M/s. Potters Cottage Industrial Co-operative Society Limited, Puttur V. Income Tax Officer , Ward- 1, Puttur

ITA 1257/BANG/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7473 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-08-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 04-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H KABILA
• Assessee Lawyers: V SRINIVASAN
• Keywords: Business income; Question of law
• Section: 56; 80P; 143(2); 194A; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.1257 & 1258/BANG/2019 ASSESSMENT YEAR : 2015-16 M/S POTTERS COTTAGE INDUSTIRAL CO-OPERATIVE SOCIETY LTD., 02, KULALA SAHAKARA BHAVANA, PUTTUR-574 201. PAN AAAAP 1215 B VS. THE INCOME-TAX OFFICER, WARD-1, PUTTUR. APPELLANT RESPONDENT ASSESSEE BY : SHRI V SRINIVASAN, ADVOCATE REVENUE BY : SMT. H KABILA, ADDL.CIT DATE OF HEARING : 26-08-2021 DATE OF PRONOUNCEMENT : 30-08-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEALS ARE FILED BY THE ASSESSEE AGAINST THE COMMON ORDER DATED 25/03/2019 PASSED BY THE LD.CIT (A) MANGALURU FOR ASSESSMENT YEAR 2015-16 AND 2016-17 O N THE FOLLOWING GROUNDS. AT THE OUTSET THE LD.COUNSEL SUB MITTED THAT ISSUES RAISED BY ASSESSEE IN BOTH THE APPEALS ARE C OMMON ON IDENTICAL FACTS. ACCORDINGLY WE ARE REPRODUCING THE GROUNDS RAISED BY ASSESSEE FOR ASSESSMENT YEAR 2015-16 THAT IS AS UNDER: PAGE 2 OF 13 ITA NO.1257 & 1258/BANG/2019 1. THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR A S THEY ARE AGAINST THE APPELLANT ARE OPPOSED TO LAW, EQUITY, WEIGHT OF EVI DENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT[A] IS NOT JUSTIFIED IN UPHOLDING TH E DENIAL OF DEDUCTION CLAIMED U/S.80P[2][A][I] OF THE ACT AMOUNTING TO RS .51,36,8881- IN RESPECT OF THE PROFITS EARNED BY THE APPELLANT FROM THE BUS INESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS UNDER THE FACTS AN D IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE. 3. THE LEARNED CIT[A] ERRED IN HOLDING THAT THE BUS INESS OF PROVIDING CREDIT FACILITIES TO THE MEMBERS CARRIED ON BY THE APPELLA NT CANNOT BE REGARDED AS A BUSINESS CARRIED ON BY A CO-OPERATIVE SOCIETY COMPL YING WITH THE PRINCIPLES OF MUTUALITY SINCE THE APPELLANT HAD ADMITTED NOMINAL MEMBERS, WHO COULD NEITHER VOTE NOR WERE ENTITLED TO A SHARE IN THE OF ITS AS PER THE BYE-LAWS OF THE APPELLANT AND HENCE, THE APPELLANT WAS NOT ENTITLED TO DEDUCTION U/S. 80P[2][A][I] OF THE ACT HAVING REGARD TO THE RATIONALE BEHIND TH E JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CITIZENS CO-OPERATIVE SOCIETY REPORTED IN 397 ITR 1 [SC] UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE. 4. THE LEARNED CIT[A] OUGHT TO HAVE APPRECIATED THA T THE APPELLANT COOPERATIVE SOCIETY HAD NO DOUBT ADMITTED NOMINAL M EMBERS, WHICH WAS PERMISSIBLE UNDER THE KARNATAKA CO-OPERATIVES SOCIE TIES ACT, 1959 AND THAT THERE WAS NO VIOLATION OF ANY OF THE PROVISION S OF THE KARNATAKA CO- OPERATIVE SOCIETIES ACT UNDER WHICH THE APPELLANT W AS CONSTITUTED AND THEREFORE, THE JUDGMENT OF THE HON'BLE SUPREME COUR T RELIED UPON IN THE CASE OF CITIZENS CO-OPERATIVE SOCIETY REPORTED IN 3 97 ITR 1 WAS DISTINGUISHABLE AND WHOLLY INAPPLICABLE TO THE FACT S OF THE APPELLANT'S CASE. 5. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT[ A] OUGHT TO HAVE APPRECIATED THE ALTERNATE CLAIM MADE BY THE APPELLA NT FOR ALLOWANCE OF DEDUCTION U/S. 80P OF THE ACT WITH REFERENCE TO THE EXTENT OF INCOME DERIVED FROM ADVANCES GIVEN TO MEMBERS APART FROM N OMINAL MEMBERS, WHICH WAS EXEMPT UNDER THE PRINCIPLES OF MUTUALITY AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S. QUEPE M URBAN CO- OPERATIVE CREDIT SOCIETY LTD IN ITA NO. 22 TO 24 OF 2015 DATED 17/04/2015 UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE. 6. THE LEARNED CIT[A] OUGHT NOT TO HAVE HELD THAT T HE INCOME EARNED BY THE APPELLANT FROM INVESTMENTS MADE IN COMMERCIAL B ANKS, SOUTH CANARA DISTRICT CENTRAL CO OPERATIVE BANK, CO-OPERA TIVE SOCIETIES AND INCOME-TAX DEPARTMENT TO THE EXTENT OF RS. 32,37,16 0/- WAS LIABLE FOR PAGE 3 OF 13 ITA NO.1257 & 1258/BANG/2019 ASSESSMENT AS INCOME FROM BUSINESS AND NOT UNDER TH E HEAD 'OTHER SOURCES' UNDER THE FACTS AND IN THE CIRCUMSTANCES O F THE APPELLANT'S CASE. 7. THE LEARNED CIT[A] OUGHT TO HAVE APPRECIATED THA T THE APPELLANT HAD EARNED THE INTEREST INCOME FROM INVESTMENTS STATUTO RILY REQUIRED TO BE MAINTAINED UNDER THE KARNATAKA CO-OPERATIVE SOCIETI ES ACT FROM OUT OF THE PROFITS BESIDES 25% OF THE TOTAL DEPOSITS AS SL R WITH CO-OPERATIVE BANKS AND 3% OF THE TOTAL DEPOSITS TOWARDS CRR AND THUS, THE INCOME EARNED THEREFROM OUGHT TO HAVE BEEN ASSESSED AS PAR T OF THE BUSINESS OF THE PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND NOT UNDER THE HEAD 'OTHER SOURCES' UNDER THE FACTS AND IN THE CIRCUMST ANCES OF THE APPELLANT'S CASE. 8. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT[ A] OUGHT TO HAVE APPRECIATED THAT THE COST OF FUNDS OUGHT TO HAVE BE EN ALLOWED U/S. 57[III] OF THE ACT WHILE ASSESSING THE INTEREST INCOME UNDE R THE HEAD 'OTHER SOURCES' UNDER THE FACTS AND IN THE CIRCUMSTANCES O F THE APPELLANT'S CASE. 9. WITHOUT PREJUDICE TO THE RIGHT TO SEEK WAIVER WI TH THE HON'BLE CCIT/DG, THE APPELLANT DENIES ITSELF LIABLE TO BE C HARGED TO INTEREST U/S 234-A AND 234-B OF THE ACT, WHICH UNDER THE FACTS A ND IN THE CIRCUMSTANCES OF THE APPELLANT'S CASE DESERVES TO B E CANCELLED. 10. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING OF THE APPEAL, YOUR APPELLANT HUMBLY PRAYS THAT THE APPEAL MAY BE ALLOWED AND JUSTICE RENDERED AND THE APPELLANT M AY BE AWARDED COSTS IN PROSECUTING THE APPEAL AND ALSO ORDER FOR THE REFUND OF THE INSTITUTION FEES AS PART OF THE COSTS. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED I N THE BUSINESS OF ACCEPTANCE OF DEPOSITS FROM MEMBERS, LE NDING LOANS, PROVIDING BANKING FACILITIES IN RULE RURAL VILLAGE. LD.AO OBSERVED THAT THE PURPOSE OF CREATION OF THE SOCIETIES TO OV ERALL UPLIFTMENT OF POTTERS AND POTTER INDUSTRY WITHIN THE JURISDICT ION OF THE SOCIETY. FOR YEARS UNDER CONSIDERATION ASSESSEE FIL ED ITS RETURN OF INCOME AFTER CLAIMING DEDUCTION UNDER SECTION 80P O F THE ACT. THE RETURN WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE PAGE 4 OF 13 ITA NO.1257 & 1258/BANG/2019 UNDER SECTION 143(2) WAS ISSUED TO ASSESSEE. IN RES PONSE TO THE STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEA RED BEFORE THE LD.AO AND FILED REQUISITE DETAILS AS CALLED FOR. 2.1 THE LD.AO FROM THE DETAILS FILED OBSERVED THAT: A) ASSESSEE HAS EARNED INTEREST ON INVESTMENT IN SOUTH CANARA DISTRICT CO-OPERATIVE BANK B) ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80P(2) (A) OF THE ACT IN RESPECT OF AMOUNT OF PROFIT ATTRIBUTABLE TO THE ACTIVITY OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. 2.2 IN THE INSTANT CASE, IT WAS NOTICED BY THE LD.A O DURING ASSESSMENT PROCEEDINGS, THAT THE ASSESSEE SOCIETY W AS EARNING INCOME NOT ONLY FROM THE MEMBERS BUT MAJORITY OF TH E INCOME FROM THE NOMINAL/ ASSOCIATE MEMBERS. TAKING INTO CO GNIZANCE THE RATIO OF DECISION OF HONBLE SUPREME COURT , IN THE CASE OF CITIZEN CO-OP SOCIETY LTD, HYDERABAD V. ACIT, C-9(1 ), HYDERABAD IN CIVIL APPEAL NO.10245 OF 2017 DATED 8.08.2017 THE LD.AO DENIED DEDUCTION CLAIMED U/S.80P BY HOLDING THAT TH E ASESSEE PROVIDED CREDIT FACILITIES TO THREE CATEGORIES OF M EMBERS VIZ., I) REGULAR MEMBER II) ASSOCIATE MEMBERS AND III) NOMIN AL MEMBERS. HENCE, LD.AO DISALLOWED THE DEDUCTION CLAI MED U/S.80P(2)(A)(I) OF THE ACT. 2.3 THE LD.AO WAS OF THE VIEW THAT PRINCIPLE OF MUT UALITY WERE VIOLATED BY ASSESSEE AND THEREFORE DENIED THE DEDUC TION IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF CITIZEN CO- PAGE 5 OF 13 ITA NO.1257 & 1258/BANG/2019 OPERATIVE SOCIETY LTD. IN CIVIL APPEAL NO. 10245/2017 DATED 08.08.2017, ON FOLLOWING GROUNDS: I) INTEREST/DIVIDEND INCOME WAS HELD TO BE INCOME F ROM OTHER SOURCES AND EXCLUDED FROM THE DEDUCTION UNDER SECTI ON 80P(2)(A)(I). FOR THE DEDUCTION UNDER SECTION 80P(2 )(D) WAS ALSO DENIED RELYING ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF M/S TOTGARS CO-OPERATIVE SO SALE SOCIETY LTD. BY ORDER DATED 16/06/2070. II) THE PRINCIPLES OF MAJORITY WERE VIOLATED RELYIN G ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF M/S CITIZEN CO-OPERATIVE SOCIETY LTD., HYDERABAD DATED 08/09/2017 . 2.4 AGGRIEVED BY THE ORDER OF LD.AO, ASSESSEE PREFE RRED APPEAL BEFORE THE LD. CIT(A). 2.5 HE CAME TO THE CONCLUSION THAT AS PER THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF CITIZENS CO-OP SOCIETY (SUPRA ), IF THE PRINCIPLE OF MUTUALITY IS NOT SATISFIED, THEN THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S 80P(2)(A) (I) OF THE ACT. IN RESPECT OF MEMBERS, THE LD.CIT(A) OBSERVED THAT THE ASSESSEE ADMITTED EXCESS NOMINAL/ASSOCIATE MEMBERS WHICH IS MORE THAN 15% OF THE TOTAL MEMBERS WHEN COMPARED TO REGULAR M EMBERS WHICH IS IN VIOLATION OF KARNATAKA CO-OPERATIVE SOC IETY ACT, 1959. IN VIEW OF THE VIOLATION OF THE KARNATAKA CO-OPERAT IVE SOCIETY ACT, THE LD.CIT(A) OBSERVED THAT THE SOCIETY IS NOT ELIG IBLE FOR DEDUCTION U/S 80P AND AS SUCH RATIO OF THE DECISION OF HON`BLE SUPREME COURT DECISION IN THE CASE OF CITIZEN CO-OP SOCIETY LTD, PAGE 6 OF 13 ITA NO.1257 & 1258/BANG/2019 HYDERABAD V. ACIT, C-9(1), HYDERABAD IN CIVIL APPEA L NO.10245 OF 2017 DATED 8.08.2017 IS APPLICABLE TO THE FACTS OF THE ASSESSEE SOCIETY. 2.6 THE LD.CIT(A) ALSO HELD THAT, IN THE ASSESSEE'S CASE, MUTUALITY PRINCIPLES HAVE FAILED AS SUBSTANTIAL BUS INESS IS BEING CARRIED OUT WITH THE GENERAL PUBLIC OR NOMINAL MEMB ERS AND ALSO IN VIEW OF THE ASSESSEE BEING REGISTERED AS SOUHARD A CO-OPERATIVE SOCIETY AND NOT AS CO-OPERATIVE SOCIETY AND TAKING INTO ACCOUNT THE BYELAWS AND THE NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE, THE SOCIETY IS NOT ELIGIBLE FOR DEDUCTION U/S 80P OF THE INCOME TAX ACT, 1961. 2.7 THE LD.CIT(A) THUS UPHELD THE ORDER OF LD.AO. 2.8 AGGRIEVED BY THE ORDER OF LD.CIT(A) ASSESSEE IS IN APPEAL BEFORE US NOW. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. 3.1 THE ISSUE THAT ARISES FOR CONSIDERATION IS: (I) WHETHER THE AUTHORITIES BELOW WERE JUSTIFIED IN DEN YING THE CLAIM OF THE ASSESSEE FOR REDUCTION U/S 80P(2)( A)(I) OF THE ACT. (GROUNDS 2-5) (II) WHETHER, INTEREST INCOME EARNED BY ASSESSEE IS ELIG IBLE FOR DEDUCTION U/S 80P(2)(D) OF THE ACT, WHEREAS THE DED UCTION IS ONE CLAIMED U/S 80P(2)(A)(I) OF THE ACT. (GROUND S 6-7) 4. GROUND NO. 1 &10 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. PAGE 7 OF 13 ITA NO.1257 & 1258/BANG/2019 GROUNDS 2-5 : 5. IN RESPECT OF ASSOCIATE/NOMINAL MEMBERS, HONBLE SUPREME COURT IN THE CASE OF MAVILAYI SERVICE COOPERATIVE BANK LTD. V. CIT (2021 ) 123 TAXMANN.COM 161 (SC) HAS HELD THAT THE EXPRESSION MEMBERS IS NOT DEFI NED IN THE INCOME-TAX ACT. HENCE, IT IS NECESSARY TO CONSTRUE THE EXPRESSION MEMBERS IN SECTION 80P(2)(A)(I) OF THE ACT IN THE LIGHT OF DEFINITION OF THAT EXPRE SSION AS CONTAINED IN THE CONCERNED CO-OPERATIVE SOCIETIES ACT. IN VIEW OF THIS, THE FACTS ARE TO BE EXAMINED IN THE LIGHT OF PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN MAVILAYI SERVICE COOPERATIVE BANK LTD. (SUPRA) . ACCORDINGLY, WE REMIT THIS ISSUE OF DEDUCTION U/ S. 80P(2)(A)(I) OF THE ACT TO THE FILE OF ASSESSING OF FICER TO EXAMINE THE SAME AFRESH IN THE LIGHT OF THE ABOVE JUDGMENT. ACCORDINGLY GROUNDS 2-5 STANDS ALLOWED FOR STATISTI CAL PURPOSES. 6. GROUND 6-7 IS IN RESPECT OF GRANTING OF DEDUCTION U/S 80P(2)(A )(I) SET ON INTEREST FROM INVESTMENTS MADE IN COMMERCIAL BANKS, SOUTH CANARA DISTRICT CO- OPERATIVE BANKS, CO-OPERATIVE SOCIETIES. 6.1 WE NOTE THAT THE LD.AO DENIED DEDUCTION UNDER S ECTION 80P(2)(D) OF THE ACT, AS WELL IN RESPECT OF INTEREST INCOME RECEIVED BY A SSESSEE FROM DEPOSITS KEPT WITH BANKS FOR THE YEARS UNDER CONSIDERATION. THE LD.AO ASSESSED THE INTEREST INCOME RECEIVED FROM BANK DEPOSITS UNDER THE HEAD INCOME F ROM OTHER SOURCES. 6.2 THE LD.COUNSEL PLACED RELIANCE ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN KEEP CASE OF TOTGARS CO-OPERATIVE SALE SOC IETY LTD. VS ITO REPORTED IN (2015) 58 TAXMANN.COM 35. 6.3 WE HAVE PERUSED PLETHORA OF DECISIONS ON THIS I SSUE BY HONBLE KARNATAKA HIGH COURT AND THE RATIO LAID DOWN BY HONBLE SUPREME COURT . HONBLE SUPREME COURT IN THE CASE OF THE TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO REPORTED IN PAGE 8 OF 13 ITA NO.1257 & 1258/BANG/2019 322 ITR 283 HELD THAT, INCOME FROM UTILISATION OF SURPLUS FUND S WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, AND THEREFORE NOT E LIGIBLE FOR DEDUCTION U/S 80P. 6.4 THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE C ASE OF M/S JYOTHI PATTIN SOUHARD SAHAKARI NIYAMIT IN ITA NO.650/BANG/2020 FO R ASST. YEAR 2015-16 BY ORDER DATED 13/8/2021 HELD AS UNDER:- IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER VS . TOTAGARS CO-OPERATIVE SALE SOCIETY 392 ITR 0074 (KARN) IN THE CONTEXT OF DEDUCTION U/S.80P(2)(D) OF THE ACT, IT WAS HELD THA T SEC.80P(2)(D) OF THE ACT ALLOWS DEDUCTION IN RESPECT OF ANY INCOME BY WAY OF INTERE ST OR DIVIDENDS DERIVED BY THE CO- OPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTH ER CO-OPERATIVE SOCIETY, THE WHOLE OF SUCH INCOME. THE HONBLE COURT HELD THAT THAT THE A FORESAID SUPREME COURT'S DECISION IN THE CASE OF TOTGARS (SUPRA), WAS NOT APPLICABLE TO DEDUCTION U/S.80P(2)(D) OF THE ACT, BECAUSE THE SAID DECISION WAS RENDERED WITH REGARD TO DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT AND NOT UNDER SECTION 80P(2 )(D) OF THE ACT. 9. HOWEVER, THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER VS. TOTAGARS CO- OPERATIVE SALE SOCIETY 395 ITR 0611 (KARN) TOOK A DIFFERENT VIEW AND HELD THAT INTEREST INCOME EARNED ON DEPOSITS WHETHER WITH ANY OTHER BANK WILL BE IN THE NATURE OF INCOME FROM OTHER SOURCES AND NOT INCOME FROM BUSIN ESS AND THEREFORE THE DEDUCTION U/S.80P(2)(D) OF THE ACT CANNOT BE ALLOWED TO THE A SSESSEE. THE HONBLE COURT FOLLOWED DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SBI VS. CIT 389 ITR 578(GUJ.) IN WHICH THE HONBLE GUJARAT HIGH COURT D ISSENTED FROM THE VIEW TAKEN BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCHANTS CASE (SUPRA) THE HONBLE COURT HAD TO DEAL WITH THE FOLLOWING SUBSTA NTIAL QUESTION OF LAW: '(I)WHETHER THE ASSESSEE, TOTAGAR CO-OPERATIVE SALE SOCIETY, SIRSI, IS ENTITLED TO 100% DEDUCTION UNDER SECTION 80P(2)(D) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT') IN RESPECT OF WHOLE OF ITS INCOME BY WAY OF INTEREST E ARNED BY IT DURING THE RELEVANT ASSESSMENT YEARS FROM 2007-2008 TO 2011-2012 ON THE DEPOSITS OR INVESTMENTS MADE BY IT DURING THESE YEARS WITH A CO-OPERATIVE BANK, M/S. KANARA DISTRICT CENTRAL CO- OPERATIVE BANK LIMITED? (II) WHETHER THE SUPREME COURT DECISION IN THE CASE OF THE PRESENT RESPONDENT ASSESSEE, TOTGAR CO-OPERATIVE SALE SOCIETY LIMITED ITSELF RENDERED ON 08TH FEBRUARY 2010, IN TOTGAR'S CO-OPERATIVE SALE SOCIETY LIMITED V. INCOME TAX OFFICER, REPORTED IN (2010) 322 ITR 283 SC : (2010) 3 SCC 223 FOR THE PR ECEDING YEARS, NAMELY ASSESSMENT YEARS 1991-1992 TO 1999-2000 (EXCEPT ASS ESSMENT YEAR 1995-1996) HOLDING THAT SUCH INTEREST INCOME EARNED BY THE ASS ESSEE 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(2)(A) (I) 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 APPEL LATE TRIBUNAL AS WELL AS CIT PAGE 9 OF 13 ITA NO.1257 & 1258/BANG/2019 (APPEALS) WERE JUSTIFIED IN HOLDING THAT SUCH INTER EST INCOME WAS 100% DEDUCTIBLE UNDER SECTION 80P(2)(D) OF THE ACT?' 10. THE HONBLE COURT HELD THAT SUCH INTEREST INCOM E IS NOT INCOME FROM BUSINESS BUT WAS INCOME CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREFORE THERE WAS NO QUESTION OF ALLOWING DEDUCTI ON U/S.80P(2)(D) OF THE ACT. THE FOLLOWING POINTS CAN BE CULLED OUT FROM THE AFORESA ID DECISION: 1. WHAT SECTION 80P(2)(D) OF THE ACT, WHICH WAS THO UGH NOT SPECIFICALLY ARGUED AND CANVASSED BEFORE THE HON'BLE SUPREME COURT, ENVISAG ES 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 C O-OPERATIVE SOCIETY BUT ITS BUSINESS IS ENTIRELY DIFFERENT AND THAT IS THE BANK ING BUSINESS, WHICH IS GOVERNED AND REGULATED BY THE PROVISIONS OF THE BANKING REGULATI ON ACT, 1949. ONLY THE PRIMARY AGRICULTURAL CREDIT SOCIETIES WITH THEIR LIMITED WO RK OF PROVIDING CREDIT FACILITY TO ITS MEMBERS CONTINUED TO BE GOVERNED BY THE AMBIT AND S COPE OF DEDUCTION UNDER SECTION 80P OF THE ACT. (PARAGRAPH 13 OF THE JUDGMENT). 2. THE BANKING BUSINESS, EVEN THOUGH RUN BY A CO-OP ERATIVE BANK IS SOUGHT TO BE EXCLUDED FROM THE BENEFICIAL PROVISIONS OF EXEMPTIO N 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 SECT ION 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 SEC TION 80P(4) ARE SIGNIFICANT. THEY ARE: 'THE PROVISIONS OF THIS SECTION SHALL NOT APPL Y 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 INTERES T 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 T HE ACT. THE ONLY EXCEPTION IS THAT OF A PRIMARY AGRICULTURAL CREDIT SOCIETY. (PAR AGRAPH-14 OF THE JUDGMENT) 3. THE AMENDMENT OF SECTION 194A(3)(V) OF THE ACT E XCLUDING THE CO-OPERATIVE BANKS FROM THE DEFINITION OF 'CO- OPERATIVE SOCIETY' BY F INANCE ACT, 2015 AND REQUIRING THEM TO DEDUCT INCOME TAX AT SOURCE UNDER SECTION 194A O F THE ACT ALSO MAKES THE LEGISLATIVE INTENT CLEAR THAT THE CO-OPERATIVE BANK S ARE NOT THAT SPECIE OF GENUS CO- OPERATIVE SOCIETY, WHICH WOULD BE ENTITLED TO EXEMP TION OR DEDUCTION UNDER THE SPECIAL PROVISIONS OF CHAPTER VIA IN THE FORM OF SECTION 80 P OF THE ACT. (PARAGARPH 15 OF THE JUDGMENT) 4. IF THE LEGISLATIVE INTENT IS SO CLEAR, THEN IT C ANNOT CONTENDED THAT THE OMISSION TO AMEND CLAUSE (D) OF SECTION 80P(2) OF THE ACT AT THE SAME TIME IS FATAL TO THE CONTENTION RAISED BY THE REVENUE BEFORE THIS COURT AND SUB SIL ENTIO, 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.