M/s. Padangady Sahakari Vyavasayika Sangha, Belthangadi V. Income Tax Officer, Ward - 1, Puttur

ITA 209/BANG/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6807 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 13-02-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ALLOWING CLAIM UNDER SECTION
• Keywords: Business income; Source of fund; Competent authority
• Section: 234B; 80P; 143(2); 13; 22; 20

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH, BANGALORE (SMC) BEFOR E SHRI CHANDRA POOJARI , AM ITA NO. 209/BANG/2020 ASSESSMENT YEAR: 2016 - 17 M/S. PADANGADY SAHAKARI VYAVASAYIKA SANGHA, PADANGADY VILLAGE & POST, BELTHANGADY TALUK, DK DISTRICT - 574 217. [PAN: AACAP O271B] VS. THE INCOME TAX OFFICER, WARD - 1, PUTTUR. (ASSESSEE - APPELLANT) (REVENUE - RES PONDENT) A SESSEE BY SHRI V. SRINIVASAN, ADVOCATE REVENUE BY SHRI GANESH GHALE, ADVOCATE SC TO DEPARTMENT D ATE OF HEARING 08 / 0 9 /2020 DATE OF PRONOUNCEMENT 10 / 0 9 /20 20 O R D E R PER CHANDRA POOJARI, AM: TH IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 06/01/2020 AND PERTAINS TO THE ASSESSMENT YEAR 2016 - 17. 2. THE ASSE SSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR AS THEY ARE AGAINST THE APPELLANT ARE OPPOSED TO LAW, EQUITY, WEIGHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE DENIAL OF DEDUCTION CLAIMED U/S. 80P(2)(A)(I) OF THE ACT AMOUNTING TO RS.33,70,747/ - IN RESPECT OF THE PROFITS EARNED BY THE APPELLANT FROM THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. I.T.A. NO . 209 /BANG/2020 2 3. THE LD. CIT(A) ERRED IN HOLDING THAT THE BUSINESS OF PROVIDING CREDIT FACILITIES TO THE MEMBERS CARRIED ON BY THE APPELLANT CANNOT BE REGARDED AS A BUSINESS CARRIED ON BY A CO - OPERATIVE SOCIETY COMPLYING WITH THE P RINCIPLES OF MUTUALITY SINCE THE APPELLANT HAD ADMITTED NOMINAL AND ASSOCIATED MEMBERS, WHO COULD NEITHER VOTE NOR WERE ENTITLED TO A SHARE IN THE PROFITS 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 THE JUDGMENT OF THE HO NBLE 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 CASE. 4. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT CO - OPERATIVE SOCIETY HAD NO DOUBT ADMITTED NOMINAL AND ASSOCIATE MEMBERS, WHICH WAS PERMISSIBLE UNDER THE KARNATAKA CO - OPERATIVE SOCIETIES ACT, 1959 BUT, THERE WAS NO VIOLATION OF ANY OF THE PROVISIONS OF THE KARNATAKA CO - OPERATIVE SOCIETIES ACT UNDER WHICH THE APPELLANT WAS CONSTITUTED AND THEREFORE, THE JUDGMENT OF THE HONBLE SUPREME COURT RELIED UPON IN THE CASE OF CITIZENS CO - OPERATIVE SOCIETY REPORTED IN 397 ITR 1 WAS DISTINGUISHABLE AND WHOLLY INAPPLICABLE TO THE FACTS OF THE APPELLANTS CASE. 5. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE ALTERNATE CLAIM MADE BY THE APPELLANT FOR ALLOWANCE OF DEDUCTION U/S. 80P OF THE ACT WITH REFERENCE TO THE E XTENT OF INCOME DERIVED FROM ADVANCES GIVEN TO MEMBERS APART FROM NOMINAL MEMBERS, WHICH WAS EXEMPT UNDER THE PRINCIPLES OF MUTUALITY AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. QUEPEM URBAN CO - OPERATIVE CREDIT SOCIETY LTD. IN ITA NOS. 22 TO 24 OF 2015 DATED 17/04/2015 UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 6. THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD THE ASSESSMENT OF INCOME EARNED BY THE APPELLANT FROM INVESTMENTS MADE IN SOUTH CANARA DISTRICT CO - OPERATIVE BANK TO THE EXTENT OF RS.32,27,560/ - UNDER THE HEAD OTHER SOURCES AS AGAINST THE CLAIM OF THE APPELLANT THAT THE SAID INTEREST INCOME FORMED PART OF THE INCOME FROM BUSINESS OF PROVIDING CREDIT FACILITIES TO THE MEMBERS AND THUS, WAS ENTITLED TO DEDUCTION U/ S. 80P(2)(A)(I) OF THE ACT FOLLOWING THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO - OPERATIVE LTD. REPORTED IN (2015) 230 TAXMAN 309 (KAR) UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE. 7. THE LD CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAD EARNED THE INTEREST INCOME FROM INVESTMENTS STATUTORILY REQUIRED TO BE MAINTAINED UNDER THE KARNATAKA CO - OPERATIVE SOCIETIES ACT FROM OUT OF THE PROFITS BESIDES 25% OF THE T OTAL DEPOSITS AS S LR WITH CO - OPERATIVE BANKS AND 3% OF THE TOTAL DEPOSITS TOWARDS CRR AND THUS, THE INCOME EARNED THEREFROM OUGHT TO HAVE BEEN ASSESSED AS PART OF THE BUSINESS OF THE PROVIDING CREDIT FACILITIES I.T.A. NO . 209 /BANG/2020 3 TO ITS MEMBERS AND NOT UNDER THE HEAD OTH ER SOURCES UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE. 8. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE COST OF FUNDS OUGHT TO HAVE BEEN ALLOWED U/S. 57(III) OF THE ACT BY ALLOWING THE ACTUAL INTEREST PAID ON MEMBERS DEPOSITS WHILE ASSESSING THE INTEREST INCOME UNDER THE HEAD OTHER SOURCES INSTEAD OF THE ARBITRARY ALLOWANCE OF 10%OF THE INCOME AS INCIDENTAL EXPENSES, UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE . 9. WITHOUT PREJUDICE TO THE RIGHT TO SEEK WAIVER WITH THE HONBLE CCIT/DG, THE APPELLANT DENIES ITSELF LIABLE TO BE CHARGED U/S. 234B OF THE ACT, WHICH UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE DESERVES TO BE CANCELLED. 10. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL, YOUR APPELLANT HUMBLY PRAYS THAT THE APPEAL MAY BE ALLOWED AND JUSTICE RENDERED AND THE APPELLANT MAY BE AWARDED COSTS IN PROSECUTING THE APPEAL AND ALSO ORDE R FOR THE REFUND OF THE INSTITUTION FEES AS PART OF THE COSTS. 3 . THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIMARY AGRICULTURAL CO - OPERATIVE SOCIETY DULY REGISTERED UNDER THE KARNATAKA CO - OPERATIVE SOCIETIES ACT, 1959 AND IS ENGAGED IN THE BUSI NESS OF ACCEPTING DEPOSITS FROM MEMBERS, LENDING CREDIT FACILITIES TO ITS MEMBERS (MAINLY AGRICULTURAL LOANS), DISTRIBUTION OF FOOD GRAINS AND OTHER PRODUCTS UNDER STATE GOVERNMENTS PUBLIC DISTRIBUTION SYSTEM, SALE OF FERTILIZERS/PESTICIDES ETC. TO FARME RS,. FOR THE ASSESSMENT YEAR 2016 - 17 , THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.5040/ - AFTER CLAIMING DEDUCTION OF RS.33,70,747/ - U/S. 80P(2)(D) OF THE ACT. THEREAFTER, THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S. 143(2) WAS ISSUED BY THE ASSESSING OFFICER. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED REVISED STATEMENT OF INCOME DECLARING A GROSS INCOME OF RS. I.T.A. NO . 209 /BANG/2020 4 NIL, AFTER CLAIMING DEDUCTION OF RS.44,85,787/ - U/S. 80P OF THE ACT. THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS: A) THE TOTGARS CO - OPERATIVE SALE SOCIETY IN CIVIL APPEAL NO. 1622 OF 2010. B) THE TOTGARS CO - OPERATIVE SALE SOCIETY IN ITA N O. 1 00066 OF 2016 DATED 16/06/2017. C) M/S. CITIZENS CO - OPERATIV E SOCIETY, HYDERABAD IN CIVIL APPEAL NO.10245 OF 2017 DATED 08/08/2017 . 3.1 THE ASSESSING OFFICER DENIED DEDUCTION U/S.80P(2)(A)(I) AMOUNTING TO RS.1,43,187/ - (INCOME FROM LENDING OF CREDIT FACILITY TO MEMBERS) AND U/S. 80P(2)(D) AMOUNTING TO RS. 1,43,187 (INCOME FROM TERM DEPOSITS WITH SCDCC BANK/OTHER CO - OP SOCIETIES AND DIVIDEND INCOME FROM INVESTMENT IN SHARES WITH SCDCC BANK/OTHER CO - OP SOCIETIES. FURTHER, THE ASSESSING OFFICER DENIED THE ASSESSEES CLAIM OF EXPENSES INCURRED FOR EARNING THE INTEREST INCOME/DIVIDEND INCOME AND ALLOWED ONLY AN AD HOC DEDUCTION OF 10% OF SUCH INCOME I.E. RS.3,22,756/ - WITHOUT ANY BASIS, AS EXPENSES FOR EARNING INTEREST INCOME AND DIVIDEND INCOME. THUS, THE ASSESSING OFFICER MADE AN ADDITION OF RS.29,04,804/ - IN RESPECT OF INTEREST INCOME/DIVIDEND INCOME. FURTHER, THE ASSESSING OFFICER ALSO DENIED ENTIRE DEDUCTION U/S. 80P TO THE ASSESSEE, THEREBY MAKING ADDITION OF RS.33,70,747/ - ON THE REASON THAT THE ASSESSEE HAD ADMITTED NOMINAL MEMBERS. 4. ON APPEAL, THE CI T(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON THE ABOVE ISSUE. I.T.A. NO . 209 /BANG/2020 5 5. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE ME. THE LD. AR SUBMITTED THAT THE ORDERS OF THE LOWER AUTHORITIES ARE NOT JUSTIFIED AND SUBMITTED THAT THE ASSESSEE SOCIETY IS PROVID ING CREDIT FACILITIES TO ITS MEMBERS INCLUDING NOMINAL MEMBERS AND OTHER MEMBERS. THE LD. AR SUBMITTED THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 80P(2) OF THE I.T. ACT. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE ASSESSEES CASE IS COVERED BY THE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF MAHAVEERA CREDIT CO - OP SOCIETY LTD . VS. ITO IN ITA NOS. 282 & 283/BANG/2020 DATED 21/08/2020 WHEREIN IT WAS HELD AS FOLLOWS: 9. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 10. THE GRIEVANCE OF ASSESSEE IS THAT, IN ITS CASE TEST OF MUTUALITY IS SATISFIED HOWEVER, LD.CIT(A) DID NOT SPELL OUT AS TO HOW THE SAID TEST FAILS. WE ARE OF THE VIEW THAT, SUCH GRIEVANCE OF THE ASSESSEE WOULD BE ADDRESSED BY SETTING ASIDE THE ISSUE OF DEDUCTION U/S.80P(2)(A)(I) OF THE ACT TO LD.AO FOR CONSIDERATION AFRESH, WITH A DIRECTION TO THE ASSESSEE TO PRODUCE A CERTIFICATE FROM RBI THAT IT DOES NOT POSSESS LICENSE FROM IT FOR DOING BANKING BUSINESS AND FURTHER THAT BUSINESS CAR RIED ON BY ASSESSEE IS NOT AKIN TO BUSINESS OF A CO - OPERATIVE BANK. FURTHER THE FIRST PART OF SEC.80P(2)(A)(I) ALLOWS DEDUCTION IN RESPECT OF INCOME DERIVED BY A CO - OPERATIVE SOCIETY FROM BUSINESS OF BANKING. EVEN THE CLAIM OF THE ASSESSEE FOR DEDUCTION R EQUIRES TO BE EXAMINED UNDER THE FIRST PART OF SEC.80P(2)(A)(I) OF THE ACT. HON'BLE SUPREME COURT IN CASE OF CITIZEN CO - OPERATIVE SOCIETY LTD. (SUPRA) HAS ALSO HELD THAT, IT IS ALSO IMPORTANT TO ASCERTAIN AS TO WHAT IS THE NATURE OF INCOME WHICH IS CLAIME D AS EXEMPT AND AS TO HOW THE PRINCIPLE OF MUTUALITY IS NOT VIOLATED IN RESPECT OF SUCH INCOME. AN EXAMINATION OF (I) THE MEMORANDUM OF ASSOCIATION, THE ARTICLES OF ASSOCIATION, (II) THE BYELAWS AND OTHER DOCUMENTS EXPLAINING THE RULES AND REGULATIONS OF T HE SOCIETY IS NECESSARY, SO AS TO CLEARLY UNDERSTAND THE PURPOSE AND THE NATURE OF BUSINESS DONE BY IT. AN EXAMINATION OF THE FACTS IN LIGHT OF DISCUSSION CITED BY LD.CIT(A) AS WELL AS DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF TUMKUR (SUPRA) IS T O BE CARRIED OUT. 11. WE, THEREFORE, REMAND THE ISSUE BACK TO LD.AO FOR RE ADJUDICATING IT AFRESH ON THE BASIS OF ABOVE DIRECTION. I.T.A. NO . 209 /BANG/2020 6 12. ACCORDINGLY, APPEALS FILED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. . 7. COUNTERING THIS, THE LD. AR SUBM ITTED THAT THE ISSUE SHOULD BE REMITTED TO THE FILE OF THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF M/S. KODAVOOR VYAVASAYA SEVA SAHAKARI SANGHA NIYAMITHA VS. ITO IN ITA NOS. 707, 762, 765, 942, 1190 & 1191/BANG/ 2019 DATED 26/08/2019 WHEREIN IT WAS HELD AS FOLLOWS: 4. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. PRIMA FACIE, THE SOLE DISPUTED ISSUE BEING DENIAL OF CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(II) OF THE ACT. THE ASSESSING OFFIC ER HAS DEALT ON THE INTEREST INCOME FROM INVESTMENT / DEPOSITS IN BANKS, WHEREAS THE ASSESSEE SOCIETY IS ENGAGED IN BUSINESS OF CARRYING ON BANKING AND PROVIDING CREDIT FACILITIES. IN THE PRESENT ASSESSMENT YEAR, THE ASSESSEE HAS MADE FIXED DEPOSITS WITH K ARNATAKA DCC BANK AND RECEIVED INTEREST INCOME AND THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT FURTHER ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS PROVIDED BANKING FACILITIES TO THE NOMINAL MEMBERS. WHEREAS THE LD. AR HAS RES TRICTED HIS ARGUMENTS TO THE EXTENT OF DENIAL OF DEDUCTION UNDER SECTION 80P(2) OF THE ACT AND FURTHER SUBMITTED THAT THE NOMINAL MEMBERS HAS BEEN CATEGORIZED AS MEMBERS AND ARE ELIGIBLE FOR BENEFITS. WHEREAS CIT (APPEALS) HAS RELIED ON THE JUDICIAL DECISI ONS, WHICH SHALL APPLY TO A SOCIETY WHICH IS ENGAGED IN NUMEROUS ACTIVITIES BUT IN THE PRESENT CASE THE ASSESSEE SOCIETY IS ENGAGED IN PROVIDING FACILITIES OF BANKING BUSINESS OR CREDIT FACILITIES TO ITS MEMBERS. WE FOUND THE ISSUE OF DENIAL OF DEDUCTION U NDER SECTION 80P(2) AND TREATMENT OF INTEREST ON DEPOSITS AND ALSO NOMINAL MEMBERS ARE TREATED AS MEMBERS FOR THE PURPOSE OF BENEFIT OF SECTION 80P(2) WAS DEALT BY THE JUDICIAL FORUMS. WE CONSIDER IT PROPER TO REFER TO THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF THE JAYANAGAR CO - OPERATIVE SOCIETY VS. ITO IN ITA NO.3254/BANG/2018 IN RESPECT OF INTEREST INCOME EARNED BY THE SOCIETY WERE THE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE OBSERVING THAT INTEREST INCOME EARNED ON INV ESTMENT OF SURPLUS FUNDS HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND NOT FROM BUSINESS AT PAGE NO.3 PARAS 4 & 5 HELD WHICH READ AS UNDER : 4. THE ISSUES THAT ARISE FOR CONSIDERATION IN THIS APPEAL BY THE ASSESSEE ARE AS TO WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS NOT ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON INTEREST INCOME EARNED AND UNDER SECTION 80P(2)(D) OF THE ACT IN RESPECT OF INTEREST RECEIVED FROM CO - OPERATIVE INSTITUTIONS. THE ASSESSING OFFICER (AO) DENIED THE CLAIM OF I.T.A. NO . 209 /BANG/2020 7 THE ASSESSEE ON THE GROUND THAT INTEREST INCOME EARNED BY MAKING INVESTMENT OF SURPLUS FUNDS HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AND NOT INCOME FROM BUSINESS AND SINCE INTEREST INCOME IS NOT ASSESSED AS BUSINESS INCOME, THE CLAIM FOR DEDUCTION UNDER SECTION 57 OF THE ACT CANNOT BE ALLOWED. IN UPHOLDING THE ABOVE CONCLUSIONS, THE CIT(A), INTER ALIA, RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF THE TOTGARS CO - OPERATIVE SALES SOCIETY LTD., VS. ITO 322 ITR 283 (SC) WHEREIN THE HONBLE SUPREME COURT HELD THAT THE BENEFIT OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT IS ONLY ON INCOME WHICH IS ASSESSABLE UNDER THE H EAD INCOME FROM BUSINESS. INTEREST EARNED ON INVESTMENT OF SURPLUS FUNDS NOT IMMEDIATELY REQUIRED IN SHORT TERM DEPOSITS AND SECURITIES BY A CO - OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO MEMBERS OR MARKETING AGRICULTURAL PRODUCE TO MEMBERS IS NOT B USINESS INCOME BUT INCOME FROM OTHER SOURCES AND THE SOCIETY IS NOT ENTITLED TO SPECIAL DEDUCTION. 5. WHILE LEARNED AR RELIED ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TUMUKUR MERCHANTS SOUHARDA CREDIT CO - OPERATIVE LTD., 230 TAXMAN 309 (KARN), THE DR RELIED ON A SUBSEQUENT DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF PCIT VS. TOTGARS CO - OPERATIVE SALE SOCIETY LTD., 395 ITR 611 (KARN.). WE HAVE CAREFULLY GONE THROUGH THE SAID JUDGMENT. THE FACTS OF THE CASE BEFORE THE HONBLE KARNATAKA HIGH COURT WAS THAT THE HONBLE COURT WAS CONSIDERING A CASE RELATING TO ASSESSMENT YEARS 2007 - 08 TO 2011 - 12. IN CASE DECIDED BY THE HONBLE SUPREME COURT IN THE CASE OF THE VERY SAME ASSESSEE, THE ASSESSMENT YEARS INVOLVED WAS ASSESSMENT YEARS 1991 - 92 TO 1999 - 2000. THE NATURE OF INTEREST INCOME FOR ALL THE ASSESSMENT YEARS WAS IDENTICAL. THE BONE OF CONTENTION OF THE ASSESSEE IN AY 2007 - 08 TO 2011 - 12 WAS THAT THE DEDUCTION UNDER SECTION 80P(2) OF THE ACT IS CLAIMED BY THE RESPONDENT ASSES SEE UNDER SECTION 80P(2)(D) OF THE ACT AND NOT UNDER SECTION 80P(2)(A) OF THE ACT WHICH WAS THE CLAIM IN AY 1991 - 92 TO 1999 - 2000. THE REASON GIVEN BY THE ASSESSEE WAS THAT IN AY 2007 - 08 TO 2011 - 12 INVESTMENTS AND DEPOSITS AFTER THE SUPREME COURT'S DECISIO N AGAINST THE ASSESSEE TOTGAR'S CO - OPERATIVE SALE SOCIETY LTD. (SUPRA), WERE SHIFTED FROM SCHEDULE BANKS TO COOPERATIVE BANK. U/S.80P(2)(D) OF THE ACT, INCOME BY WAY OF INTEREST OR DIVIDENDS DERIVED BY A CO - OPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY O THER CO - OPERATIVE SOCIETY IS ENTITLED TO DEDUCTION OF THE WHOLE OF SUCH INTEREST OR DIVIDEND INCOME. THE CLAIM OF THE ASSESSEE WAS THAT CO - OPERATIVE BANK IS ESSENTIALLY A CO - OPERATIVE SOCIETY AND THEREFORE DEDUCTION HAS TO BE ALLOWED UNDER CLAUSE (D) OF SE C.80P(2) OF THE ACT. THE HON'BLE KARNATAKA HIGH COURT FOLLOWED THE DECISION OF THE SUPREME COURT IN THE TOTGARS CO - OPERATIVE SALES SOCIETY LTD. (SUPRA) AND HELD THAT INTEREST EARNED FROM SCHEDULE BANK OR COOPERATIVE BANK IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREFORE THE PROVISIONS OF SEC.80P(2)(D)OF THE ACT WAS NOT APPLICABLE TO SUCH INTEREST INCOME. IT IS THUS CLEAR THAT THE SOURCE OF FUNDS OUT OF WHICH INVESTMENTS WERE MADE REMAINED THE SAME IN AY 2007 - 08 TO 2011 - 12 AND IN AY 1991 - 9 2 TO 1999 - 2000 DECIDED BY THE HON'BLE SUPREME COURT. THEREFORE WHETHER THE SOURCE OF FUNDS WERE ASSESSEE'S OWN FUNDS OR OUT OF LIABILITY WAS NOT SUBJECT MATTER OF THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE DECISION I.T.A. NO . 209 /BANG/2020 8 CITED BY THE LEARNED DR. TO THIS EXTENT THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF TUMUKUR MERCHANTS SOUHARDA CO - OPERATIVE LTD. (SUPRA) STILL HOLDS GOOD. HENCE, ON THIS ASPECT, THE ISSUE SHOULD BE RESTORED BACK TO THE AO FOR A FRESH DECISION AFTER EXAMINING THE F ACTS IN THE LIGHT OF THESE JUDGMENT OF THE HON'BLE APEX COURT RENDERED IN THE CASE OF THE TOTGARS CO - OPERATIVE SALE SOCIETY LTD. (SUPRA) AND OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF TUMUKUR MERCHANTS SOUHARDA CO - OPERATIVE LTD. (SUPRA). 5. SIMILARLY, ON THE ISSUE OF DEFINITION OF THE MEMBER WHERE NOMINAL MEMBERS ARE ALSO ELIGIBLE FOR BENEFITS. THE MEMBER DEFINED UNDER THE CO - OPERATIVE SOCIETY ACT BYE - LAWS INCLUDES NOMINAL MEMBER. WE FOUND AHMEDABAD BENCH OF ITAT IN ITA NO.1328/AHMD/2018 FOR ASST. YEAR 2015 - 16 IN THE CASE OF TRAPAJ VIBHAGEEYA KHET UDYOG MAL RUPANTAR FOOD PROCESSING SAHAKARI MANDALI LTD. VS. DCIT (SUPRA) AT PARA 7 HAS HELD AS UNDER : 7. WE HAVE HEARD LD.DR AND GONE THROUGH THE RECORD. WE HAVE ALSO GONE THROUGH CASE LAWS CIT ED BOTH THE SIDES BEFORE LD.CIT(A). WE FIND THAT FUNDAMENTAL FACTS WHICH ARE NOT DISPUTED BY THE REVENUE AUTHORITIES ARE THAT THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY REGISTERED UNDER THE GUJARAT COOPERATIVE SOCIETIES ACT, 1961. IT IS ENGAGED IN PROVIDING CREDIT FACILITIES TO THE FARMERS IN THE REGION OF BHAVNAGAR DISTRICT. AS PER THE AO, MEMBERS OF THE ASSESSEE - SOCIETY CONSISTED OF TWO TYPES VIZ. REGULAR MEMBER AND NOMINAL MEMBERS. IT IS THE CASE OF THE REVENUE THAT ASSESSEE IS DOING MORE BUSI NESS WITH NOMINAL MEMBERS THAN THE REGULAR MEMBER IN ORDER TO EARN MORE PROFIT, WHICH IS AGAINST THE LAW, AND THEREFORE, THERE IS A BREAK - DOWN OF PRINCIPLE OF MUTUALITY RESULTING DISENTITLEMENT OF EXEMPTION UNDER SECTION 80P. THE LD.AO RELIED UPON THE JUDG MENT OF HONBLE SUPREME COURT IN THE CASE OF CITIZENS COOPERATIVE SOCIETY LTD. (SUPRA) TO SUPPORT HIS VIEW. WHILE THE CASE OF THE ASSESSEE IS THAT BEING A PRIMARY AGRICULTURE CREDIT SOCIETY, IT IS ENTITLED FOR EXEMPTION UNDER SUB - SECTION (4) OF SECTION 80 P. JUDGMENT OF HONBLE APEX COURT RELIED UPON BY THE REVENUE IS DISTINGUISHABLE ON FACTS. IN THAT CASE ASSESSEE WAS A COOPERATIVE SOCIETY REGISTERED UNDER MULTI STATE COOPERATIVE SOCIETIES ACT, 2002, WHILE IN THE I.T.A. NO . 