TaxTMI 
TaxTMI 
2025 (11) TMI 2066
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....vveru Co-Operative Rural Bank ... vs The Chief Commissioner Of Income Tax, on 15 March, 2017 3. The CIT(A) ought to have allowed deduction US 80P(2)(a)(iii) in respect of commission earned from Andhra Pradesh state Civil supplies corporation limited INR 1,82,15,130. 4. The appellant craves leave to add to, amend, alter, delete all or any of the above grounds of appeal." 2. Succinctly stated, the assessee, which is a primary agricultural co- operative society registered under the A.P. Co-operative Societies Act, 1964, and engaged in marketing agricultural produce of its members and supplying agricultural inputs to them, had filed its return of income for AY 2020-21 on 28.12.2020, declaring an income of Rs. Nil (after claiming deduction of Rs. 1,34,79,069/- under section 80P of the Act). Subsequently, the case of the assessee society was selected for scrutiny assessment for verifying certain issues, viz. (i). the assessee's claim for deduction under Chapter VI-A; and (ii). other income reported in Schedule A-OI, not credited in the profit & loss account. 3. During the course of the assessment proceedings, the AO observed that during the subject year, the "....
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....nt details and payment acknowledgements. Decision: Upon perusal of the assessment records, appellant's submissions, and supporting documents, the following observations are MADE: a) The commission income in question has been received from the Andhra Pradesh State Civil Supplies Corporation Ltd. (APSCSCL), a third-party government agency, as confirmed by the entries in Form 26AS and TDS certificates. b) The services rendered for procurement of paddy, although facilitated through PACS and on behalf of members, ultimately relate to a contractual arrangement with APSCSCL, which is a separate legal entity and not a member of the appellant society. c) The principle of mutuality, which is the basis for exemption under Section 80P, breaks down when income arises from dealings with non-members. The Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. and further in Citizen Co-operative Society Ltd. has held that income earned through transactions with external entities (even when routed through members or cooperative structure) loses the character of mutual income. d) While the appellant has submitted lists....
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.... full income of Rs. 1,82,15,130/- in Schedule A-OI of the return. 5.2.2 In the absence of any reliable contrary evidence, the Assessing Officer was justified in considering Rs. 1,82,15,130/- as income for the relevant year. 5.2.3 This ground is dismissed. The addition based on income reported in Form 26AS stands confirmed. 5.3 Grounds 3 and 4: Interest Income from DCCB - Denial of Deduction under Sections 80P(2)(a)(i) and 80P(2)(d) Appellant's Contention: The appellant has contended that the interest income earned from deposits made with the District Central Co-operative Bank (DCCB) is eligible for deduction under Section 80P(2)(a)(i) or alternatively under Section 80P(2)(d) of the Act. It has been submitted that the DCCB, being a co-operative entity, is akin to a co-operative society and therefore the income derived from investments therein qualifies for deduction. The appellant further argued that the deposits were made out of surplus funds generated from its regular business activities as a co-operative society, and hence the income therefrom should be considered incidental to its primary operations. Reliance was placed o....
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....those made with entities that legally qualify as "co-operative societies." The courts have uniformly held that co-operative banks are a distinct category and are not covered under the term "co-operative society" for the purpose of Section 80P(2)(d). The Hon'ble Karnataka High Court in PCIT v. Totagars Cooperative Sale Society (2017) 83 taxmann.com 140 and the Hon'ble Supreme Court in The Mavilayi Service Co-operative Bank Ltd. v. CIT (2021) 123 taxmann.com 161 have explicitly affirmed that interest income from deposits made with co-operative banks is not eligible for deduction under Section 80P(2)(d). The legal distinction between co-operative banks and co-operative societies has been well established, and the omission of the term "co-operative bank" in Section 80P(2)(d) is deliberate and meaningful. Hence, the appellant's reliance on this section is misplaced. 5.3.4 The argument that the DCCB qualifies as a co-operative society is factually legally unsustainable. Co-operative banks, including DCCBs, are governed by the provisions of the Banking Regulation Act, 1949, and are subject to regulatory control by the Reserve Bank of India. They function as full-fledg....
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....ence of expenditure incurred wholly and exclusively for earning the interest income, which could otherwise have been deductible under Section 57(iii). As per settled law, only such expenditure as is directly attributable to the earning of income from other sources can be allowed as a deduction. In the absence of any supporting documentation or explanation, no such relief is admissible. 5.3.7 In light of the foregoing discussion, and based on a consistent line of judicial authority, it is concluded that the interest income earned from deposits with the DCCB is neither attributable to the business of banking or credit facilities to members nor derived from investments with a co-operative society within the meaning of Section 80P(2)(d). The Assessing Officer has correctly assessed the said income under the head "Income from Other Sources" as per Section 56 of the Income-tax Act, 1961. The appellant has failed to discharge its burden of proving the claim of deduction under either of the invoked provisions. Accordingly, the disallowance of Rs. 10,31,752/- is upheld, and the appeal is dismissed. The addition made by the Assessing Officer stands confirmed. 5.3.8 The appe....
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....or the assessee society, at the threshold of hearing of the appeal, submitted that the assessee society is a primary agricultural co-operative society formed exclusively for the benefit of its farmer members. The Ld. AR submitted that the assessee society had, during the subject year, facilitated the procurement of paddy produced by its members for delivery to APSCSCL under a State-Government-supervised programme. Elaborating on his contention, the Ld. AR submitted that the paddy procurement was carried out by the assessee society entirely from its members, and the commission was credited through APSCSCL merely as a conduit of the State Government. The Ld. AR submitted that the procurement activity is part of the marketing of members' agricultural produce, and, thus, is squarely covered under Section 80P(2)(a)(iii) of the Act. The Ld. AR in support of his contention had relied on the judgment of the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT (2021) 123 taxmann.com 161 (SC). 9. Apropos the assessee's claim for deduction of the interest income that was received by the assessee society on its deposits with the co- operative bank,....
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....belonged to its members it is entitled to exemption in respect of the profits derived from marketing of the same. 15. In the present case before us, there is no finding that the assessee society had procured paddy from non-members, and the AO had merely inferred on the basis of the mismatch in lists without identifying any specific non-member transactions. Further, the CIT(A) had also not brought out any evidence to show that any part of the procurement was from non-members. 16. We thus, following the above binding precedent and considering that the activity of the assessee society squarely falls within the object of the society and within the meaning of Section 80P(2)(a)(iii) of the Act, hold that the paddy procurement commission of Rs.1,82,15,130/- as eligible for deduction under section 80P(2)(a)(iii) of the Act. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations. 17. We shall now deal with the Ld. AR's claim that the Interest income of Rs. 10,31,752/- received by the assessee society on its deposits with the co-operative bank, viz. DCCB, Kakinada, is eligible for deduction under Section 80P(2)(d) of the Act. 18. On a perusal of the reco....
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....rther, we may herein reproduce the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. "80P(2)(d) (1). Wherein 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) .......................................... (b) .......................................... (c) .......................................... (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;" On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other co-operative society shall be deducted in comput....
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....d) on the interest income derived from its investments held with a co-operative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum) (ii). M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii). Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITO-Range-20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. (iv). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had held that the interest income earned by the assessee on its investments with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, also makes it clear beyond any scope of doubt that the purpo....