Yadagere Souharda Co-operative Society Limited., , Chikkamagaluru V. Income Tax Officer, Ward-1, , Chikkamagaluru

ITA 444/BANG/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1521 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 27-05-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 11-03-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VARUN BHAT
• Keywords: Business income; FORM 26AS
• Section: 56; 28; 80P; 2(19)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No.444/Bang/2024 Assessment year : 2018-19 Yadagere Souharda Co-operative Society Ltd., Vinoba Road, Koppa – 577 126. Chikkamagaluru, PAN : AAAAY 0463E Vs. The Income Tax Officer, Ward 1, Chikmagalur. APPELLANT RESPONDENT Appellant by : Shri Varun Bhat, CA Respondent by : Shri V. Parithivel, Jt.CIT(DR)(ITAT), Bengaluru. Date of hearing : 28.05.2024 Date of Pronouncement : 24.06.2024 O R D E R Per Laxmi Prasad Sahu, Accountant Member This appeal is filed by the assessee against the order dated 07.08.2023 of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC], for the AY 2018-19. 2. There is a delay of 158 days in filing the appeal. In the affidavit it is stated that the return is filed with the help of ITP and the email-id and phone number in the profile of assessee society in the income tax portal belongs to ITP only, hence the assessee was unaware of the ITA No.444/Bang/2024 Page 2 of 12 order passed by the CIT(Appeals) and it came to the notice of assessee when demand notice was issued by the AO. Therefore it is requested that the delay in filing appeal may be condoned. 3. After hearing both the parties, it is observed that there are sufficient reasons for the delay and following the judgment of the Hon'ble Apex Court in the case of Collector, Land Acquisition Vs. MST. Katiji and Others (1987) 167 ITR 471, delay in filing the appeal before the Tribunal is condoned. 4. The issues raised in the grounds of appeal are deduction of interest income received from banks u/s. 80P(2)(a)(i) and considering the interest income as income from other sources u/s. 56 of the Act. 5. The brief facts of the case are that assessee filed its return of income on 29.09.2018 declaring gross total income of Rs.1,44,42,327 and claimed deduction of Rs.144,09,287 u/s. 80P of the Act. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee filed reply. The AO noted that the assessee is not eligible for deduction u/s. 80P since it is not registered under the Karnataka Co-operative Societies Act, 1959 and assessee has wrongly represented as a co-operative society in the return of income filed. Accordingly show cause notice was issued to the assessee on 18.02.2021, however the assessee did not reply within the stipulated time. The AO also noted that the assessee has received interest other than interest on securities from commission or brokerage, fees for professional/technical services totaling to Rs.31,92,880 from different ITA No.444/Bang/2024 Page 3 of 12 activities as reported in Form 26AS which is not eligible for deduction u/s. 80P(2)(a)(i)& (b) and disallowed Rs.31,92,880. The assessing officer assessed income at Rs. 1,44,65,320/- 6. The assessee filed appeal before the CIT(Appeals). The case was migrated to NFAC in terms of Notification dated 25.09.2020 by the Board. The CIT(Appeals) fixed the case for hearing on different dates, however the assessee did not respond to any of the notices issued. Therefore the CIT(Appeals) dismissed the appeal of the assessee by relying on some judgments quoted in his order. Aggrieved from the above order, the assessee is in appeal before the ITAT. 7. The ld. AR has filed written submissions which is as under:- 1. As far as the requirements of registration of entity is concerned the Appellant society is registered under the provisions of THE KARNATAKA SOUHARDA SAHAKARI ACT, 1997. 2. The learned AO and CIT(A) has disallowed the deduction claimed u/s 80P of the Income Tax Act, 1961 on the ground that the assessee is a Souharda co- operative registered under Karnataka Souharda Sahakari Act, 1997 and not a Co-operative Society registered under Karnataka Co-operative Societies Act, 1959. 3. The learned AO has relied upon the decision of the Division Bench of Hon’ble ITAT in the case of UDAYA SOUHARDA CREDIT CO-OPERATIVE SOCIETY LTD. (ITA NO.2831/BANG/2017). However, the matter raised therein had not reached its finality. It was not a verdict in favour of the department. In fact, if we refer to the speaking order in the case, which read as shown hereunder as ready reference, we come to know that the appeal by the assessee is allowed. Since all these new points have been raised during the course of hearing before us and according to us all these points goes to the root of the case, we are of the view that proper adjudication of the issues is required by the AO. We accordingly set aside the order of the CIT(A) and restore the matter to the AO to re examine all these aspects by making necessary enquiry and investigation and also by passing a reasoned order in this regard. Since we have restored the matter to the AO, we find no justification to adjudicate the issue raised on merit. Accordingly, order of the CIT(A) is set aside and ITA No.444/Bang/2024 Page 4 of 12 matter is restored to the AO for adjudication of the impugned issue in terms indicated above. 14. In the result, appeal of the assessee stands allowed for statistical purposes. 4. In the case of UDAYA SOUHARDA CREDIT CO-OPERATIVE SOCIETY LTD very recently Honorable High court has come with the judgement and Honorable High court has the opinion that 33. The provision of section 80P offers tax deduction in respect of income of co-operative societies which is enacted with a laudable object of promoting co-operating movement. Such benefit cannot be denied to so called co- operative under the Souharda Act merely on hyper technicalities. The interpretation given by the revenue to section 2(19) of the Act is untenable. A harmonious reading of said provisions would indicate that co-operative society registered the Co Operative Society Act 1959 alone is not the Co- Operative society for the purposes of Income Tax Act as the phrase “or” employed with the following words ‘under any other law for the time being in force in state for the registration of Co-operative society’. If properly read, Co-operative Societies registered under the Souharda Act which is a State enactment would certainly be construed as Co-operative Society coming within the ambit of Section 2(19) 34 Thus for the reason aforesaid, we find no jurisdictional error in the order passed by the learned Single Judge in extending the benefit of section 80P to the entities registered under the Souharda Act In view of the decision taken by us as aforesaid, the substantial questions of law raised in the Income Tax Appeal are answered in favour of the assessee and against the revenue 5. We relied on the latest judgement upon the decision of the Division INCOME TAX APPELLATE TRIBUNAL“SMC – B” BENCH : BANGALORE 6. in the case of Halapur Pattina Souharda Sahakari Niyamitha vs The Income Tax Officer, Ward-2, Raichuru, ITA No.1233/Bang/2019 order dated on 26-07- 2019 the judgement of the same is reproduced for your kind reference The above discussion would show that souharda co-operatives are also one form of co-operative societies registered under a law in force in the State of Karnataka for registration of co-operative societies. Therefore the conclusion of the revenue authorities that co-operative societies and co-operatives are different and that co- operative registered as Souharda Sahakari cannot be regarded as co-operative societies is unsustainable. We therefore hold that the Assessee should be allowed deduction u/s.80P(2)(a)(i) of the Act, as the ground on which the same was denied to the Assessee is held to be incorrect. However, the other conditions for allowing deduction u/s. 80P(2)(a)(i) of the Act needs to be examined by the AO. I, therefore, remand the question of allowing deduction u/s. ITA No.444/Bang/2024 Page 5 of 12 80P(2)(a)(i) of the Act to the AO, except the issue already decided above. 12. In the result, appeal by the Assessee is allowed for statistical purposes. 7. In the recent decisions relating to Siddartha Pattina Souharda Sahakari Niyamitha, Manvi (ITA No. 1234/Bang/2019) and also, Halapur Pattina Souharda Sahakari Niyamitha (ITA No 1233/Bang/2019), both of which were passed very recently (26-07-2019), the same Income Tax Appellate Tribunal, Bengaluru, has given the verdict as under. 11. The above discussion would show that souharda co-operatives are also one form of co-operative societies registered under a law in force in the State of Karnataka for registration of co- operative societies. Therefore the conclusion of the revenue authorities that co-operative societies and co-operatives are different and that co-operative registered as Souharda Sahakari cannot be regarded as co-operative societies is unsustainable. We therefore hold that the Assessee should be allowed deduction u/s.80P(2)(a)(i) of the Act, as the ground on which the same was denied to the Assessee is held to be incorrect. 12. In the result, appeal by the Assessee is allowed for statistical purposes 8. Very recently, the H’nble High Court of Karnataka has given the judgment in the case of Swabhimani Souharda Co-operative Ltd, Bengaluru V/s the State of Karnataka pronounced on 16-01-2020 where in the judgment all the confusions are put to rest by stating that (b) the object of enacting sec.80P of the 1961 Act may be defeated if a restrictive meaning is assigned to the definition for “Cooperative Society” as given u/s2(19) in as much as the invokability of the provision of sec 80 P is dependent upon the entity seeking the benefit thereunder being a Co-operative society; going by the text and context of these provisions, one can safely conclude that all the entities that are registered under the enactments relating to co-operative societies, regardless of their varying nomenclatures need to be treated as co- operative societies; this view accords with the purposive construction of sec. 80P read with Sec. 2(19) of the Income Tax Act, 1961 In the above circumstances, these writ petitions succeed; . . . the petitioners are entitled to stake their claim for the benefit of Sec 80P of the said Act. 9. We would like to substantiate our stand with the following decisions by different authorities which are very recent and have concluded clearly that the Souharda Co-operatives are Co-operative societies for all practical purposes and are equally eligible for the benefit of claiming deductions u/d 80P as any other Co-operative Societies, ITA No.444/Bang/2024 Page 6 of 12 a) ITAT, Bengaluru in ITA No.2040, 2041 of 2019 in the case of The Mahalaxmi Souharda Credit Cooperative Ltd., Bengaluru, dated 08-11-2019 b) CIT (Appeals) Bengaluru in ITA No.10435 of 2019-20 in the case of The Pavagada Souharda Multipurpose Cooperative Ltd., Bengaluru, dated 24-01-2020. c) High Court of Karnataka (Dharwad Bench) in WP 146141 of 2020 in the case of Shri Vitthalray Souharda Pattina Sahakari Niyamit, dated 10-06-2020 10. Therefore, the contention of the learned AO to disallow the deduction claimed U/s 80P on the ground that, the Co-operative Societies registered under the Karnataka Souharda Sahakari Act, are not entitled to claim the deduction U/s 80P of Income Tax Act is untenable and unjustified in the eyes of law. 11. As far as the requirements of deposits in co-operative bank as well as the other bank is concerned, the Appellant society is registered under the provisions of THE KARNATAKA SOUHARDA SAHAKARI ACT, 1997 where in the Act stipulates that certain funds of the society are to be invested outside the business. 12. As per the above norms, Appellant society had to make the deposits outside its business as under # Particulars Total Required Amount invested 1 General Reserve 1,73,76,358 100% 1,73,76,358 2 Deposits collected from members 49,89,56,553 20% 9,97,91,310 3 Total Investment required 11,71,67,668 4 Deposits made 8,02,31,170 5 Excess deposits -Nil- 6 Total Interest earned 82,90,021 7 Interest apportionable to business income 82,90,021 8 Interest to be claimed u/s 80P2(a)(i) 82,90,021 13. Total investment made by the society in order to comply with the statutory requirements as under Sl no Particular Nature of deposit Amount Interest Earned 01 Karnataka Bank Investments to meet the 25,17,772 2,13,584 02 DCC Bank 3,52,76,090 39,17,751 ITA No.444/Bang/2024 Page 7 of 12 03 Canara Bank statutory requirements 13,48,987 1,17,987 04 Karnataka Gramina Bank 2,60,13,267 32,07,036 05 State Bank Of India 83,64,737 5,62,933 06 Interest received from Saving Bank Account 45,47,403 2,70,730 07 Other Investments 21,62,914 -Nil- Total 8,02,31,170 82,90,021 14. Hence Appellant has invested 8,02,31,170 in Banks and on which it has earned 82,90,021 in total as interest as explained above. This amount does not represent any excess money not in immediate requirements of the society and hence it is a bonafide business investment done in the ordinary course of the business to meet the statutory requirements and therefore the income earned thereon is business income earned in the ordinary course of business and it is attributable to the business activities of the assessee. And therefore, it is allowable under section 80P(2)(a)(i) of the IT Act. 15. 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 on account of any liability that was to be refunded to members. In fact this amount which is in the nature of profit and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. The said interest income is attributable to carrying on the business and therefore it is eligible to be deducted in terms of section 80P of the Act. 16. From the aforesaid facts, it may clearly be established that the sum of 82,90,021 represents the interest earned from the deposits invested in specified investments as permitted under the Act in the ordinary course of business and hence eligible for deduction., This interest is attributable to the business of providing credit facilities to its members. In this context we rely on the decision of H’ble High Court of Karnataka, Bangalore dated 28-10-2014 in the case of M/s Tumkur Merchants Souharda Credit Co operative Ltd Vs The ITO, Ward-1, Tumkur (I.T.A. NO. 307 OF 2014) which has distinguished itself from the Supreme Court decision. The relevant portion of the decision is reproduced below “ In this context when we look at the judgement of the Apex court in the case of M/s Totagars 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 facility 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 ITA No.444/Bang/2024 Page 8 of 12 its members from whom produce was bought, was invested in a short term deposit or 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 the extent, such interest income cannot be said to be attributable to either to the activity mentioned in section 80P(2)(a)(i) of the act or under 80P(2)(a)(iii) of the Act therefor in the facts of the said case, the Apex court held the assessing officer was right in taxing the interest income indicated above u/s 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. 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 profit 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 Andhra Pradesh High Court in the case of Commissioner of income Tax III, Hyderabad Vs Andhra Pradesh State co-operative bank Ltd., reported in (2011) 200 TAXMAN 220/12. 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. Accordingly it is here by set aside the substantial question of law is answered in favour of the Assessee and against the Revenue.” 17. In other words, the investments made and the interest income earned by the Appellant society is given in the table below to explain as to how the claims are made in the computation of income submitted Details of Deposits Deposits in other Banks Deposits in Co op Banks Total Deposits made to meet statutory requirements as explained earlier 4,49,55,080 3,52,76,090 8,02,31,170 Excess deposits made Nil Nil Nil Interest apportionable to business income and claimed deduction u/s 80P(2)(a)(i) 43,72,270 39,17,751 82,90,021 18. It is a bonafide business investment done in the ordinary course of the business to meet the statutory requirements and therefore the income earned thereon is business income earned in the ordinary course of business and it is attributable to the business activities of the assessee. And therefore, it is allowable under section 80P(2)(a)(i) of the IT Act of the Act ITA No.444/Bang/2024 Page 9 of 12 19. The learned AO has relied upon on the Judgment of the Karnataka High Court Dharwad Bench dt 16-06-2017 ITA No.100066/2016, in case of The Totagars Co-Operative Sale Society, Sirsi. We strongly feel that the above case cannot be relied upon for assessing the appellant because the TSS Case relates to Marketing society where as the appellant is not a marketing society. It is a credit society carrying on credit business activities with its members only. 20. In the case of M/s. Machina Service Co-operative Society Ltd., very recently the Income Tax Appellate Tribunal “A” BENCH : BANGALORE has come with the order and ITAT has the opinion that In the event it is found that assessee is not entitled to get the benefit under section 80P(2)(a)(i) of the Act, the AO shall also examine whether it is entitled to deduction under section 80P(2)(d) of the Act in light of the recent judgment of the Hon’ble Apex Court in the case of Kerala State Co-operative Agricultural Rural Development Vs. AO reported in 458 ITR 384 (SC). It is ordered accordingly 21. In addition to this We would like to quote the case law which is recently ordered by Income tax Appellate Tribunal Banglore -A bench in the case of M/s. Sumantha Pathina Souharda Sahakari Niyamita, has come up with the opinion that The jurisdictional High Court in the case of PCIT Vs. Totgars Sales Society (supra) had categorically held that the interest income received from Scheduled Banks / Co-operative Banks are not entitled to deduction under section 80P(2)(a)(i) or under section 80P(2)(d) of the Act. However, the latest judgment of the Hon’ble Apex Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd., Vs. AO reported in 458 ITR 384 (SC) had categorized various co-operative banks as co-operative societies thereby granting the benefit of deduction under section 80P of the Act to the said co-operative banks. Though the Hon’ble Apex Court was considering the interpretation of section 80P(4) of the Act, when a co- operative bank is deemed to be considered as a co-operative society, the necessary corollary has to follow. Thereby meaning when interest income is received from such co-operative bank which are deemed to be considered as co-operative society, then the assessee would be entitled to deduction under section 80P(2)(d) of the Act. Since AO did not have the benefit of examining the dictum laid down by the Hon’ble Apex Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd., Vs. AO (supra), we deem it appropriate to restore the matter to the AO. The AO is directed to reexamine the issue whether the assessee is entitled to deduction under section 80P(2)(d) of the Act (i.e., the FD interest received from SUCO Co- operative Bank of Rs.3,14,544/-) in light of the judgment of the Hon’ble Apex Court. It is ordered accordingly. ITA No.444/Bang/2024 Page 10 of 12 22. In addition to this We would like to quote the case law which is recently ordered by Income tax Appellate Tribunal Banglore -C bench in the case of NTI Housing Co operative Society has come up with the opinion that The matter relates to claim of deduction under Section 80P(2)(d) of the Act amounting to Rs.1,02,22,331/- i.e. interest income earned by the appellant out of the deposit made in the Cooperative Banks out of the money of the members of the appellant society which has been denied by the Ld. AO and confirmed by the Ld. CIT(A) is liable to be quashed in view of the ratio laid down in the case of PCIT vs. Totagars Co-operative Sales Society Ltd. (supra) as already discussed by Bangalore Bench in case of The Totagars Co- operative Sales Society Ltd. vs. ACIT in ITA Nos. 376 to 379/Bang/2023. Thus, with the above observation, we quash the order passed by the authorities below with a direction upon the Ld. AO to grant relief in regard to the claim of deduction made by the appellant under Section 80P(2)(d) of the Act 23. In addition to this We would like to quote the case law which is recently ordered by Income tax Appellate Tribunal Banglore -A bench in the case of The West Coast Paper Mill Employees Souhardha Credit Co-op. Ltd., has come up with the opinion that Respectfully following the above judgment of the Hon’ble High Court of Karnataka, we hold that the assessee is entitled for cost of funds and only the net interest income is taxable u/s. 56 of the Act. Considering the alternative submissions this issue is remitted to the file of AO for determination of net income after set off of cost of funds/interest expenditure in earning the interest income for the purpose of taxability u/s. 56 of the Act as per law. Needless to say that the assessee may be given reasonable opportunity of being heard and the assessee is directed to produce all the relevant documents to substantiate its claim and avoid seeking unnecessary adjournment for early disposal of the case. This issue is allowed for statistical purposes. 24. In addition to this We would like to quote the case law which is recently ordered by Income tax Appellate Tribunal Banglore -C bench in the case of Siddhi Vinayaka Souhardha Pattina Sahakari Niyamita Kalaburagi., has come up with the opinion that the assessee is eligible for claim of its cost of funds on the entire interest income The assessee has relied on the judgment of Co-ordinate Bench of the Tribunal in case of The West Coast Paper Mill Employees Souhardha Credit Co-op. Ltd.. Accordingly, the assessee is directed to provide the details of cost of funds before the assessing officer. Therefore for allowing cost of funds, we are remitting this issue to the assessing officer for determining the ITA No.444/Bang/2024 Page 11 of 12 cost of funds for earning interest income 25. As per the CBDT Circular, having Circular No.18/2015 dated 02.11.2015.interest earned from the investments made for the purpose of comply with the Act and relevant Rules are taxable u/s 28 of the Income tax Act and not under 56 of the said act 26. We request your goodselves to allow the expenditure u/s 57 in case your goodselves decide to treat the interest income from investment in the ordinary course of business of the assessee as income from other sources u/s 56. 27. With respect to Interest on income tax refund amounting to Rs 22,997, the appellant haven’t received any Income tax refund in the assessment year 2018- 19 and whatever the income tax refundable amount was adjusted to the outstanding demand moreover the Rectification rights are transferred to jurisdictional assessing officer. Such refund has not been credited to the appellant bank accounts. 28. I have For these and such other submissions that may be adduced in time to time, it is requested that the Honourable ITAT may cancel the addition made by the Assessing Officer and allow deduction under section 80P(2)(a)(i) of the Act.” 8. The ld. DR relied on the order of the lower authorities and submitted that the CIT(Appeals) granted various opportunities which were not responded by the assessee. 9. Considering the rival submissions, we note that the assessee was not allowed deduction under Chapter VIA of the Act by observing that the assessee is not registered under the the Karnataka Co-operative Societies Act, 1959, it is registered under Karnataka Souharda Sahakari Act, 1997. We further note that the assessee has not represented the case before the CIT(Appeals). In the interest of justice, we remit the appeal to the CIT(Appeals) for fresh consideration and decision as per law after reasonable opportunity of being heard to the assessee. The assessee is directed to update its correct email-id and phone number in the departmental portal and respond to the notices issued by the department. The assessee is directed not to seek unnecessary ITA No.444/Bang/2024 Page 12 of 12 adjournment for early disposal of the case and in case of further default, the assessee shall not be entitled to any leniency. 10. In the result, the appeal by the assessee is allowed for statistical purposes. Pronounced in the open court on this 24 th day of June, 2024. Sd/- Sd/- ( BEENA PILLAI ) (LAXMI PRASAD SAHU ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 24 th June, 2024. / Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr.CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.