The Uttar Gujarat Uma Co.Op.Credit Soc. Ltd, Ahmedabad V. ITO, Ward-6(1)(5), Ahmedabad

ITA 1670/AHD/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3075 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 16-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Business income; Opportunity of being heard; Principle of natural justice; Competent authority; Condonation of delay; Co-operative Credit Society
• Section: 143(3); 80P; 56

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NOS. 1670 & 1671/AHD/2018 ( ASSESSMENT YEAR : 2014-15 & 2015-16) THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. 56, UTTAR GUJARAT, PATEL NAGAR SOCIETY, OPP. MOHAN CINEMA, JAHANGIRPURA, AHMEDABAD - 380016 / VS. INCOME TAX OFFICER WARD -6(1)(5), AHMEDABAD ./ ./ PAN/GIR NO. : AACAT5413H ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI SUNIL H. TALATI, A.R. / RESPONDENT BY : SHRI L. P. JAIN, SR.D.R. DATE OF HEARING 21/02/2019 !'# / DATE OF PRONOUNCEMENT 28/02/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTAN CE OF THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE COMMI SSIONER OF INCOME TAX (APPEALS)-6, AHMEDABAD (CIT(A) IN SHORT), DAT ED 31.08.2017 & 01.05.2018 ARISING IN THE ASSESSMENT ORDERS DATED 2 3.12.2016 & 15.12.2017 PASSED BY THE ASSESSING OFFICER (AO) UND ER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AYS 2014-15 & 2015- 16. ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 2 - ITA NO. 1670/AHD/2018-AY 2014-15 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN MAKING A FRESH ADDITION OF RS 3,30,062/- ON ACCOUNT OF INTEREST IN COME RECEIVED FROM CO. OPERATIVE BANK . IT IS SUBMITTED THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE AFRESH ADDITION MADE OF RS 3,30,062/- BE DELETED. 2. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN N ON GRANTING THE DEDUCTION OF INTEREST INCOME CLAIMED U/S 80P(2) (D) OF THE ACT. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E INCORRECT ADDITION MADE OF RS 3,30,062/- DESERVES TO BE DELET ED. IT MAY HELD SO NOW. 3. WITHOUT PREJUDICE TO THE ABOVE, LD. CIT(A) HAS E RRED IN CONSIDERING THE INTEREST INCOME RECEIVED ON INVESTM ENT WITH BANK OF RS 3,30,062/- AS FULLY TAXABLE U/S. 56 OF T HE ACT WITHOUT ALLOWING THE PRO-RATA EXPENDITURES INCURRED U/S 57 OF THE ACT. IT IS SUBMITTED THAT THE ONLY NET INTEREST INCOME R ECEIVED AFTER ALLOWING THE PRO-RATA EXPENDITURE INCURRED BE TAXED . 3. THE ASSESSEE, A CO-OPERATIVE CREDIT SOCIETY, FIL ED ITS RETURN OF INCOME WHICH INTER ALIA INCLUDED INTEREST INCOME AMOUNTING TO RS.3,28,923/- DERIVED FROM AHMEDABAD DISTRICT CO-OP ERATIVE BANK (ADC) AND RS.1,139/- DERIVED FROM AXIS BANK. THE R ETURN WAS SUBJECTED TO SCRUTINY ASSESSMENT AND CERTAIN ADDITI ONS WERE MADE BY THE AO. THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A ) ON THOSE ADDITIONS WITH WHICH WE ARE NOT PRESENTLY CONCERNED AS THE ASSESSEE IS NO LONGER AGGRIEVED. 4. IN THE FIRST APPEAL AGAINST THE ORDER OF THE AO ON OTHER ISSUES, THE CIT(A), HOWEVER, DENIED DEDUCTION OF THE AFORES AID AMOUNT AGGREGATING TO RS.3,30,662/- CLAIMED U/S. 80P OF TH E ACT BY THE ASSESSEE IN EXERCISE OF ITS POWER OF ENHANCEMENT. 5. THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AG AINST THE AFORESAID ACTION OF THE CIT(A). ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 3 - 6. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEAR NED AR FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THE APPEAL HA S BEEN FILED BY THE ASSESSEE BELATEDLY. THE LEARNED AR ADVERTED OUR AT TENTION TO THE AFFIDAVIT FILED IN THIS REGARD CITING REASONS FOR C ONDONATION OF DELAY AND URGED FOR A BENIGN VIEW AND SOUGHT CONDONATION OF DELAY OF 255 DAYS IN FILING THE APPEAL BEFORE THE TRIBUNAL. A P ERUSAL OF THE AFFIDAVIT GIVES US AN IMPRESSION OF EXISTENCE OF MI TIGATING CIRCUMSTANCES TO ENABLE US TO EXERCISE OUR DISCRETI ON IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE DELAY IS CONDONED. 7. ADVERTING FURTHER, THE LEARNED AR FOR THE ASSESS EE SUBMITTED THAT THE SOLITARY ISSUE FOR ADJUDICATION IN THE CAPTIONE D APPEAL IS WHETHER THE ASSESSEE SOCIETY IS ENTITLED FOR DEDUCTION OF I NTEREST EARNED FROM SURPLUS INVESTED IN PRIVATE BANKS AND CO-OPERATIVE BANKS IS ELIGIBLE FOR DEDUCTION UNDER S.80P(2)(D) OF THE ACT AS CLAIMED O R NOT. THE LEARNED AR REFERRED TO VARIOUS JUDICIAL PRECEDENTS TO PROP UP ITS CASE FOR ELIGIBILITY OF DEDUCTION. IN THIS REGARD, THE LEAR NED AR FOR THE ASSESSEE FIRST ADVERTED OUR ATTENTION TO PARA 16 OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF STATE BAN K OF INDIA (SBI) VS. CIT (2016) 72 TAXMANN.COM 64 (GUJ) AND SUBMITTE D THAT THE HONBLE GUJARAT HIGH COURT HAS DISTINGUISHED THE AV AILABILITY OF DEDUCTION UNDER S.80P(2)(A)(I) AND 80P(2)(D) OF THE ACT AND HAS CATEGORICALLY OBSERVED THAT IF THE APPELLANT WANTS TO AVAIL THE BENEFIT OF DEDUCTION OF SUCH INTEREST INCOME, IT IS ALWAYS OPEN FOR IT TO DEPOSIT THE SURPLUS FUNDS WITH A CO-OPERATIVE BANK AND AVAI L OF DEDUCTION UNDER S.80P(2)(D) OF THE ACT. THE LEARNED AR THE REAFTER REFERRED TO THE DECISION OF THE TRIBUNAL IN THE PEOPLES CO-OPER ATIVE CREDIT SOCIETY LTD. VS. ACIT IN ITA NO. 1891/AHD/2014 & OR S. ORDER DATED 23.03.2018 WHEREIN SIMILAR VIEW HAS BEEN EXPRESSED AFTER TAKING NOTE OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT I N THE CASE OF CIT ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 4 - VS. SABARKANTHA DISTRICT COOPERATIVE MILK PRODUCERS UNION LTD. IN TAX APPEAL NO. 473 OF 2014. 8. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF THE AO AND SUBMITTED THAT SECTION 80P(2)(D) OF THE ACT PROVIDES FOR DEDUCTION TOWARDS INTEREST DERIVED BY THE CO-OPERAT IVE SOCIETY FROM ITS INVESTMENTS WITH OTHER CO-OPERATIVE SOCIETIES. THE INVESTMENT OF SURPLUS IN CO-OPERATIVE BANK IS THUS NOT COVERED FO R THE PURPOSES OF DEDUCTION, MORE SO, IN THE LIGHT OF SECTION 80P(4) OF THE ACT. THE LEARNED DR FURTHER SUBMITTED THAT THE DEDUCTION IS ALSO NOT AVAILABLE UNDER S.80P(2)(A)(I) OF THE ACT EITHER, IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF THE CITIZEN CO -OPERATIVE SOCIETY LTD. V. ASSTT. CIT (2017) 88 TAXMANN.COM 27 9 (SC). 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE DISPUTE CONCERNS SECTION 80P OF THE ACT WHICH PROVIDES FOR DEDUCTION OF INCOME OF A CO-OPERATIVE SOCIETY ENGAGED IN SPECIFI ED ACTIVITY CATALOGUED IN SECTION 80P(2) OF THE ACT. THE PRIN CIPAL CONTROVERSY IN THE CAPTIONED APPEAL IS TOWARDS MAINTAINABILITY OF DEDUCTION UNDER S.80P(2)(D) OF THE ACT IN THE HANDS OF THE CREDIT C O-OPERATIVE SOCIETY TOWARDS INTEREST EARNED FROM DEPOSIT PLACED WITH CO -OPERATIVE BANKS, MORE SO, IN THE LIGHT OF INSERTION OF S. 80P(4) OF THE ACT BY FINANCE ACT, 2006. THUS, THE INCIDENTAL POINT IN ISSUE IS WHETHER THE BENEFIT OF S. 80P DENIED TO COOP BANKS BY THE INSERTION OF 80P (4) ADVERSELY IMPACTS THE INVESTMENT IN SUCH BANKS BY A CO-OP SOC IETY OR NOT? IT IS COMMON KNOWLEDGE THAT A LARGE NUMBER OF CO-OP. SOCI ETIES PLACE THEIR SURPLUS WITH CO-OP. BANKS AND SEEK BENEFIT OF SECTI ON 80P(2)(D) OF THE ACT ON INTEREST INCOME DERIVED. HENCE, A NUANCED U NDERSTANDING OF THE RAGING CONTROVERSY IS STRONGLY NEEDED. ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 5 - 9.1 IT IS PREDOMINANTLY THE CASE OF THE ASSESSEE TH AT THE CO-OPERATIVE BANKS ESSENTIALLY CONTINUE TO BE CO-OPERATIVE SOCIE TIES AND WHILE CO- OPERATIVE SOCIETIES IS A GENUS TERM, THE CO-OPERA TIVE BANKS ARE SPECIES THERETO. THEREFORE, SUCH CO-OPERATIVE BANK S ARE ESSENTIALLY CO- OPERATIVE SOCIETIES NOTWITHSTANDING THEIR ENGAGEMEN T IN BANKING BUSINESS. CONSEQUENTLY, IT IS CLAIMED THAT THE INVE STMENT IN CO- OPERATIVE BANKS ARE TO BE TREATED AT PAR WITH INVES TMENT IN CO- OPERATIVE SOCIETIES FOR THE PURPOSES OF ELIGIBILITY OF DEDUCTION UNDER S.80P(2)(D) OF THE ACT. THE REVENUE, ON THE OTHER H AND, HAS CONTENDED THAT IN VIEW OF DEFINITION PROVIDED FOR CO-OPERATIV E SOCIETIES UNDER SECTION 2(19); DEDUCTION PROVIDED UNDER SECTION 80P (2)(D) R.W.S. 80P(4) OF THE ACT IS NOT AVAILABLE TO INVESTMENT IN A CO-OPERATIVE BANK AS SUCH INVESTMENT CANNOT BE TREATED AT PAR WITH TH E INVESTMENT IN CO- OPERATIVE SOCIETY. IT IS ALSO CONTENDED ON BEHALF OF THE REVENUE THAT THE PROVISIONS OF SECTION 80P OF THE ACT ARE FOUNDE D ON PRINCIPLES OF MUTUALITY I.E. COMMON IDENTITY BETWEEN THE CONTRIB UTORS AND PARTICIPATORS. THE DEPOSIT IN THE CO-OPERATIVE BAN K LACKS THE DEGREE OF PROXIMITY BETWEEN THE MEMBERS OF THE SOCIETY WITH T HAT OF CO- OPERATIVE BANK AND THUS OFFENDS THIS SACROSANCT PRI NCIPLE OF MUTUALITY. IT WAS THUS CONTENDED THAT INTEREST INCOME BY A CO- OPERATIVE SOCIETY FROM A CO-OPERATIVE BANK IS NOT COVERED IN THE FOLD OF SECTION 80P(2) OF THE ACT. IT IS FURTHER CASE OF THE ASSESSEE THAT EXCLUSION OF CO-OP BANKS FOR ELIGIBILITY OF DEDUCTION UNDER S. 80P OWI NG TO INSERTION OF S. 80P(4) DOES NOT, IN ANY MANNER, TAKE AWAY THE BENEF IT AVAILABLE UNDER S. 80P(2)(D) TO AN INVESTOR SOCIETY (EXCLUDING CO-O P BANK) IN A CO-OP BANK WHICH IS A CO-OP SOCIETY FOR ALL INTENT AND PU RPOSES WHILE CARRYING ON THE FUNCTIONS OF A BANK. IT IS THUS PAD DLED THAT WHILE A CO- OP SOCIETY FUNCTIONING AS A CO-OP BANK IS NOT ENTIT LED TO BENEFIT OF 80P OWING TO EXCLUSIONS MADE, A CO-OP SOCIETY NOT BEING A CO-OP BANK REMAINS UNAFFECTED BY S. 80(4) AND CAN ENJOY THE BE NEFITS OF S. 80P(2)(D) CONFERRED ON THE SOCIETIES ON FULFILLMENT OF PRE-REQUISITES. ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 6 - 9.2 BEFORE WE PROCEED TO DEAL WITH THE ISSUE IN HAN D, IT WOULD BE APT TO QUOTE THE RELEVANT PROVISIONS GOVERNING THE CONT ROVERSY IN HAND. 9.2.1 SECTION 2(19) DEFINES THE MEANING OF EXPRESSI ON CO-OP SOCIETY AS UNDER: 'CO-OPERATIVE SOCIETY' MEANS A CO-OPERATIVE SOCIETY REGISTERED UNDER THE CO-OPERATIVE SOCIETIES ACT, 1912 (2 OF 1912 ), OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE IN ANY STATE FOR TH E REGISTRATION OF CO- OPERATIVE SOCIETIES; 9.2.2 INCOME UNDER S. 2(24) OF THE ACT ALSO INCLUDE S: THE PROFITS AND GAINS OF ANY BUSINESS OF BANKING (I NCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO-OPERATIVE SOC IETY WITH ITS MEMBERS 9.2.3 THE RELEVANT PORTION OF S. 80-P GOVERNING DED UCTION AVAILABLE TO CO-OPERATIVE SOCIETIES IS ALSO QUOTED HEREUNDER: DEDUCTION IN RESPECT OF INCOME OF CO-OPERATIVE SO CIETIES. 80P. (1) WHERE, IN THE CASE OF AN ASSESSEE BEING A CO-OPERAT IVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB-SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORD ANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN SUB- SECTION (2), IN COMPUTING THE TOTAL INCOME OF THE A SSESSEE. (2) THE SUMS REFERRED TO IN SUB-SECTION (1) SHALL B E THE FOLLOWING, NAMELY : (A) IN THE CASE OF A CO-OPERATIVE SOCIETY ENGAGED IN (I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS; OR (II) A COTTAGE INDUSTRY ; OR (III) --- (IV) -- (V) --- (VI) --- (VII) ---- THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES : ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 7 - (B) ----------- (C) ----------- (D) IN RESPECT OF ANY INCOME BY WAY OF INTEREST OR DIVI DENDS DERIVED BY THE CO-OPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER CO-OPERATIVE SOCIETY, THE WHOLE OF SUCH INCOME ; (E) (F) ----------- (4) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY O R A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVEL OPMENT BANK. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, (A) 'CO- OPERATIVE BANK' AND 'PRIMARY AGRICULTURAL CREDIT SO CIETY' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO TH EM IN PART V OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); (B) 'PRIMARY CO- OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK' MEANS A SOCIETY HAVING ITS AREA OF OPERATION CONFIN ED TO A TALUK AND THE PRINCIPAL OBJECT OF WHICH IS TO PROVIDE FOR LONG- TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIV ITIES. 9.2.4 PART V OF BANKING REGULATION ACT, 1949 DEFINE S CO-OPERATIVE BANK IN SECTION 5(CCI) AS UNDER: CO-OPERATIVE BANK MEANS A STATE CO-OPERATIVE BAN K, A CENTRAL CO-OPERATIVE BANK AND A PRIMARY CO-OPERATIVE BANK; 9.2.5 A PRIMARY CO-OPERATIVE BANK AS PER SECTION N 5(CCV) OF PART V OF BANKING REGULATION ACT, 1949 READS TO MEAN: (CCV) PRIMARY CO-OPERATIVE BANK MEANS A CO-OPERA TIVE SOCIETY, OTHER THAN A PRIMARY AGRICULTURAL CREDIT S OCIETY,- . 9.2.6 AS PER CLAUSE (CCVII) OF SECTION 5, HOWEVER, CENTRAL CO-OP BANK AND STATE CO-OP BANK SHALL HAVE THE SAME ME ANINGS ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 8 - RESPECTIVELY ASSIGNED TO THEM IN THE NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD) ACT, 1981. NABARD, IN TU RN DEFINES THESE TWO TERMS AS UNDER: SECTION 2(D) OF NABARD DEFINES CENTRAL CO-OPERATIVE BANK MEANS THE D. 'CENTRAL CO-OPERATIVE BANK' MEANS THE PRINCIPAL CO- OPERATIVE SOCIETY IN A DISTRICT IN A STATE, THE PRIMARY OBJEC T OF WHICH IS THE FINANCING OF OTHER CO-OPERATIVE SOCIETIES IN THAT D ISTRICT:. U. 'STATE CO-OPERATIVE BANK' MEANS THE PRINCIPAL C O- OPERATIVE SOCIETY IN A STATE, THE PRIMARY OBJECT OF WHICH IS THE FINA NCING OF OTHER CO- OPERATIVE SOCIETIES IN THE STATE: 9.3 HAVING NOTED THE RELEVANT PROVISIONS IN EARLIER PARA, IT WOULD BE EXPEDIENT TO FIRSTLY REFER TO THE DECISION OF THE C ITIZEN CO-OPERATIVE SOCIETY LTD. (SUPRA) TO GATHER THE RULES OF INTERPR ETATION OF VARIOUS SUB- SECTIONS OF THE BENEFICIAL PROVISION OF S. 80 P. THE HONBLE SUPREME COURT INTER ALIA HAS OBSERVED THAT DIFFEREN T HEADS OF EXEMPTION ENUMERATED IN THE SECTION 80P OF THE ACT SHOULD BE TREATED AS SEPARATE AND DISTINCT HEAD OF EXEMPTION. IF AN Y PARTICULAR CATEGORY OF AN INCOME FALLS WITHIN ANY ONE HEAD OF EXEMPTIO N, THE ASSESSEE WOULD BE FREE FROM TAX NOTWITHSTANDING THAT THE CON DITIONS OF OTHER HEAD OF EXEMPTION ARE NOT SATISFIED AND SUCH INCOME IS NOT FREE FROM TAX UNDER OTHER HEAD OF EXEMPTION. THUS, IN VIEW OF THE EXPRESS JUDICIAL DICTA, PROVISIONS OF SECTION 80P(2)(A) AND 80P(2)(D) ARE MUTUALLY EXCLUSIVE AND ARE TO BE READ INDEPENDENT O F EACH OTHER. 9.4 WE ARE PRESENTLY CONCERNED WITH THE AVAILABILIT Y OF DEDUCTION TO A CO-OP SOCIETY WITHIN THE REALM OF SECTION 80P(2)( D) OF THE ACT. TWO THINGS NEED TO BE NOTED IN THIS REGARD; FIRSTLY, UN LIKE SECTION 80P(2)(A) OR (B) OR (C) OF THE ACT WHERE THE ASSESSEE IS QUAL IFIED FOR DEDUCTION OF ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 9 - PROFITS & GAINS OF BUSINESS ATTRIBUTABLE TO ONE O R MORE OF ACTIVITIES ENUMERATED IN THESE SUB-SECTIONS, SECTION 80P(2)(D) OF THE ACT, IN SHARP DEPARTURE, PROVIDES FOR DEDUCTION OF WHOLE O F SUCH INCOME [WITHOUT ANY DISTINCTION ON NATURE OF INCOME] AS DE RIVED BY A CO- OPERATIVE SOCIETY FROM ITS INVESTMENT WITH ANY OTHE R CO-OPERATIVE SOCIETY. NEEDLESS TO SAY, IN A TAXING ACT, ONE HAS TO LOOK MERELY AT WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INT ENDMENT AND ONE HAS TO LOOK FAIRLY AT THE LANGUAGE USED. THUS, SCOPE OF BENEFIT UNDER S.80P(2)(D) IS NOT RESTRICTED TO BUSINESS INCOME ALONE BUT ALSO EXTENDS TO INCOME DERIVED FROM INVESTMENTS ORDINARI LY FALLING UNDER THE HEAD INCOME FROM OTHER SOURCES AS WELL ; SECO NDLY DOCTRINE OF MUTUALITY IS NOT NECESSARILY A PRE-CONDITION IN APP ROPRIATE CIRCUMSTANCES, FOR INSTANCE 80P(2)(A(II); AND THIR DLY AND QUITE SIGNIFICANTLY ; THE INVESTMENT BY A CO-OP SOCIETY I N A CO-OP SOCIETY SHOULD RESULT IN INTEREST OR DIVIDEND INCOME FROM I TS INVESTMENT. THUS WHAT IS PERTINENT IS THAT THE INVESTMENT BY THE ASS ESSEE SOCIETY SHOULD BE PARKED IN ANOTHER CO-OP SOCIETY FOR THE PURPOS ES OF SUB-CLAUSE 2(D) OF S. 80P. THE MOOT QUESTION THUS NATURALLY E MERGES IS ; WHETHER THE INVESTMENT IN A CO-OP BANK IS TO BE REGARDED AS INVESTMENT IN- EFFECT IN A CO-OP SOCIETY OR NOT ? 9.5 AT THIS JUNCTURE, WE ALSO TAKE SIMULTANEOUS NOT E OF SUCH SECTION 80P(4) OF THE ACT INSERTED BY FINANCE ACT, 2006 WHE REBY A CO- OPERATIVE BANK HAS BEEN DEPRIVED OF DEDUCTION UNDER S.80P OF THE ACT. TO PUT IT SLIGHTLY DIFFERENTLY, WITH ADVENT OF SECT ION 80P(4), CO-OP BANKS HAVE BEEN BROUGHT TO TAX BY DENYING THEM THE BENEFIT OF SECTION 80P OF THE ACT. 9.6 THE INSERTION OF SECTION 80P(4) OF THE ACT HAS PURPORTEDLY ALSO OBFUSCATED AND CAST ASPERSION ON THE DEDUCTIBILITY OF INCOME DERIVED BY A CO-OPERATIVE SOCIETY FROM INVESTMENTS PLACED W ITH CO-OPERATIVE ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 10 - BANK UNDER S. 80P(2)(D) OF THE ACT. IN THIS CONTEX T, IT WOULD BE INTERESTING TO NOTE THAT THE AFORESAID CLAUSE 80P( 4) ITSELF HOLDS THAT A CO-OPERATIVE BANK MAY ALSO POSSIBLY INCLUDE A CRED IT SOCIETY; FOR INSTANCE, A PRIMARY AGRICULTURAL CREDIT SOCIETY. T HEREFORE, ON AN INCISIVE READING OF SECTION 80P(4) OF THE ACT, IT A PPEARS THAT CO- OPERATIVE BANKS CAN ALSO BE CO-OPERATIVE SOCIETY FO R THE PURPOSES OF SECTION 80P(2)(D) OF THE ACT. THUS, ON A CONJOINT READING OF SECTION 80P(2)(D) AND 80P(4), IT WOULD APPEAR THAT WHILE TH E CO-OPERATIVE BANKS IN CERTAIN CASES [AS SPECIFIED IN SECTION 80P (4)] MAY NOT QUALIFY FOR DEDUCTION UNDER S.80P OF THE ACT, A CO- OPERATIVE SOCIETY PER SE WOULD NOT COME WITHIN THE MISCHIEF OF SUB-SECTION 4 OF THE ACT OF SECTION 80P OF THE ACT AND WOULD CONTINUE TO AVA IL THE BENEFIT OF SECTION 80P(2)(D) OF THE ACT. THUS, SIMPLY PUT, WH ILE A CO-OPERATIVE BANK HAS BEEN STRIPPED OF THE BENEFIT OF SECTION 80 P OF THE ACT ON ITS VARIOUS INCOME BY INSERTION OF S. 80P(4), THE INVES TMENT IN SUCH CO- OPERATIVE BANK [ BEARING THE LEGAL TRAPPINGS OF A C O-OP SOCIETY ] BY A CO-OP SOCIETY AS ENVISAGED IN SECTION 80P(1) OF THE ACT IS NOT DIVESTED OF SUCH BENEFIT. 