Distinguishing Totagars Cooperative Vs. ITO for the purpose of section 80P
There are various cases wherein the deduction u/s 80P is denied to the credit co-operative society following the judgment of the Supreme Court in the case of Totagars Cooperative Vs. ITO. However, the fact of the case of Totagars Cooperative Vs. ITO is different and there are various jdugemnt which has aptly distinguished Totagars Cooperative Vs. ITO. Here is one such case by Pune ITAT which is as under:
Sindhudurg Zilla Madhyamik Adhyapak Sahakari Patpedhi Maryadit,, Sindhudurg
Vs.
Income-tax Officer,,
(Income Tax Appellate Tribunal, Pune)
Income Tax Appeal No. 1825/Pun/2013 | 24-09-2014
PER R.K. PANDA, AM : This appeal filed by the assessee is directed against the order dated 09-07-2013 of the CIT(A), Kolhapur relating to Assessment Year 2010-11.
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Facts of the case, in brief, are that the assessee is a Cooperative Credit Society providing credit facilities to its members. It filed its return of income on 17-08-2010 declaring total income of NIL. During the course of assessment proceedings the Assessing Officer noted that the assessee credit cooperative society is registered under Maharashtra Cooperative Societies Act,
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Its main object is to provide credit facilities to its members. During the impugned assessment year, the society has earned interest income from its investment made with the Sindhudurg Central Cooperative Bank amounting to Rs.31,77,452/-, the details of which are as under : Sr.No. Interest earned upon Amount (Rs.) 1 Investments out of Statutory Reserve Fund 29,43,097/- 2 Fixed & Recurring 1,79,737/- 3 Savings Bank Account 54,618/- Total 31,77,452/- The above interest has been credited to the P&L account and has been offered under the head ‘income from business and profession’. The assessee claimed the same as deduction u/s.80P(2)(d) in the computation of income. Similarly, the assessee has also earned dividend income of Rs.5,41,667/- on the investments made in the shares of Sindhudurg Central Cooperative Bank and claimed the same as deduction u/s.80P(2)(d) of the I.T Act. According to the Assessing Officer, as per the provisions of section u/s.80P(2)(d) of the I.T Act, the whole of the amount in respect of any income by way of interest or dividends received by the cooperative society from its investments with any other cooperative society is allowable as deduction. However, in the present case, the interest and dividend so received is from the investments made in the Sindhudurg Central Cooperative Bank which is a cooperative bank and not a cooperative society. The Assessing Officer, therefore, asked the assessee to justify and explain as to how the above interest and dividend income qualifies for deduction u/s.80P(2)(d) of the I.T. Act.
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The submission of the assessee that Sindhudurg Central Cooperative Bank is a cooperative society and therefore the deposits kept with it will be covered under clause (d) of section 80P(2) was rejected by the Assessing Officer on the ground that the cooperative societies are governed by the provisions of Maharashtra Cooperative Societies Act, 1960 whereas Banks are governed by the provisions of Banking Regulation Act, 1949 in addition to the provisions of Maharashtra Cooperative Societies Act, 1960. The above fact according to the AO makes both the entities distint from each other. Further, after insertion of section 80P(4) by the Finance Act, 2006 w.e.f.,01-04-2007, the cooperative banks have been deprived of the benefit of 80P whereas cooperative societies are enjoying the benefit of said section. The Assessing Officer after analysing the provisions of Banking Regulation Act etc., held that the cooperative banks carry on the banking business which normally includes all the activities of a banking business and that too with the public at large whereas the cooperative societies carry on the business of providing credit facility that too restricted only to its members. He accordingly held that the cooperative banks cannot be said to be at par with the cooperative societies. He accordingly held that the interest income of Rs.31,77,452/- on deposits with and dividend income of Rs.5,41,667/- earned on the investments made in the shares of Sindhudurg Central Cooperative Bank is not qualified for deduction u/s.80P(2)(d) of the I.T. Act. He accordingly rejected the claim of deduction made by the assessee. In appeal the Ld.CIT(A) upheld the action of the Assessing Officer.
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Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds :
“The following grounds are taken without prejudice to each other – On facts and in law,
1] The learned CIT(A) erred in confirming the addition in respect of interest income of Rs. 31,77,4527- and dividend income of Rs.5,41,667/- received by the assessee co-operative society on investments made in deposits/ saving bank account and shares of Sindhudurg Central Co-operative Bank.
2] The learned CIT(A) erred in holding that the assessee was not eligible to claim the deduction u/s 80P(2)(a)(i) in respect of the income earned by way of interest on deposits/ saving bank account and dividend income on the ground that the said income cannot be said to be attributable to the business activity of the assessee co- operative society and hence, the assessee is not eligible to claim the deduction u/s 80P(2)(a)(i) in respect of this income.
3] The learned CIT(A) failed to appreciate that the assessee was a credit cooperative society engaged in the business of providing credit facility to its members and hence, the investments made in deposits/ saving bank account and shares of Sindhudurg Central Co-operative Bank Ltd. were made in the course of the assessees business and thus, there was no reason to deny the deduction u/s 80P(2)(a)(i) in respect of the income derived from the above investments.
4] Without prejudice to the above grounds, the assessee submits that Sindhudurg Central Co-op. Bank Ltd. was registered under the Maharashtra Co-op. Societies Act, 1960 and hence, the income derived by way of interest and dividend earned on investments made in the said co-op, society was eligible as a deduction u/s 80P(2)(d) of the Act.
5] Without prejudice to the above grounds, assuming without admitting that the assessee is not eligible to claim the deduction u/s 80P(2)(a)(i) or section 80P(2)(d), the assessee submits that the disallowance may be restricted to the net income earned after deducting proportionate expenses incurred in respect of the above income and the said disallowance may not be made in respect of the gross income earned by the assessee.
6] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”
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The Ld. Counsel for the assessee at the outset filed a copy of the decision of the Coordinate Bench of the Tribunal in the case of ACIT Vs. M/s. Janata Grahak Madhyavarti Sahakari Sangh Maryadit vide ITA No.571/PN/2013 order dated 27-11-2013 for A.Y. 2009-10.
Referring to the said decision, he submitted that under identical facts and circumstances, the deduction u/s.80P(2)(d) has been allowed on account of interest received on the deposit with Aurangabad District Central Cooperative Bank. He accordingly submitted that this is a covered matter in favour of the assessee.
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The Ld. Departmental Representative on the other hand supported the orders of the AO and the CIT(A).
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We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. The Ist dispute in the grounds of appeal is regarding the allowability of deduction u/s.80P(2)(d) in respect of interest income of Rs.31,77,452/- and dividend income of Rs.5,41,667/- received by the assessee cooperative society on investment made in deposits/savings accounts and shares of Sindhudurg Central Cooperative Bank. According to the Assessing Officer the deduction is allowable u/s.80P(2)(d) in case of a cooperative society for receiving any interest or dividend income from any other cooperative society. Since the same has been received from a cooperative bank which is distinct from a cooperative society, therefore, the assessee is not entitled to the same for which he disallowed the claim of deduction u/s.80P(2)(d). The same has been upheld by the CIT(A).
7.1 It is the case of the ld. Counsel for the assessee that even though the assessee has received interest on deposits with Sindhudurg Central Cooperative Bank and received dividend on shares of the said cooperative bank, however, the fact remains that Sindhudurg Central Cooperative Bank is also a cooperative society.
7.2 We find an identical issue had come up before the Tribunal in the case of M/s. Janata Grahak Madhyavarti Sahakari Sangh Maryadit (Supra). We find the Tribunal, following the decision of the Tribunal in the case of Bajaj Auto Ltd. Employees Credit Cooperative Society Ltd. vide ITA No.1047/PN/2012 decided the issue in favour of the assessee and allowed the claim of deduction u/s.80P(2)(d) for interest received on the deposits with the Aurangabad District Central Cooperative Bank. The relevant observation of the Tribunal reads as under :
“2. At the outset of hearing, learned Authorized Representative pointed out that this issue is covered in favour of assessee by the decision of ITAT, Pune B Bench in ITA No.l047/PN/2012 in the case of ACIT Vs. M/s. Bajaj Auto Ltd. Employees Co-op. Credit Society Ltd., wherein the Tribunal has decided the issue in favour of the assessee by observing as under:
“4. We have heard the Ld. DR. None was present for the assessee. We have also perused the order of the authorities below. In our opinion so far as the amount of interest received on the deposit with Aurangabad District Central Co-operative Bank is concerned the Assessing Officer has not properly appreciated the provisions of law. Sec. 80P(2)(d) reads as under:
80P(1): Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assessee.
80P(2): The sums referred to in sub-section (1) shall be the following, namely: (a) ……….. (b) ……….. (c) 2(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;
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Sub-sec. (4) of Sec. SOP has withdrawn the deduction to the co operative bank other than primary agricultural credit society or a primary co-operative agricultural and rural development bank w.e.f. the A.Y. 2007-08.
The said provision is applicable to the Aurangabad District Central Co-operative Bank (ADCCB) in which the assessee society has kept deposit. The withdrawal of deduction by insertion of Sub-section (4) of Sec. SOP does not change “status” of Aurangabad District Central Co-operative Bank “as a co-operative society which is contemplated in Sec. 80P(1) of the Act.
We, therefore, hold that the interest received on the deposit with the Aurangabad District Central Co operative Bank by the assessee on the deposits are squarely covered u/s. 80P(l)(d) and the interest received on deposit kept with the Aurangabad District Central Cooperative Bank is an allowable deduction.
So far as the finding of the Ld. CIT(A) that the provisions of Sec. 80P(2)(a)(i), in our opinion the decision of the Honble Supreme Court in the case of Totagars Cooperative Vs. ITO (supra) is against the assessee as interest received on deposits with Aurangabad District Central Co-operative Bank cannot be said to be the income derived from providing credit facilities to its members.
We, accordingly, answer the ground taken by the revenue. But, finally we have confirmed order of Ld. CIT(A) giving relief to the assessee u/s. 80P(2)(d).”
2.1 Facts being similar, so following the same reasoning, the assessee is entitled to deduction u/s.80P(2)(d). In view of above, assessee is eligible for claiming deduction u/s.80P(2)(d) of I.T Act, which is available for income earned from business and not from other sources as rightly held by CIT(A). We uphold the same.
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In the result, appeal filed by revenue is dismissed.”
7.3 Respectfully following the above decision, we hold that the interest income of Rs.31,77,452/- and dividend income of Rs.5,41,667/- received by the assessee cooperative society is eligible for deduction/s.80P(2)(d) of the I.T. Act. Ground of appeal on this issue by the assessee are accordingly allowed.
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Since the assessee succeeds on the issue of allowability of deduction u/s.80P(2)(d) of the I.T. Act, therefore, the alternate grounds relating to allowability of the interest & dividend income u/s.80P(2)(a)(i) of the I.T. Act becomes academic in nature and therefore the same are not being adjudicated.
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In the result, the appeal filed by the assessee is allowed Pronounced in the open court on 24-09-2014. Sd/- Sd/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Pune Dated: 24 th September, 2014 Satish Copy of the order forwarded to :
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Assessee
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Department
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The CIT(A), Kolhapur
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The CIT, Kolhapur
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The D.R, “A” Pune Bench
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Guard File By order // True Copy // Assistant Registrar ITAT, Pune Benches, Pune