209 /BANG/2020 9 PRESENT CASE, ASSESSEE IS A PRIMARY AGRICUL TURE CREDIT SOCIETY REGISTERED UNDER GUJARAT STATE COOPERATIVE SOCIETIES ACT. THE HONBLE SUPREME COURT DISENTITLED THE ASSESSEE FROM CLAIMING EXEMPTION UNDER SECTION 80P DUE TO VIOLATION OF PROVISIONS OF MACSA, UNDER WHICH IT WAS FORMED, AND MOST OF THE B USINESS OF THE ASSESSEE WAS WITH CARVED OUT CATEGORY OF PERSONS WITHOUT APPROVAL OF REGISTRAR OF THE SOCIETIES. WEIGHING POINT OF VIEW OF BOTH SIDES, WE FIND THAT BALANCE TILT IN FAVOUR OF THE ASSESSEE. WE FIND THAT BY VIRTUE OF SUB - SECTION (4) OF SECTION 80P, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80P(2). FURTHER, INCOME TAX ACT DOES NOT DEFINE MEMBER, NOR HAS PROVIDED DISTINCTION BETWEEN REGULAR MEMBER AND NOMINAL MEMBER AND THEREFORE, ITS MEANING AND OBJECTS HAS TO BE UNDERSTOOD IN TH E CONTEXT OF DEFINITION GIVEN IN THE STATE ACT. THE REVENUE AUTHORITIES ARE TRYING TO EXTRAPOLATE THE MEANING OF EXPRESSION MEMBER CONTRARY TO THE SPIRIT OF THE ACT. IT IS EVIDENT FROM THE DEFINITION OF MEMBER PROVIDED IN SECTION 2(13) OF THE GUJARAT C OOPERATIVE SOCIETIES ACT THAT MEMBER INCLUDES NOMINAL, ASSOCIATE OR SYMPATHIZER MEMBER. THEREFORE, IN THE PRESENT CASE, THE NOMINAL MEMBERS ARE MEMBERS AS PROVIDED IN THE ACT AND THAT DEPOSITS RECEIVED AND LOAN ADVANCED TO THE NOMINAL CANNOT BE TREATED A S FROM NON - MEMBERS OR FROM PUBLIC AND IN THE NATURE OF BANKING BUSINESS. THAT BEING SO, THEN, AN ASSESSEE ENGAGED IN PRIMARY AGRICULTURE ACTIVITIES AND PROVIDING CREDIT FACILITIES AND AGRICULTURE FACILITIES TO THE FARMER - MEMBERS OF A PARTICULAR REGION, CLA IM OF DEDUCTION UNDER SECTION 80P(2) CANNOT BE DENIED. IT IS NOT DENIED BY THE REVENUE THAT THE ACTIVITIES OF THE ASSESSEE SOCIETY ARE OF PRIMARY AGRICULTURE ACTIVITIES. COMPETENT AUTHORITY HAS ALSO RECOGNIZED THE ASSESSEE AS PRIMARY AGRICULTURE CREDIT SOC IETY. IN THE EARLIER ASSESSMENT YEAR ALSO, REVENUE HAS ACCEPTED THIS FACT AND ALLOWED THE CLAIM OF THE ASSESSEE. JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CITIZENS CO - OPERATIVE SOCIETY LTD. (SUPRA) IS DISTINGUISHABLE ON FACTS. IN THAT CASE, STATUS O F THE ASSESSEE IS THAT OF CO - OPERATIVE BANK, WHEREAS ASSESSEE IN THE PRESENT CASE IS A PRIMARY AGRICULTURE CREDIT SOCIETY AND APPLICABILITY OF SECTION 80P(2)(4) OF THE ACT. CONSIDERING ALL THESE FACTS, WE ARE NOT CONVINCED WITH THE REASONING I.T.A. NO . 209 /BANG/2020 10 AND FINDING GI VEN BY THE REVENUE AUTHORITY IN DENYING CLAIM OF THE ASSESSEE UNDER SECTION 80P(2). WE ALLOW THE CLAIM OF THE ASSESSEE AND DIRECT THE LD.AO TO RE - COMPUTE INCOME OF THE ASSESSEE BY ALLOWING CLAIM UNDER SECTION 80P(2)(4) OF THE ACT. ALSO IN TAX CASE APPEAL NO.882 AND 891 OF 2018 OF HON'BLE MADRAS HIGH COURT IN THE CASE OF THE PRIN. COMMISSIONER OF INCOME TAX VS. S - 1308 AMMAPET PRIMARY AGRICULTURAL COOPERATIVE BANK LTD. HELD IN PARAS 11 TO 18 AS UNDER : I.T.A. NO . 209 /BANG/2020 11 WE FOUND THE FACTS OF THE PRESENT CASE ARE S IMILAR TO THE DECISION RENDERED BY THE CO - ORDINATE BENCH AND THE JURISDICTIONAL HIGH COURT IN RESPECT OF MEMBERS DEFINITION AND CHARGEABILITY OF INTEREST INCOME UNDE R INCOME FROM OTHER SOURCES WE FOLLOW THE JUDICIAL PRECEDENCE AND RESTORE THE ENTIRE DISPUTED ISSUE TO THE FILE OF ASSESSING OFFICER TO ADJUDICATE AFRESH IN THE LIGHT OF THE DECISION OF CHARGEABILITY OF INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND THE OBSERVATIONS OF HON'BLE SUPREME COURT IN THE CASE OF TOTGARS CO - OPERA TIVE SALES SOCIETY LTD. VS. ITO 322 ITR 283 (SC) AND HON'BLE KARNATAKA HIGH COURT I.T.A. NO . 209 /BANG/2020 12 DECISION IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO - OPERATIVE LTD. 230 TAXMAN 309 (KAR) AS DISCUSSED IN ABOVE PARAS. WHEREAS IN RESPECT OF THE CLAIM OF NOMINAL MEMBER S INCLUDED IN THE DEFINITION OF MEMBER WE FIND SUPPORT ON OUR VIEW RELY ON THE DECISION OF TRAPAJ VIBHAGEEYA KHET UDYOG MAL RUPANTAR FOOD PROCESSING SAHAKARI MANDALI LTD. VS. DCIT (SUPRA) AND PRIN. CIT VS. S - 1308 AMMAPET PRIMARY AGRICULTURAL CO - OPERATIVE B ANK LTD. (SUPRA) WHICH IS COVERED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, WE ARE OF THE SUBSTANTIVE OPINION THAT THE NOMINAL MEMBERS ARE ALSO ELIGIBLE FOR THE BENEFITS OF CREDIT SOCIETY. ACCORDINGLY WE RESTORE ENTIRE DISPUTED ISSUE TO THE FILE OF ASSESSING OFFICER TO GRANT THE BENEFIT TO THE NOMINAL MEMBERS AND THE ASSESSEE SHOULD BE PROVIDED ADEQUATE OPPORTUNITY OF HEARING AND CO - OPERATE IN SUBMITTING THE INFORMATION FOR EARLY DISPOSAL OF THE CASE AND ALLOW THE GROUNDS OF APPEAL OF THE ASSESSEE FOR STATIST ICAL PURPOSES. 6. SIMILARLY THE APPEALS FILED IN ITA NOS.762, 765, 942, 1190 & 1191/BANG/2019 ARE SIMILAR AND IDENTICAL. HENCE THE DECISION RENDERED IN ITA NO.707/BANG/2019 AT PARAS 4 & 5 ABOVE SHALL APPLY MUTADIS MUTANDIS. ACCORDINGLY THE DISPUTED ISSUE IN THESE APPEALS ARE REMITTED TO THE FILE OF ASSESSING OFFICER AS INDICATED AND ALLOW THE GROUNDS OF APPEAL OF ASSESSEES. 7. IN THE RESULT, APPEALS OF THE ASSESSEE IN ITA NOS.707, 762, 765, 942, 1190 & 1191/BANG/2019 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8 . I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE IS HAVING NOMINAL MEMBERS AND HAVING NOMINAL MEMBERS IN THE CO - OPERATIVE SOCIETY DOES NOT DISENTITLE THE ASSESSEE FOR GETTING EXEMPTION U/S. 80P OF THE AC T. IN MY OPINION, THE ISSUE IS COVERED BY THE ABOVE ORDERS OF THE CO - ORDINATE BENCH RELIED ON BY THE LD. AR AND IS REQUIRED TO BE RE - ADJUDICATED BY THE ASSESSING OFFICER AFTER CONSIDERING THE ABOVE DECISIONS. ACCORDINGLY, I REMIT THIS ISSUE TO THE I.T.A. NO . 209 /BANG/2020 13 FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION ON SIMILAR DIRECTIONS. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10TH SEPTEMBER , 2020 . SD/ - (CHANDRA POOJARI) ACCOUN TANT MEMBER PLACE: BENGALURU DATED: 10 TH SEPTEMBER , 2020 REDDY GP / GJ COPY TO: 1 . M/S. PADANGADY SAHAKARI VYAVASAYIKA SANGHA, PADANGADY VILLAGE & POST, BELTHANGADY TALUK, DK DISTRICT - 574 217. 2. THE INCOME TAX OFFICER, WARD - 1, PUTTUR. 3 . THE COM MISSIONER OF INCOME - TAX(APPEALS), BENGALURU. 4. THE PR. COMMISSIONER OF INCOME - TAX, BENGALURU. 5 . D. R., I.T.A.T., BENGALURU BENCH, BENGALURU . 5 . GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., BENGALURU