M/s. Judicial Employees House Building Co-operative Society Limited, Mysuru V. Income-Tax Officer, Ward-2(2), Mysore

ITA 108/BANG/2023

AI Insights

The case involves M/s. Judicial Employees House Building Cooperative Society Ltd., which appealed against the order of the CIT(Appeals), National Faceless Appeal Centre, Delhi, for not granting deduction under Section 80P(2)(d) of the Income Tax Act on interest income earned from deposits in cooperative banks. The Tribunal examined whether the interest income from these banks qualifies as operational income of a cooperative society, which is a prerequisite for deduction under Section 80P(2)(d). The Tribunal dismissed the appeal, agreeing with the lower authorities that such interest income does not constitute operational income and is thus not eligible for deduction under the specified section.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124225 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2023
• Appeal Filed By: Assessee
• Order Result: DismissedAllowed
• Bench Allotted: C
• Next Hearing Date: 28-03-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 20-02-2023
• Other Referred Cases: Collector, Land Acquisition Vs. MST. Katiji and Others, PCIT, Hubli v. Totagar Co-operative Sale Society, Tararani Mahila Co-op. Credit Society Ltd. v. ITO, Karnataka State Co-operative Federation Ltd. v. Assistant Commissioner of Income Tax, Circle 1(2)(1), Bangalore, Rena Sahakari Sakhar Karkhana Ltd. v. Principal Commissioner of Income-tax, Udaipur Sahakari Upbhokta Thok Bhandar Ltd. v. CIT, State Bank of India v. CIT, CIT v. Punjab State Co-operative Agricultural Development Bank Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Source of fund; Condonation of delay; TDS; Set aside
• Section: 56; 28; 80P; 64; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC “C” BENCH : BANGALORE SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No.108/Bang/2023 Assessment year : 2017-18 M/s. Judicial Employees House Building Cooperative Society Ltd., No.1028/D, 1 st Floor, Jayalakshmi Road, Chamarajapuram, Mysuru – 570 005. PAN : AAAAJ 2868E Vs. The Income Tax Officer, Ward 2(2), Mysore. APPELLANT RESPONDENT Appellant by : Shri Vageesh Hegde, CA Respondent by : Shri Ganesh R. Ghale, Standing Counsel for the revenue. Date of hearing : 29.03.2023 Date of Pronouncement : 11.04.2023 O R D E R This appeal by the assessee is against the order of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC] dated 26.11.2021 DIN ITBA/NFAC/S/250/2021-22/1037264541(1) for the AY 2017-18 for not granting deduction u/s. 80P(2)(d) of the Income- tax Act, 1961 [the Act] on the interest income of Rs.25,19,453 earned from the Mysore and Chamrajnagar District Co-operative Central Bank Ltd. and Rs.19,515 earned from Punjab National Bank. ITA No.108/Bang/2023 Page 2 of 18 2. There is a delay of 57 days in filing the appeal before the Tribunal. The assessee has filed application for condonation of delay along with affidavit stating that the order of the CIT(Appeals) was sent to the assessee by email on 28.10.2022 which came to the notice of the assessee on 19.2.2023 while paying TDS amount and found in the ‘Promotions Category’ of the emails. The appeal was immediately prepared and filed on 21.2.2023 before the Tribunal causing a delay of 57 days. It is submitted that the delay is unintentional since the assessee was not able to access the mail in the Promotions Category and prayed for condonation of delay. 3. We have heard both the sides on the condonation of delay of 57 days in filing the appeal before the Tribunal. We have considered the explanation of the assessee for the delay and are of the view that there is sufficient and reasonable cause for the delay in filing the appeal. Respectfully following the Hon'ble Apex Court judgment in the case of Collector, Land Acquisition Vs. MST. Katiji and Others (1987) 167 ITR 471, we condone the delay. 4. The brief facts of the case are that the assessee is a cooperative society registered under the provisions of Karnataka State Co-operative Societies Act., in the business of forming, developing and distributing residential sites to its members. The assessee filed its return of income on 24.3.2018 declaring NIL income after claiming deduction under section 80P of the Income Tax Act. for the AY 2017-18. The case was selected for limited scrutiny through CASS with specific scrutiny ITA No.108/Bang/2023 Page 3 of 18 parameters being “Large deduction under Chapter VIA from total income and low income in comparison to higher loans/advances/investment in shares appearing in balance sheet”. In response to the statutory notices, the assessee filed details which were perused by the AO. The AO observed that the assessee has shown total income of Rs.17,49,542 after setting off of loss from the profits & gains of business or profession of Rs.7,89,426 and the assessee has claimed deduction u/s. 80P(2)(d) on the entire balance of Rs.17,49,542 and claimed refund of Rs.2,21,417. The AO observed that the assessee has earned interest from Punjab National Bank of Rs.19,515 and Rs.25,19,453 from The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. is not the business or operational income of the assessee society and hence assessee is not entitled to claim deduction of the same u/s. 80P(2)(d) of the Act. The assessee relied on the jurisdictional Hight Court judgment in the case of PCIT, Hubli v. Totagar Co-operative Sale Society (2017) 392 ITR 74 (Karnataka) and Tararani Mahila Co-op. Credit Society Ltd. v. ITO (2015) 152 ITD 621 (Panaji Trib.). The assessee further submitted that the income earned on fixed deposits is independent of the excess income earned by the co-operative society which has been disclosed separately in the return of income & further submitted that the interest received from Co- operative Society is eligible for deduction u/s 80P(2)(d) of the Act.. The investee bank is a Co-operative Society and running banking business which is covered u/s 80P(2)(d) of the Act. The AO rejected the assessee’s submissions since the assessee has invested the fund ITA No.108/Bang/2023 Page 4 of 18 which was not put to use during the period which is clearly a surplus fund as and by way of investment by an ordinary investor, hence interest on such investment is to be taxed under the head income from other sources u/s. 56 and not u/s. 28. The AO relying on the judgment of the Supreme Court in the case of Totagar Co-operative Sale Society treated the interest income earned by the assessee society on fixed deposits as income from other sources and denied exemption u/s. 80P(2)(d) of the Act. 5. On appeal, the CIT(Appeals) observed that u/s. 80P(2)(d) interest income earned from investments with any other co-operative society is eligible for deduction and not from co-operative/nationalized banks. He noted that Punjab National Bank and The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. are not co-operative societies, but these are functioning under the Banking Regulation Act, 1949. He observed that co-operative banks carry on the banking business which normally incudes all the activities of a banking business with the public at large, whereas the co-operative societies carry on the business activity of providing credit facility only to its members. Hence he sustained the disallowance made by the AO. Aggrieved by the order of the CIT(Appeals), the assessee is in appeal before the Tribunal. 6. The ld. AR reiterated the submissions made before the lower authorities and submitted the Statement of Facts, the relevant parts of the same are as under:- ITA No.108/Bang/2023 Page 5 of 18 12. “The Appellant submits that the above Co-operative Bank is also a part of Co-Operative Society and interest received on deposits made with it qualifies to be "income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society" as specified in Sec. 80P(2)(d) of Income Tax Act,1961. Hence, the Appellant becomes eligible for deduction under Sec. 80P(2)(d). The Order passed by Hon'ble Commissioner (Appeals) wrongly relies on Sub-section (4) of Sec. 80P to deny deduction for a Co-operative Society. It is submitted that sub-section (4) denies deduction to a "Co-operative Bank" and nowhere it denies deduction to a "Co-operative Society" in respect of interest on deposits made with Co-operative Bank. Hence, deduction under Sec.80P is very much available to a Co-operative Society (Assessee/Appellant). Further, Sub-section (d) of the said Section gives deduction to a Co-operative Society in respect of income on investment made in another Co- operative Society. The Mysore and Chamarajanagar District Co- operative Central Bank where the investments were made by the Appellant qualifies to be a "Co-operative Society". The Appellant encloses a detailed write up giving the background and history of creation and functioning of such Co-operative Societies in the state of Karnataka wherein it is proved beyond doubt that even Co-operative Banks are also part of "Co-operative Society" vide AN1VEXURE-8. The Hon'ble CIT(A) failed to appreciate that even a "Co-operative Bank" is a species of the genus "Co-operative Societies" and hence, interest on investments in Co-operative Bank would become eligible for deduction under Sec. 80P (2) (d) of the Act as was held in the decision of Hon'ble High Court of Karnataka in Principal Commissioner of Income Tax, Hubli Vs. Totagars Co-operative Sale Society = (2017) 392 ITR 74 (Kar. HC) = (2017) 78 taxmann.com 169 (Karnataka HC). The order of Hon'ble CIT (A) totally ignored this fact and sought to deny deduction under Sec. 80P(2)(d). On this ground, the order of Hon'ble CIT (A) is liable to be set aside. 13. It is submitted that the Assessment Order of Learned ITO gives an entirely different reason stating that deduction under Sec. 80P(2) is available only in respect of "Operational Income" of assessee and in this case, the Assessee has shown interest under the head "Income From Other Sources" (not as operational income) , the deduction is not available. The Assessing Officer while disallowing deduction under Sec. 80P (2) (d) has held as under: (i) That the Assessee has invested the fund which was not put to use during the period; ITA No.108/Bang/2023 Page 6 of 18 (ii) That the said amount is a surplus fund invested and hence, it is a case of investment by an ordinary investor; (iii) That interest on such investment is taxable under the head "Income From Other Sources" under Sec. 56 and not under Sec.28; (iv) That the Hon'ble Supreme Court in the case of Totagars, Co- operative Sale Society Ltd reported in [2010] 188 Taxman 282 (SC) has stated that the income in respect of which deduction is sought must constitute the "Operational Income" and not "Other Income". In this case, the assessee earned interest on funds which are not required for business purpose and hence, interest income falls in the category of Sec.56. (v) That the Appellant (Assessee) has shown interest income under the head "Other Sources" under Sec.56, but claimed deduction. 14. It is respectfully submitted that the Learned ITO ignored that the Hon'ble Supreme Court in the above case was considering the deduction under Sec. 80P (2) (a) (i) [and not under Sec. 80P (2) (d)]. The Hon'ble Supreme Court, in that case, held that interest on surplus funds invested in short-term deposits is not the surplus required for "Business Purpose" and such interest is "Income From Other Sources" taxable under Sec. 56 and Sec. 80P (2) (a) (i) refers to about "Business of banking or providing credit facilities to its members" taxable under Sec.28. It was held that deduction under Sec. 80P (2) (a) is available only in respect of "Operational/Business Income" under Sec.28 and not in respect of "Other Sources". It is respectfully submitted that the appellant is claiming deduction under Sec. 80P (2) (d) [and not under Sec. 80P (2) (a)] and hence, the Learned Assessing Officer had wrongly related the judgement of Hon'ble Supreme Court to the Appellant's case. The Learned Assessing Officer had ignored the decision of Hon'ble High Court of Karnataka in Principal Commissioner of Income Tax, Hubli Vs. Totagars Co-operative Sale Society = (2017) 392 ITR 74 (Kar. HC) = (2017) 78 taxmann.com 169 (Karnataka HC)-Copy enclosed. 15. It is submitted that the decision of Hon'ble supreme court is not on "Chapter VIA Deduction", but on the "head of income" where the said income/interest is to be disclosed/taxed. The Hon’ble Supreme Court nowhere examined the eligibility of deduction vis-à-vis Head of Income and nowhere linked the eligibility of deduction with head of income where the interest is shown. This fact is totally ignored in the ITA No.108/Bang/2023 Page 7 of 18 Assessment Order and on this count, the denial of deduction is liable to be set aside. 16. The Appellant relies on the following decisions in support of its claim: (a). Decision of Honorable High Court of Karnataka in the case of Principal Commissioner of Income-tax, Hubballi Vs Totgars Co- Operative Sale Society Ltd reported in [2017] 78 taxmann.com 169 (Karnataka) (FAVOURABLE)-ANNEXURE-9. (b). Decision of Honorable High Court of Karnataka in the case of Principal Commissioner of Income-tax, Hubballi Vs Totgars Co- Operative Sale Society Ltd reported in [2017] 83 taxmann.com 140 (Karnataka)-ANNEXURE- 1 0-(AGAINST), BUT DISTINGUISHABLE. (c). Decision of the Honorable Bangalore bench of Income Tax Appellate Tribunal "IN THE ITAT BANGALORE BENCH 'A' of Karnataka State Co-operative Federation Ltd. v. Assistant Commissioner of Income Tax, Circle 1(2)(1), Bangalore- ANNEXUFtE-11-reported in [2021] 123 taxmann.com 399 (Bangalore - Trib.)/ [2021] 186 ITD 750 (Bangalore -Trib.) [03- 11¬2020] which distinguishes the fact in second DECISION AND UPHOLDS THE FIRST DECISION (FAVOURABLE). (d). Decision of The Honorable ITAT of PUNE BENCH 'B' in the case of Rena Sahakari Sakhar Karkhana Ltd. v. Principal Commissioner of Income-tax reported in [2022] 138 taxmann.com 532 (Pune - Trib.) -ANNEXURE- 12 which states that cooperative bank is part of Cooperative society.” 7. In addition, the ld. AR submitted that The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. was initially registered under the Co-operative Societies Act and produced a copy of the Certificate of Registration dated 15.2.1955 and later it was granted licence from RBI to commence and carry on banking business (copy of licence dated 26.12.2011 issued by RBI is placed on record). He accordingly submitted that it was a co-operative society and relied on the decision of the coordinate Bench of the Tribunal in ITA Nos. 581 ITA No.108/Bang/2023 Page 8 of 18 to 583/Bang/2022 dated 19.10.2022 wherein similar issue was decided by the Tribunal. He also relied on the following judgments:- (i) PCIT v. Totagars Co-operative Sale Society {2017] 78 taxmann.com 169 (Karnataka) (ii) Karnataka State Co-operative Federation Ltd. v. ACIT, [2021] 121 taxmann.com 399 (Bangalore Trib) (iii) Rena Sahakari Sakhar Karkhana Ltd. v. PCIT, [2022] 138 taxmann.com 532 (Pune Trib) 8. On the other hand, the ld. DR supported the orders of lower authorities and submitted that the assessee was unable to prove the source of funds invested and interest received was operational income. He further submitted that co-operative bank where its entire income is earned from banking activities cannot be termed as co-operative society. He further submitted that it is settled by the Supreme Court judgment in the case of Totagars Co-operative Sale Society reported in 322 ITR 283 that interest received from surplus funds is to be taxed as income from other sources and therefore it is not eligible to claim deduction u/s. 80P & the assessee received interest is on Fixed Deposits which are surplus fund of the assessee. He further submitted that in the case of PCIT & Ors. v. Totagars Co-operative Sale Society reported in 392 ITR 0074 (Karnataka), the Hon’ble Court had decided that deduction u/s. 80P(2)(d) is allowable on the interest income received from co-operative society. He strongly relied on the following judgments:- (a) M/s. Vasavamba Co-operative Society Ltd. v. PCIT, ITA No.453/Bang/2020 dated 13.8.2021. ITA No.108/Bang/2023 Page 9 of 18 (b) M/s. Manjunatheshwara Credit Co-op. Society Ltd. v. ITO, ITA No.2238/Bang/2019 dated 4.10.2021. 9. In the rejoinder, the ld. AR submitted that in the case of PCIT v. Totagars Co-operative Sale Society {2017] 78 taxmann.com 169 (Karnataka) order dated 05.01.2017, the Hon’ble Court has held that even section 56(i)(ccv) of the Banking Regulation Acts Act, 1949, defines a primary co-operative bank as the meaning of co-operative society, therefore a co-operative society bank would be included in the words ‘Co-operative Society’. Accordingly he submitted that The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. is primarily registered as a co-operative society and obtained licence from RBI for carrying on banking activities, therefore as per para 9 of the said judgment, it is to be termed as a co-operative society and section 80P(2)(d) clearly states that interest received from co-operative society is eligible for deduction u/s. 80P(2)(d) of the Act. 10. Heard both the parties, perused the entire material on record and the orders of the lower authorities. The assessee society is running business of forming, developing and distributing residential sites to its members and has claimed deduction u/s. 80P(2)(d) of the Act on the interest received on Fixed Deposits from The Mysore and Chamarajanagar District Co-op. Central Bank Ltd. and Punjab National Bank. It is clear from the facts of the case as observed by the AO that the surplus funds were invested in Fixed Deposits as investments in Co-operative Bank & Nationalised Bank. The ld. AR has relied on the judgment dated 05.01.2017 of the Hon’ble ITA No.108/Bang/2023 Page 10 of 18 jurisdictional High Court in the case of PCIT v. Totagars Co-operative Sale Society {2017] 78 taxmann.com 169 (Karnataka). However, the Hon’ble jurisdictional High Court in the later judgment dated 16.6.2017 in the case of PCIT v. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka) for AYs 2007-08 to 2011-12 has decided in the issue in favour of the revenue by observing as under for claiming deduction u/s 80P(2)(d) on interest received from Co- operative bank:- 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 decision against the assessee Totgar's Co-operative Sale Society Ltd. (supra), the assessee has shifted the deposits and investments from Schedule Banks to Co-operative Bank and such Co- operative Bank is essentially a Co-operative Society also and Clause (d) allows deduction of income by way of interest or dividends derived by the assessee Co-operative Society from its investments with any other Co- operative Society. 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 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 ITA No.108/Bang/2023 Page 11 of 18 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. 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. 14. The banking business, even though run by a Co-operative bank is sought to be excluded from 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 80P of the Act was to exclude the applicability of Section 80P 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)(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 specie 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. 16. If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time ITA No.108/Bang/2023 Page 12 of 18 is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise. 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 inferred in such provisions. What was clearly held to be not exempt and not deductible under Section 80P(2)(a) of the Act by the Hon'ble Supreme Court in the case of respondent assessee, cannot be contrarily held as exempted and deductible now for these years, merely because the depository bank, with whom the investments were made by the respondent assessee happens to be a co-operative bank. We cannot appreciate this distinction so as not to apply the binding precedent of the Hon'ble Supreme Court for subsequent years merely on account of the change of the Bank where such deposits were made by the respondent assessee, all other facts remaining the same, particularly the nature and character of the income earned by it. The interest income of assessee continues to be not attributable to its business operations even in these subsequent years. 18. The contention of the learned counsel for the assessee that a co- ordinate bench of this Court dismissed the Revenue's appeals by referring, but not applying the decision of the Hon'ble Supreme Court, we observe with greatest respects that we do not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee in the said order passed by the co-ordinate Bench and therefore, we are unable to follow the same in the face of the binding precedent laid by the Hon'ble Supreme Court. We find in paragraph 8 of the said order passed by a co- ordinate bench that the learned Judges have observed that "the issue whether a co-operative bank is considered to be a co- operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases..............". No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Co-operative Bank is a specie of the genus co- operative Society, with which we agree, but as far as applicability of Section 80P(2) of the Act is concerned, the applicability of the Supreme Court's decision cannot be restricted only if the income was to fall under Section 80P(2)(a) of the Act and not under Section 80P(2)(d) of the Act. 19. In our opinion, it would not make a difference, whether the interest income is earned from investments/deposits made in a Scheduled Bank or in a Co-operative Bank. Therefore, the said decision of the Co-ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon'ble Supreme Court. ITA No.108/Bang/2023 Page 13 of 18 20. In Udaipur Sahakari Upbhokta Thok Bhandar Ltd. v. CIT [2009] 315 ITR 21/182 Taxman 287 (SC), the Hon'ble Supreme Court while dealing with a case falling under Section 80P(2)(e) of the Act also negatived the claim of this special deduction to a co-operative society, while holding that the income derived by the Co-operative Society from the letting of the godowns or the warehouses was eligible for this deduction under Section 80P(2) of the Act only if such income was derived by such letting of godowns and warehouses for storage, processing or facilitating the marketing of commodities. Where the rental income was derived by the assessee, where the income claimed as deduction under Section 80P(2)(e) of the Act was by way of netting/difference between the sale of own trade stock stored in such warehouses or godowns was claimed as deductible, the Hon'ble Supreme Court denied the said claim, holding that the burden was on the assessee to establish that the income comes within the four corners of Section 80P(2)(e) of the Act. The relevant portion of the said judgment from the Head Note is quoted below for ready reference: "HELD, affirming the decision of the High Court, that the burden was on the assessee under section 80P(2)(e) to establish that the income comes within the four corners of section 80P(2)(e) of the Act. The exemption was available in respect of income derived from the letting of godowns or warehouses, only where the purpose of letting was storage, processing or facilitating the marketing of commodities. If the godown was let out (including user) for any purpose besides storing, processing or facilitating the marketing of commodities, then the assessee was not entitled to such exemption. Any income derived by the society unconnected with such letting or use of the godown would not fall under clause (e). The High Court was right in coming to the conclusion that the assessee was storing the commodities in question in its godowns as part of its own trading stock and hence, it was not entitled to claim the deduction under Section 80P(2)(e). In this case, the issue price was set off against the sale price which clearly indicated that the netting/difference between the two prices constituted receipt on a commercial basis or net profit. A. Venkata Subbarao v. State of Andhra Pradesh AIR 1965 SC 1773 applied. CIT v. South Arcot District Co-operative Marketing Society Ltd. [1989] 176 ITR 117 (SC) distinguished. Surath Venkar Sahakari Sangh Ltd v. CIT [1971] 79 ITR 722 (Guj) approved. Decision of the Rajsthan High Court in CIT v. Udaipur Shahakari Upbhokta Thok Bhandara Ltd. [2007] 295 ITR 164 Affirmed." 