(PARAGRAPH 16 OF THE JUDGMENT) 5. ON THE DECISION OF THE EARLIER DECISION OF THE H ONBLE KARNATAKA HIGH COURT REFERRED TO IN THE EARLIER PART OF THIS ORDER, THE COURT HELD T HAT IT DID NOT FIND ANY DETAILED DISCUSSION PAGE 10 OF 13 ITA NO.1257 & 1258/BANG/2019 OF THE FACTS AND LAW PRONOUNCED BY THE HON'BLE SUPR EME COURT IN THE CASE OF THE RESPONDENT ASSESSEE (TOTAGARS SALES CO-OPERATIVE SO CIETY) AND HENCE UNABLE TO FOLLOW THE SAME IN THE FACE OF THE BINDING PRECEDEN T LAID BY THE HON'BLE SUPREME COURT. THE HONBLE COURT OBSERVED THAT IN PARAGRAPH 8 OF THE SAID ORDER PASSED BY A CO- ORDINATE BENCH THAT THE LEARNED JUDGES HAVE OBS ERVED THAT 'THE ISSUE WHETHER A CO-OPERATIVE BANK IS CONSIDERE D 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 SAI D JUDGMENT. OF COURSE, THE BENCH HAS OBSERVED THAT A CO-OPERATIVE BANK IS A SPECIE O F 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 T HE ACT AND NOT UNDER SECTION 80P(2)(D) OF THE ACT.(PARAGRAPH-18 OF THE JUDGMENT) 6. THE COURT FINALLY CONCLUDED THAT IT WOULD NOT MA KE 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 PRESEN T APPEALS, IN VIEW OF THE BINDING PRECEDENT FROM THE HON'BLE SUPREME COURT. (PARAGRA PH 19 OF THE JUDGMENT) 11. THE HONBLE KARANTAKA HIGH COURT IN THE AFORESA ID DECISION ALSO PLACED RELIANCE ON A DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF STATE BANK OF INDIA (SBI) VS. COMMISSIONER OF INCOME TAX 389 ITR 0578 (GUJ) DID NOT AGREE WITH THE VIEW TAKEN BY THE KARNATAKA HIGH COURT IN TUMKU R MERCHANTS SOUHARDA CREDIT COOPERATIVE LTD. (SUPRA) THAT THE DECISION OF THE S UPREME COURT IN TOTGARS CO- OPERATIVE SALE SOCIETY (SUPRA) IS RESTRICTED TO THE SALE CONSIDERATION RECEIVED FROM MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS WHICH WAS RETAINED IN MANY CASES AND INVESTED IN SHORT TERM DEPOSIT/SECURITY AND THAT TH E SAID DECISION WAS CONFINED TO THE FACTS OF THE SAID CASE AND DID NOT LAY DOWN ANY LAW . THE HONBLE GUJARAT HIGH COURT HELD THAT IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY (SUPRA) DECIDED BY HONBLE SUPREME COURT, THE COURT WAS DEALING WITH TWO KINDS OF ACTIVITIES: INTEREST INCOME EARNED FROM THE AMOUNT RETAINED FROM THE AMOUNT PAY ABLE 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 AS SESSEE THEREIN INVESTED IN SHORT-TERM DEPOSITS WITH THE GOVERNMENT SECURITIES. THE HONBL E GUJARAT HIGH COURT IN THIS REGARD REFERRED TO THE DECISION OF THE KARNATAKA HIGH COUR T FROM WHICH THE MATTER TRAVELLED TO THE SUPREME COURT WHEREIN IT WAS THE CASE OF THE AS SESSEE THAT IT WAS CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS AND THEREFORE, THE APPELLANT- SOCIETY BEING AN ASSESSEE ENGAGED IN PROVIDING CRED IT FACILITIES TO ITS MEMBERS, THE INTEREST RECEIVED ON DEPOSITS IN BUSINESS AND SECUR ITIES IS ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE AS ITS JOB IS TO PROVIDE CREDIT FAC ILITIES TO ITS MEMBERS AND MARKETING THE AGRICULTURAL PRODUCTS OF ITS MEMBERS. THE HONB LE GUJARAT HIGH COURT THEREFORE HELD THAT DECISION IN THE CASE OF TOTAGAR CO-OPERATIVE S ALES SOCIETY RENDERED BY THE HONBLE SUPREME COURT 