9.7 JOINING THE ISSUE IN HAND, AS PER SECTION 80P(2 )(D) OF THE ACT, THE ONLY REQUIREMENT IS THAT THE INCOME SHOULD BE R ECEIVED FROM INVESTMENT BY A CO-OPERATIVE SOCIETY IN OTHER CO-OP ERATIVE SOCIETY AND IT IS CLAIMED THAT CO-OPERATIVE BANK NAMELY AHMEDA BAD DISTRICT CO- OPERATIVE BANK, IN THE PRESENT CASE, IS NOTHING BU T A CO-OPERATIVE SOCIETY RECOGNISED BY THE COMPETENT AUTHORITY OF TH E STATE AS CONTEMPLATED UNDER SECTION 2(19) OF THE ACT. ON THE SE FACTS, THE ELIGIBILITY OF DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT IS REQUIRED TO BE EVALUATED INDEPENDENT OF MUTUALITY DOCTRINE T AKEN AWAY BY INSERTION OF S. 2(24)(VIIA). THE ASSESSEE SOCIETY WOULD THUS BE ENTITLED TO BENEFIT OF SECTION 80P(2)(D) ON INTERES T INCOME FROM INVESTMENT IN CO-OP BANK. AS NOTICED FROM THE DEFIN ITION OF CO-OP ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 11 - BANK WITH REFERENCE TO BANKING REGULATION ACT, 194 9; READ WITH NABARD ACT, IT IS OSTENSIBLE THAT THE CO-OP BANKS O F VARIOUS TYPES ARE ESSENTIALLY CO-OP. SOCIETIES. HENCE, THE CLAIM OF DEDUCTION MADE UNDER S. 80P(2)(D) BY A CO-OP SOCIETY IN SUCH CO-OP BANKS CAN NOT BE DENIED NOTWITHSTANDING THAT SOME THESE CO-OP BANKS ARE NOT ELIGIBLE FOR 80P BENEFITS DESPITE BEING CO-OP SOCIETIES. 9.8 COUPLED WITH THIS, CERTAIN OBSERVATIONS MADE BY THE HONBLE GUJARAT HIGH COURT IN STATE BANK OF INDIA (SUPRA) A ND IN SABARKANTHA DISTRICT (SUPRA) ALSO REINFORCES THAT INTEREST EARN ED ON FIXED DEPOSIT WITH CO-OPERATIVE BANK CAN BE SAID TO BE QUALIFIED FOR DEDUCTION UNDER S.80P OF THE ACT NOTWITHSTANDING THAT SUCH OBSERVAT IONS APPEAR TO BE IN THE NATURE OF AN OBITER IN THE CONTEXT OF THOSE CASES. 9.9 AT THIS STAGE, IT WOULD ALSO BE PERTINENT TO AG AIN RESTATE THAT FOR THE PURPOSES OF SECTION 80P OF THE ACT, THE PRINCIP LE OF MUTUALITY HAS BEEN OBLITERATED IN VIEW OF INSERTION OF SECTION 2( 24) (VIIA) OF THE ACT BY FINANCE ACT, 2006 AND SUCH PRINCIPLES THUS NO LO NGER SERVE AS STRICT GUIDING PRINCIPLE TO TEST THE RELIEF ELIGIBLE UNDER S. 80P(2)(D) OF THE ACT. THEREFORE, THE PLEA RAISED ON BEHALF OF THE RE VENUE TOWARDS ABSENCE OF PRINCIPLE OF MUTUALITY IN SUCH DEPOSITS WITH CO-OPERATIVE BANKS IS A DAMP SQUIB. THUS, THE ASSESSEE BEING A C O-OPERATIVE SOCIETY AS CONTEMPLATED UNDER S. 80P(1) OF THE ACT, CANNOT BE DEPRIVED OF BENEFIT OF S.80P(2) (D) DESPITE PURPORTED ABSENCE O F MUTUALITY IN INVESTMENT WITH A CO-OP BANK. WE, THUS, CONCUR WITH PLEA OF ASSESSEE FOR ALLOWABILITY OF DEDUCTION ON INTEREST INCOME DE RIVED FROM CO- OPERATIVE SOCIETY IN THE FORM OF CO-OPERATIVE BANK ON FIRST PRINCIPLES. THE ISSUE IS ACCORDINGLY RESOLVED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 12 - 9.10 WE ARE CONSCIOUS OF THE DECISION OF THE HONBL E KARNATKA HIGH COURT IN PR.CIT VS. TOTAGARS CO.OPERATIVE SALES SOC IETY (2018) 395 ITR 611 (KARN) WHEREIN IT WAS HELD THAT INTEREST IN COME NOT ARISING FROM BUSINESS OPERATIONS IS NOT ELIGIBLE FOR DEDUCT ION UNDER S.80P OF THE ACT. A READING OF THE JUDGMENT OF THE HONBLE H IGH COURT SHOWS THAT IT WAS GUIDED BY NATURE OF ACTIVITY TO DETERMI NE THE CHARACTER OF INCOME FOR THE PURPOSES OF SECTION 80P(2)(D) OF THE ACT. PLACING RELIANCE UPON THE JUDGMENTS RENDERED IN THE CONTEXT OF 80P(2)(A)(I) OF THE ACT, THE HONBLE HIGH COURT CONCLUDED THAT THE DEDUCTION OF INTEREST INCOME IS NOT PERMISSIBLE UNLESS IT ARISES FROM BUSINESS OPERATIONS. CLEARLY, THE DISTINCTION BETWEEN SECTI ON 80P(2)(A) AND 80P(2)(D) OF THE ACT OF SUBSTANTIAL NATURE (AS DISC USSED IN PARA 9.4 OF THIS ORDER) WAS NOT BROUGHT TO THE NOTICE OF HONBL E HIGH COURT. THE DEDUCTION UNDER S. 80P(2)(A) OR (B) OR (C) OF THE A CT IS AVAILABLE ONLY ON ACCOUNT OF INCOME/PROFITS ARISING FROM BUSINESS ACTIVITY. HOWEVER, THIS REQUIREMENT IS NOT APPLICABLE UNDER S.80P(2)(D ) OF THE ACT WHERE WHOLE OF THE INCOME ARISING FROM INTEREST OR DIVIDE ND ETC. IS ALLOWABLE WITHOUT SUCH LIMITATION OF BUSINESS ACTIVITY. THIS CARDINAL DIFFERENCE OF OVERWHELMING NATURE WAS NOT BROUGHT TO THE NOTIC E OF THE HONBLE HIGH COURT. CONSEQUENTLY, THE DECISION RENDERED BY THE HONBLE HIGH COURT APPEARS TO BE SUBSILENTIO . THUS, GOVERNED BY THE OBSERVATIONS OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SA BARKANTHA DISTRICT (SUPRA) AND STATE BANK OF INDIA (SUPRA), WE HAVE NO T HESITATION TO AFFIRM THE PLEA OF THE ASSESSEE FOR ALLOWABILITY OF DEDUCTION. 9.11 IT IS, HOWEVER, FOR THE ASSESSEE TO DEMONSTRAT E ON FACTS THAT THE INVESTEE CO-OPERATIVE BANK IN QUESTION IS RECOGNISE D AS A CO-OPERATIVE SOCIETY INDEED WITHIN THE MEANING OF SECTION 2(19) OF THE ACT. A SELF- DECLARATION FROM THE RESPECTIVE CO-OP. BANK IN THIS REGARD OR ANY OTHER SUITABLE DOCUMENT MAY DISCHARGE THE ONUS OF THE ASS ESSEE TOWARDS THE STATUS OF THE CO-OP. BANK. SIMILARLY, THE ASSESSEE IS ENTITLED TO AVAIL ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 13 - DEDUCTION OF RESULTANT INCOME DERIVED AND NOT GRO SS RECEIPT OF INTEREST UNDER S. 80P(2)(D) OF THE ACT IN ACCORD WI TH BASIC RATIONALE OF TAXATION. HENCE, ALL EXPENSES/LOSSES ATTRIBUTABLE T O SUCH INTEREST INCOME ARE REQUIRED TO BE NECESSARILY DEDUCTED AND ONLY RESULTANT INTEREST INCOME IS ELIGIBLE FOR DEDUCTION UNDER S. 80P(2)(D) OF THE ACT. THE AO WOULD THUS BE AT LIBERTY TO ASCERTAIN THESE FACTUAL ASPECTS FOR WHICH THE ASSESSEE SHALL PROVIDE SUITABLE ASSISTANC E. 10. THE ALTERNATIVE CLAIM OF THE ASSESSEE FOR ALLOW ANCE OF PRO-RATA EXPENDITURE AGAINST THE INTEREST INCOME FROM INVEST MENT IN CO- OPERATIVE BANKS ETC. IS RENDERED INFRUCTUOUS IN VIE W OF THE ENDORSEMENT OF THE MAIN PLEA. IN VIEW OF OUR FINDI NGS THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER S.80P(2)(D ) OF THE ACT FOR RESULTANT INCOME DERIVED FROM INVESTMENTS PLACED WI TH CO-OPERATIVE BANKS, WE DO NOT SEEK TO DELINEATE FURTHER. THEREF ORE, AO MAY ALLOW CLAIM OF DEDUCTION UNDER S. 80P(2)(D) OF THE ACT ON NET INCOME FROM INTEREST AFTER REDUCTION OF ALL INCIDENTAL EXPENSES INCURRED TO EARN SUCH INCOME. THE ISSUE IS THUS REMITTED BACK TO AO FOR QUANTIFICATION OF DEDUCTION OF INTEREST INCOME IN ACCORDANCE WITH LAW ON BEING SATISFIED THAT THE RECEIVER CO-OPERATIVE BANK SATISFIES TO BE A CO-OPERATIVE SOCIETY EQUALLY. 11 THE INTEREST INCOME OF RS.1,139/- DERIVED BY THE ASSESSEE SOCIETY FROM INVESTMENT WITH PRIVATE BANK I.E. AXIS BANK IS HOWEVER, NEITHER QUALIFIED UNDER S. 80P(2)(A)(I) OF THE ACT IN THE LIGHT OF THE RATIO OF THE CITIZEN CO-OPERATIVE SOCIETY LTD. (SU PRA) NOR UNDER S.80P(2)(D) OF THE ACT. THUS, THE ASSESSEE IS NOT E NTITLED FOR DEDUCTION OR INTEREST DERIVED FROM THE PRIVATE BANK. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 14 - ITA NO. 1671/AHD/2018-AY 2015-16 13. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE AD AS UNDER: 1. THE LD CIT(A) HAS ERRED IN PASSING THE ORDER WI THOUT GRANTING OPPORTUNITY OF BEING HEARD TO THE APPELLANT. IT IS SUBMITTED THE ORDER PASSED BY LD CIT(A) IS COMPLETELY ERRONEOUS , INCORRECT AND UNLAWFUL. THUS ORDER PASSED BY LD CIT(A) BE SET ASIDE AND INCORRECT ADDITION MADE AND CONFIRMED OF RS 6,07,37 7/- BE DELETED IN VIEW OF NATURAL JUSTICE. 2. THE LD CIT(A) HAS ERRED IN CONFIRMING THE ADDIT ION MADE OF RS 6,07,377/- DISALLOWING THE INTEREST INCOME CLAIMED U/S 80P OF THE ACT. IT IS SUBMITTED THAT THE APPELLANT HAS NEV ER BEEN INFORMED REGARDING FIXING OF HEARING BY ISSUING NOT ICE OR BY ANY OTHER COMMUNICATION MODE WHATSOEVER FROM THE OF FICE OF CIT(A). THUS THE ORDER PASSED BY LD CIT(A) WITHOUT GRANTING OF OPPORTUNITY OF BEING HEARD BE TREATED AS NULL AN D VOID. THEREFORE THE ORDER SO PASSED BY CIT(A) BE SET ASID E AND INCORRECT ADDITION MADE OF RS 6,07,377/- BE DELETED . 3. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDI TION MADE OF RS. 6,07,377/- ON ACCOUNT OF INTEREST INCOME RECEIV ED FROM BANK. IT IS SUBMITTED THAT INTEREST INCOME RECEIVED FROM SAVINGS / DEPOSITS WITH THE BANK WHICH IN TURN TO B E USED FOR THE FOR THE OBJECTS OF THE SOCIETY IS CLEARLY ELIGI BLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. ON THE FACTS AND CIRCUMSTANCES, THE ADDITION MADE TOWARDS INTEREST I NCOME RECEIVED OF RS. 6,07,377/- IS COMPLETELY ILLEGAL AN D UNLAWFUL AND THEREFORE THE SAME BE DELETED. 4. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN NON GRANTING THE DEDUC TION OF INTEREST INCOME CLAIMED OF RS 6,06,192/- ( FROM CO. OP. BANK) U/S 80P(2)(D) OF THE ACT. ON THE FACTS AND CIRCUMST ANCES OF THE CASE, THE INCORRECT ADDITION MADE OF RS 6,06,192/- DESERVES TO BE DELETED. IT MAY HELD SO NOW. 5. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, LD. CIT( A) HAS ERRED IN CONSIDERING THE INTEREST INCOME RECEIVED ON INVE STMENT WITH BANK OF RS 6,07,377/- AS FULLY TAXABLE U/S. 56 OF T HE ACT WITHOUT ALLOWING THE PRO-RATA EXPENDITURES INCURRED U/S 57 OF THE ACT. IT IS SUBMITTED THAT THE ONLY NET INTEREST INCOME R ECEIVED AFTER ALLOWING THE PRO-RATA EXPENDITURE INCURRED BE TAXED . 14. IN PARITY WITH OUR OBSERVATIONS IN ITA NO. 1670 /AHD/2018, THE INTEREST INCOME DERIVED BY THE ASSESSEE SOCIETY FRO M INVESTMENT IN ITA NOS. 1670 & 1671/AHD/18 [THE UTTAR GUJARAT UMA CO-OP CREDIT SOCIETY LTD. VS. ITO] A.Y. 2014-15 & 2015-16 - 15 - ADC BANK AMOUNTING TO RS.6,06,192/- IS ELIGIBLE FOR DEDUCTION UNDER S.80P OF THE ACT ON FIRST PRINCIPLES, SUBJECT HOWEV ER TO VERIFICATIONS BY AO AS DIRECTED IN THAT APPEAL. HOWEVER, THE INT EREST INCOME DERIVED FROM AXIS BANK AMOUNTING TO RS.1,185/- WOUL D NOT BE SIMILARLY NOT ELIGIBLE FOR DEDUCTION UNDER S.80P(2) OF THE ACT. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 16. IN THE COMBINED RESULT, BOTH APPEALS OF THE ASS ESSEE ARE PARTLY ALLOWED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 28/02/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 28/02/201 9