21. The aforesaid decision of the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd. (supra) was followed by a Division Bench of the Gujarat High Court in the case of State Bank of ITA No.108/Bang/2023 Page 14 of 18 India v. CIT [2016] 389 ITR 578/241 Taxman 163/72 taxmann.com 64 and the Division Bench of the Gujarat High Court has held as under: "(ii) That the assessee did not carry on any banking business and its objects did not contemplate investment of surplus funds received from its members. The business of a credit society like that of the assessee was limited to providing credit to its members and the income that was earned by providing such credit facilities to its members was deductible under section 80P(2)(a)(i). The character of interest was different from the income attributable to the business of the assessee-society providing credit facilities to its members. The interest income derived from investing surplus funds with the bank must be closely linked with the business of providing credit facilities for it to be held attributable to the business of the assessee. Therefore, the profits and gains could be said to be directly attributable to the business of providing credit facilities to its members if there was a direct and proximate connection between the profits and gains and the business of the assessee. There was no obligation on the assessee to invest its surplus funds with the bank. Investing surplus funds in a bank was no part of the business of the assessee providing credit facilities to its members and hence it could not be said that the interest derived from depositing its surplus funds with the bank was profits and gains of business attributable to the activities of the assessee. It was only the interest income derived from the credit provided to its members which was deductible under section 80P(2)(a)(i) and the interest income derived by depositing the surplus funds with the bank not being attributable to the business carried on by the assessee could not be deducted under section 80P(2)(a)(i) . There was no infirmity in the orders of the Appellate Tribunal warranting interference. Totgar's Co-Operative Sale Society Ltd. v. ITO [2010] 322 ITR 283 (SC)followed." ** ** ** "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 made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co- operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act." 22. Again, the Division Bench of Punjab and Haryana High Court in still a later decision reported in the same volume of ITR in the case of CIT v. Punjab State Co-operative Agricultural Development Bank ITA No.108/Bang/2023 Page 15 of 18 Ltd. [2016] 389 ITR 607/76 taxmann.com 307 (Punj. & Har.) concurred with the aforesaid view of the Gujarat High Court, distinguishing the view taken by the Andhra Pradesh High Court and Karnataka High Court, held in the following terms: '30. We are entirely in agreement with the judgment of the Gujarat High Court especially the observation that the judgment of the Supreme Court is not restricted only to the investments made by the assessee from the amounts retained by it which were payable to its members and that the judgment also applies in respect of other funds not immediately required for business purposes. We reproduced paragraph 15 of the judgment only to indicate that we uphold the appellant's case only on the ground that the assessee is not entitled to the said deduction on the basis that it is engaged in carrying on the business of providing credit facilities to its members. We do not express any opinion as to whether the appellant would be entitled to the said benefit in the event of it being held that the assessee is also engaged in carrying on the business of banking. That is an issue that the Tribunal would decide upon remand pursuant to this order. 31. Mr. Bansal relied upon the judgment of the Andhra Pradesh High Court in CIT v. A. P. State Co-operative Bank Ltd. [2011] 336 ITR 516 (AP). The judgment is distinguishable. In that case, the respondent- assessee was a co-operative society engaged in the business of banking and it was held that the assessees were subject to the regulations of the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. The Division Bench distinguished the judgment of the Supreme Court in Totgar's case (supra) on the ground that the Supreme Court was not dealing with the case relating to co-operative banks. The present appeal is not being considered on the basis that banking is the assessee's business either. 32. Mr. Bansal relied upon the judgment of the Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. v. ITO [2015] 55 taxmann.com 447 (Karn). In that case, the assessee-co-operative society provided credit facilities to its members and earned interest from short- term deposits with banks and from savings bank accounts. The interest income earned by the assessee by providing credit facilities to its members was deposited in banks for a short duration which earned interest. The question was whether this interest was attributable to the business of providing credit facilities to the members. The Division Bench held as follows : "8. Therefore, the word 'attributable to' is certainly wider in import than the expression 'derived from'. Whenever the Legislature wanted to give a restricted meaning, they have used the expression 'derived from'. The expression 'attributable to' being of wider import, the said expression is used by the Legislature whenever they intended to gather receipts from ITA No.108/Bang/2023 Page 16 of 18 sources other than the actual conduct of the business. A co-operative society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under section 80P of the Act. 9. In this context when we look at the judgment of the apex court in the case of Totgar's Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-co-operative society, apart from 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 which was payable to its members from whom produce was brought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-society was a liability and it was shown in the balance-sheet on the liability side. Therefore, to that extent, such interest income can not 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. Therefore in the facts of the said case, the apex court held the Assessing Officer was right in taxing the interest income indicated above under section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. A. P. State Co-operative Bank Ltd. reported in [2011] 336 ITR 516 (AP) ; [2011] 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. ITA No.108/Bang/2023 Page 17 of 18 Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the Revenue. Hence, we pass the following order. Appeal is allowed." (The reproduction is from the original website of the Karnataka High Court). There is an important distinction. The Division Bench expressly held in paragraph 10 that interest income was attributable to the business of banking and, therefore, liable to be deducted under section 80P(2)(a)(i) of the Act. At the cost of repetition, we have not considered whether the assessee carries on the business of banking. If it is established upon remand that the assessee carries on the business of banking the result may be different. In any event assuming that the judgment is not distinguishable on this ground, we would with respect disagree with the same in view of the judgments that we have already referred to and on the basis of our interpretation of Totgar's case. In any event, we are with respect unable to agree with the observations that the Supreme Court in Totgar's case (supra) did not lay down any law. 33. For the same reason, the judgment of the Karnataka High Court in Guttigedarara Credit Co-operative Society Ltd. v. ITO [2015] 377 ITR 464 (Karn); [2015] 60 taxmann.com 215 (Karn) is of no assistance to the respondent-assessee.' 23. Thus, the aforesaid judgments supports the view taken by this Court that character of income depends upon the nature of activity for earning that income and though on the face of it, the same may appear to be falling in any of the specified Clauses of Section 80P(2) of the Act, but on a deeper analysis of the facts, it may become 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 co-operative 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. 24. In view of the aforesaid, we are of the opinion that the appeals filed by the Revenue deserve to be allowed and the appeals filed by the assessee deserve to be dismissed. 25. The issue relating to the justifiability of the reassessment under Section 147/148 of the Act also becomes academic once the conclusion is arrived at that the deduction under Section 80P(2) of the Act was not available to the assessee for these Assessment Years. ITA No.108/Bang/2023 Page 18 of 18 26. The substantial questions of law framed above are thus answered in favour of the Revenue and against the assessee and it is held that the income by way of interest earned by the assessee co-operative society during the Assessment Years 2007-2008 to 2011-12 on the investments made in the co-operative bank are not eligible for deductions under Section 80P(2)(d) of the Act. 27. The appeals of the Revenue are accordingly allowed and those of the assessee are dismissed. No order as to costs. 11. Respectfully following the aforesaid detailed order of the Hon’ble Jurisdictional High Court, the appeal of the assessee is dismissed. I make it clear that the assessee is eligible for setting off of losses as per law. Pronounced in the open court on this 11 th day of April, 2023. Sd/- (LAXMI PRASAD SAHU ) ACCOUNTANT MEMBER Bangalore, Dated, the 11 th April, 2023. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.