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 PAGE 11 OF 13 ITA NO.1257 & 1258/BANG/2019 OF FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURP OSES. THE SUPREME COURT HAS HELD THAT INTEREST ON SUCH INVESTMENTS, CANNOT FALL WITH IN THE MEANING OF THE EXPRESSION 'PROFITS AND GAINS OF BUSINESS' AND THAT SUCH INTER EST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY, NAME LY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKE TING 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 INTER EST WHICH ACCRUES ON FUNDS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR ITS BUSINE SS PURPOSES AND WHICH HAS BEEN INVESTED IN SPECIFIED SECURITIES AS 'INVESTMENT' AR E INELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. (PARAGRAPH-13 OF T HE JUDGMENT) 12. IT CAN THUS BE SEEN THAT THE RATIO LAID DOWN BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TOTALGARS COOPERATIVE SALES SOCIETY IN 395 ITR 611 (KARN) IS THAT IN THE LIGHT OF THE PRINCIPLES ENUNCIATED BY THE SUPREME C OURT IN TOTGARS CO-OPERATIVE SALE SOCIETY (SUPRA), IN CASE OF A SOCIETY ENGAGED IN PR OVIDING 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 AC T. HOWEVER, SECTION 80P(2)(D) OF THE ACT SPECIFICALLY EXEMPTS INTEREST EARNED FROM F UNDS INVESTED IN CO-OPERATIVE SOCIETIES. THEREFORE, TO THE EXTENT OF THE INTEREST EARNED FRO M INVESTMENTS MADE BY IT WITH ANY CO-OPERATIVE SOCIETY, A CO-OPERATIVE SOCIE TY 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-O PERATIVE SOCIETY, IS NOT DEDUCTIBLE UNDER SECTION 80P(2)(D) OF THE ACT. 6.5 ON THE BASIS OF ABOVE DISCUSSIONS, AND IN THE I NTEREST OF JUSTICE WE REMAND THIS ISSUE BACK TO THE LD.AO TO V ERIFY THE INTEREST EARNED FROM INVESTMENTS MADE IN CO-OPERATI VE SOCIETIES THAT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2) (D) OF THE ACT. THE LD.AO IS DIRECTED TO CONSIDER THE CLAIM IN ACCO RDANCE WITH ABOVE OBSERVATIONS. ACCORDINGLY THESE GROUNDS RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 7. GROUND NO.8 RAISED BY ASSESSEE BECOMES ACADEMIC AT THIS STAGE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION . PAGE 12 OF 13 ITA NO.1257 & 1258/BANG/2019 8. GROUND NO.9 IS CONSEQUENTIAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. ACCORDINGLY, THE APPEALS FILED BY ASSESSEE FOR ASSE SSMENT YEARS UNDER CONSIDERATION STANDS ALLOWED FOR STATIS TICAL PURPOSES. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 30 TH AUG, 2021 /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 13 OF 13 ITA NO.1257 & 1258/BANG/2019 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -8-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -8-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -8-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -8-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -8-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -8-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -8-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS