ....