JANSEVAK CO-OP CREDIT SOCIETY LTD , MUMBAI V. INCOME TAX OFFICER, WARD 27(1)(5), MUMBAI

ITA 637/MUM/2023

AI Insights

The case involves Jansevak Co-operative Society Ltd., which appealed against the order of the learned Commissioner of Income Tax (Appeals) that confirmed the addition of Rs.75,00,740 as disallowance of deduction under section 80P claimed by the society. The society argued that it is not a co-operative bank but a co-operative credit society, and thus section 80P(4) of the Act, which applies to co-operative banks, should not be applicable. The Tribunal, referencing decisions from the Supreme Court and other High Courts, found that the society was entitled to the deduction under section 80P(2)(d) for the interest income from investments with a co-operative bank, as it did not function as a bank under the Banking Regulation Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299244 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 10-05-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 02-03-2023
• Other Referred Cases: Mavilayi Service Co-operative Bank Ltd. vs CIT, Calicut, PCIT vs Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Co-operative Credit Society
• Section: 143(3); 142(1); 80P; 250; 143(2); 2(19)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI G.S. PANNU, PRESIDENT AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA no.637/Mum./2023 (Assessment Year : 2017–18) Jansevak Co–operative Society Ltd. K–8, Ganesh Kripa Chawl, Barve Nagar Bhatwadi, Ghatkoper (West) Mumbai 400 084 PAN – AAAAJ4674N ................ Appellant v/s Income Tax Officer Ward–27(1)(5), Mumbai ................Respondent Assessee by : Shri Kumar Kale Revenue by : Ms. Vranda U. Matkari Date of Hearing – 11/05/2023 Date of Order – 26/05/2023 O R D E R The aforesaid appeal has been filed by the assessee challenging the impugned order dated 27/01/2023, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2017–18. 2. In its appeal, the assessee has raised the following ground:– “Being aggrieved by the order dated 27.01.2023 passed by the learned Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre, Delhi ["Ld. CIT(A)" u/s 250 of the Income-tax Act, 1961 ("Act"), your appellant prefers this appeal, among others, on the following Jansevak Co–operative Society Ltd. ITA no.637/Mum./2023 Page | 2 grounds of appeal, each of which is without prejudice to, and independent of, the other: 1. On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in confirming the addition of Rs.75,00,740/- made by the Ld. AO being disallowance of deduction u/s. 80P claimed by the appellant. Your appellant, therefore, prays that deduction u/s. 80P of Rs.75,00,740/- be allowed to it. Your appellant craves leave to alter, modify, amend or delete any of the above grounds of appeal, or to add one or more new ground(s), as may be necessary.” 3. The brief facts of the case as emanating from the record are: The assessee is a co-operative credit society registered under the Maharashtra Co- operative Societies Act, 1960, and is engaged in the business of providing credit facilities to its members. The assessee accepts various types of deposits from its members and gives loans to the members. The assessee society is managed, administered, and governed as per its bylaws, Maharashtra Co- operative Societies Act, 1960, and the rules framed under that Act. For the year under consideration, the assessee filed its return of income on 26/10/2017 declaring total income at Rs. Nil after claiming deduction under section 80P of the Act. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, the assessee was asked to explain as to why the deduction claimed under Chapter VI-A be not denied to the assessee. In response thereto, the assessee submitted that it is not a co-operative bank but a co- operative credit society providing credit facilities to its members and also accepting deposits from them, and therefore, section 80P(4) of the Act is not applicable to its case. The assessee further submitted that its activities are Jansevak Co–operative Society Ltd. ITA no.637/Mum./2023 Page | 3 covered under section 80P(2) of the Act and therefore is entitled to deduction under the said section. The Assessing Officer (“AO”) vide order dated 07/12/2019 passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that section 80P(4) of the Act applies to co-operative societies carrying on the business of banking including providing of credit facilities to its members. Accordingly, the AO denied the deduction of Rs.75,00,739 claimed by the assessee under section 80P of the Act. 4. The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee and held that the assessee has deposited money with MDCC Bank Ltd., which is a bank, and thus section 80P(4) of the Act is applicable to it. Accordingly, the learned CIT(A) held that the assessee cannot claim benefit under section 80P(2)(d) of the Act on the ground of investment in any other co-operative bank. Being aggrieved, the assessee is in appeal before us. 5. We have considered the submissions of both sides and perused the material available on record. The only dispute raised by the assessee in the present appeal is against the denial of deduction under section 80P of the Act in respect of interest income received from the co-operative bank. From the perusal of the record, it is evident that the AO denied the deduction claimed by the assessee under section 80P of the Act by applying the provisions of section 80P(4) of the Act since the assessee is providing credit facilities to its members. The learned CIT(A) though agreed that the income earned by the assessee by providing credit facilities to its members is deductible under section 80P(2)(a)(i) of the Act. However, the learned CIT(A) denied the claim of deduction under section 80P(2)(d) of the Act on the basis that the co- Jansevak Co–operative Society Ltd. ITA no.637/Mum./2023 Page | 4 operative bank from whom the interest has been earned is covered under the provisions of section 80P(4) of the Act. Before proceeding further, it is relevant to note the provisions of section 80P of the Act under which the assessee has claimed the deduction in the present case. As per the provisions of section 80P(1) of the Act, the income referred to in sub-section (2) to section 80P shall be allowed as a deduction to an assessee being a co-operative society. Further, section 80P(2)(d) of the Act, reads as under: “80P. Deduction in respect of income of co-operative societies. (1) ...... (2) The sums referred to in sub-section (1) shall be the following, namely:– (a) ..... (b) ..... (c) ..... (d) in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income;” 6. Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied- (i) income by way of interest or dividend is earned by the co-operative society from the investments, and (ii) such investments should be with any other co-operative society. Further, the term „co-operative society‟ is defined under section 2(19) of the Act as under: “(19) "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 the registration of co-operative societies ;” 7. In the present case, there is no dispute that the assessee is a co- operative society, which is engaged in providing credit facilities to its members. Thus, if any income as referred to in sub-section (2) to section 80P of the Act is included in the gross total income of the assessee, the same shall Jansevak Co–operative Society Ltd. ITA no.637/Mum./2023 Page | 5 be allowed as a deduction. It is pertinent to note that since the assessee is registered under the Maharashtra Co-operative Societies Act, 1960, it is required to invest or deposit its funds in one of the modes provided in section 70 of the aforesaid Act, which includes investment or deposit of funds in the District Central Co-operative Bank or the State Co-operative Bank. Accordingly, the assessee kept the deposits in District Central Co-operative Bank and earned interest, which was claimed as a deduction under section 80P of the Act. The learned CIT(A) denied the deduction under section 80P(2)(d) of the Act on the basis that the co-operative bank is covered under the provisions of section 80P(4) of the Act. We find that the Hon‟ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. vs CIT, Calicut, [2021] 431 ITR 1 (SC) while analysing the provisions of section 80P(4) of the Act held that section 80P(4) is a proviso to the main provision contained in section 80P(1) and (2) and excludes only co-operative banks, which are co-operative societies and also possesses a licence from RBI to do banking business. The Hon‟ble Supreme Court further held that the limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, we are of the considered view that section 80P(4) of the Act is of relevance only in a case where the assessee, who is a co-operative bank, claims a deduction under section 80P of the Act. Therefore, we find no merits in the aforesaid reasoning adopted by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee. We also find that in a recent decision in PCIT vs Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. [2023] 150 taxmann.com 173 (SC), the Hon‟ble Supreme Court held that a taxpayer who Jansevak Co–operative Society Ltd. ITA no.637/Mum./2023 Page | 6 is merely giving credit to its members cannot be said to be the Co-operative Banks/Banks under the Banking Regulation Act and the banking activities under the Banking Regulation Act are altogether different. Therefore, the Hon‟ble Supreme Court held that the assessee, a co-operative credit society, could not be termed a bank/co-operative bank and that being a credit society, it was entitled to exemption under section 80(P)(2) of the Act. Thus, there is also no basis in the finding of the AO that section 80P(4) is applicable to the assessee. 8. As regards the claim of deduction under section 80P(2)(d) of the Act, it is also pertinent to note that all co-operative banks are co-operative societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the co-operative banks is allowable as a deduction under section 80P(2)(d) of the Act. Even in assessee‟s case for the assessment years 2013-14 and 2018-19, the coordinate bench of the Tribunal in Jansevak Co–operative Society Ltd. vs ITO, in ITA Nos. 3229 & 3230/Mum./2022, vide order dated 23/02/2023 allowed the deduction claimed by the assessee under section 80P(2)(d) of the Act, by observing as under:- “7. Hon’ble High Court of Karnataka in case of Pr. CIT & Anr. Vs. Totgar’s Co- operative Sale Society Ltd. (2017) 292 ITR 74 (Kar.) and Hon’ble Gujarat High Court in case of State Bank of India vs. CIT (2016) 389 ITR 578 (Guj.) had also held that interest income earned by a co-operative society on its investment held with co-operative bank would be eligible for claim of deduction under section 80P(2)(d) of the Act. We are of the considered view that the Ld. CIT(A) has erred in upholding the denial of deduction by the AO to the assessee under section 80P(2)(d) of the Act. 8. So following the decision rendered by Hon’ble Karnataka High Court (supra) and Hon’ble Gujarat High Court (supra) and order passed by the coordinate Bench of the Tribunal discussed in preceding paras, we are of the considered Jansevak Co–operative Society Ltd. ITA no.637/Mum./2023 Page | 7 view that assessee society who has earned an amount of Rs.16,76,460 and Rs.87,93,570/- for A.Y. 2013-14 and A.Y. 2018-19 respectively from its investment of surplus fund parked with co-operative banks is entitled for deduction under section 80P(2)(d) of the Act. 9. In view of what has been discussed above, we are of the considered view that the Ld. CIT(A) has erred in upholding the denial of deduction by the AO to the assessee society claimed under section 80P(2)(d) of the Act, hence, AO is directed to allow the same.” 9. Therefore, in view of the aforesaid findings, we uphold the plea of the assessee and direct the AO to grant deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with co-operative bank. Accordingly, we set aside the impugned order passed by the learned CIT(A). As a result, the sole ground raised by the assessee is allowed. 10. In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 26/05/2023 Sd/- G.S. PANNU PRESIDENT Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 26/05/2023 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai