Income Tax Appellate Tribunal – Bangalore
M/S. Gnanaganga Gruha Nirmana … vs The Principal Commissioner Of … on 9 December, 2021 IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCHES “C”, BANGALORE
Before Shri Chandra Poojari, AM & Smt.Beena Pillai, JM
ITA No.577/Bang/2020 : Asst.Year 2015-2016
ITA No.578/Bang/2020 : Asst.Year 2016-2017
M/s.Gnanaganga Gruha Nirmana The Principal Commissioner of
Sahakara Sanga Niyamita, v. Income-tax, Mysore.
No.365, 10th Main
J.P.Nagar, `C’ Block
Mysore – 570 008.
PAN : AAAAG2275L.
(Appellant) (Respondent)
Appellant by : Sri.Tata Krishna, Advocate
Respondent by : Sri.Vilas V.Shinde, CIT-DR
Date of
Date of Hearing : 09.12.2021 Pronouncement : 09.12.2021
ORDER
Per Chandra Poojari, AM :
These appeals at the instance of the assessee are
directed against two orders of the CIT, both dated 06.03.2020
passed u/s 263 of the I.T.Act. The relevant assessment years
are 2015-2016 and 2016-2017.
2. Since common issues are raised in both the appeals,
except variance in figures, they were heard together and are
being disposed of by this consolidated order. We shall first
adjudicate the appeal for assessment year 2015-2016 (ITA
No.577/Bang/2020).
3. The brief facts of the case are as follows:
The assessee is a co-operative society registered under
the Karnataka Co-operative Societies Act, 1959. For the
2
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
assessment years 2015-2016, the returns of income were filed
declaring total income at Rs.2,73,59,820, after claiming
deduction of Rs.15,99,694 u/s 80P of the I.T.Act. The
assessment u/s 143(3) of the I.T.Act was completed vide order
dated 11.12.2017, accepting the total income declared by the
assessee at Rs.2,73,59,820. On examination of the order
passed by the Assessing Officer, the CIT noticed that the order
passed therein is erroneous and prejudicial to the interest of
the revenue. The CIT noted from the return of income that the
assessee has earned interest of Rs.15,49,694 and claimed
deduction u/s 80P amounting to Rs.15,99,694. However, on
perusal of the records it is noted that an amount of
Rs.11,35,401 was received from the Mysore and
Chamarajanagar District Co-operative Bank Ltd which is a co-
operative bank and not a co-operative society. Further, as per
schedule 2 of the computation of income the deduction u/s
80P is computed as under:-
Profits exempt u/s 80P(2)(d)
Interest from other co-operative societies Rs.15,49,694
Profits exempt u/s 80P(2)(c)
Others Rs.50,000
Income exempt u/s 80P Rs.15,99,694
4. The CIT further noted that the assessee had claimed that
the deduction u/s 80P(2)(d) of the Act amounting to
Rs.15,49,694 which includes an amount of Rs.11,35,401
which is the interest received from Mysore and
Chamarajanagar District Co-operative Bank Ltd. Accordingly,
3
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
the CIT held that the assessment order passed by the AO is
erroneous and prejudicial to the interest of the revenue and
accordingly, directed the A.O. to revise the assessment order.
The relevant observation of the CIT reads as under:-
“There is no dispute on the fact that the assessee co-operative
society carries on the business of providing housing to its
members. Therefore, it is held that the income of Rs.11,35,401
earned by the assessee by way of interest from institutions
(who are not its member) is not also eligible for deduction u/s
80P(2)(a)(i) of the Act.
Therefore, the assessment order passed ACIT, Circle 2(1),
Mysuru for AY 2015-16 u/s 143(3) of the I.T.Act, 1961 on
11.12.2017 is held to be erroneous and prejudicial to the
interest of revenue and the AO is directed to revise the
assessment order accordingly after affording the assessee
reasonable opportunity of being heard.”
5. The learned AR reiterated the submissions made before
the Income Tax Authorities and the grounds raised. The
learned Departmental Representative, on the other hand,
supported the orders of the CIT.
6. We have heard rival submissions and perused the
material on record. An identical issue was considered by the
Co-ordinate Bench of the Bangalore Tribunal in the case of
M/s.Prathamika Krushi Pattina Sahakari Niyamita v. Pr.CIT
in ITA No.1725/Bang/2019 (order dated 22.11.2021), wherein
the Tribunal directed the A.O. to consider the issue afresh in
the light of the dictum laid down by the Hon’ble Apex Court in
the case of Mavilayi Service Co-operative Bank Ltd. & Ors. V.
CIT & Anr. (2021) 431 ITR 1 (SC). The relevant finding of the
Tribunal, reads as follows:-
4
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
“7. We have heard rival submission and perused
the material on record. On perusal of the assessment
order passed u/s 143(3) of the I.T.Act dated
30.11.2016, it is clear that there is no discussion by
the A.O. and deduction u/s 80P of the I.T.Act has
been granted without much inquiry. The assessment
order completed without making necessary inquiry
rendered the assessment erroneous and prejudicial
to the interest of revenue. Therefore, the CIT has
correctly invoked the provisions of section 263 of the
I.T.Act and we uphold the same.
7.1 As regards whether the assessee is entitled to
deduction u/s 80P(2)(a)(i) and 80P(2)(d) of the I.T.Act,
the recent order of the Tribunal in the case of
M/s.Vasavamba Co-operative Society Ltd. v. The
Pr.CIT in ITA No.453/Bang/2020 (order dated
13.08.2021), after considering the judicial
pronouncements on the issue held that interest
income earned out of investments made from surplus
funds would be taxable under the head `income from
other sources’ and would not be eligible for deduction
u/s 80P(2)(a)(i) of the I.T.Act. It was further held by
the Tribunal insofar as deduction u/s 80P(2)(d) of the
I.T.Act is concenred, only those interest received from
investments with co-operative societies alone would
be entitled to deduction. The relevant finding of the
Tribunal reads as follows:-
“9. The Hon’ble Supreme Court in the case of the The Totgars
Co-operative Sale Society Ltd. Vs. ITO 322 ITR 283 (SC) held that
Income from utilisation of surplus funds was taxable under the head
income from other sources, and therefore not eligible for deduction
u/s 80P. The Hon’ble Karnataka High Court in case of Tumkur
Merchants Souharda Credit Cooperative Ltd. vs. ITO (230 Taxman
309), was dealing with a case where deduction u/s.80P(2)(a)(i) of
the Act was claimed on interest from the deposits made in a
nationalized bank out of the amounts which was used by the
assessee for providing credit facilities to its members. The
Assessee claimed that the said interest amount is attributable to the
business of providing credit facilities by the assessee and forms
part of profits and gains of business. The Hon’ble Karnataka High
Court after considering SC judgment in case of Totgars(supra)
held that since the word income is qualified by the expression
“attributable” to the business of Banking is used in Sec.80P(2)(a)(i)
of the Act, it has to receive a wider meaning and should be
5
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
interpreted as covering receipts from sources other than the actual
conduct of business. The Court held a Cooperative Society which is
carrying on the business of providing credit facilities to its members,
earns profits and gains of business by providing credit facilities to
its members. The interest income so derived or the capital, if not
immediately required to be lent to the members, they cannot keep
the said amount idle. If they deposit this amount in bank so as to
earn interest, the said interest income is attributable to the profits
and gains of the business of providing credit facilities to its
members only. The society is not carrying on any separate
business for earning such interest income. The income so derived
is the amount of profits and gains of business attributable to the
activity of carrying on the business of banking or providing credit
facilities to its members by a co-operative society and is liable to be
deducted from the gross total income under Section 80P of the Act.
The Hon’ble Court also distinguished the decision of the Hon’ble
Supreme Court in the case of Totgars (supra) by observing that the
Supreme Court was dealing with a case where the assessee-
Cooperative Society, apart from providing credit facilities 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 its
members from whom produce was bought, was invested in a short-
term deposit/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 that extent, such interest
income cannot be said to be attributable either to the activity
mentioned in Section 80P(2)(a)(i) of the Act or under Section
80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the
Apex Court held the assessing officer was right in taxing the
interest income indicated above under Section 56 of the Act. The
Court also observed that even the Hon’ble Supreme made it clear
that they are confining the said judgment to the facts of that case.
The Court therefore concluded that Hon’ble Supreme Court was not
laying down any law. Similar view taken in Guttigedarara Credit Co-
operative Society Ltd. vs. ITO [2015] 377 ITR 464 (Karnataka). In
the case of PRINCIPAL0 COMMISSIONER OF INCOME TAX
AND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE
SOCIETY 392 ITR 0074 (Karn) in the context of deduction
u/s.80P(2)(d) of the Act, it was held that Sec.80P(2)(d) of the Act
allows deduction 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. The
Hon’ble Court held that that the aforesaid Supreme Court’s decision
in the case of Totgars (supra), was not applicable to deduction
u/s.80P(2)(d) of the Act, because the said decision was rendered
with regard to deduction under Section 80P(2)(a)(i) of the Act and
not under Section 80P(2)(d) of the Act.
6
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
10. However, the Hon’ble Karnataka High Court in the case of
PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER
vs. TOTAGARS CO-OPERATIVE SALE SOCIETY 395 ITR 0611
(Karn) took a different view and held that interest income earned on
deposits whether with any other bank will be in the nature of
income from other sources and not income from business and
therefore the deduction u/s.80P(2)(d) of the Act cannot be allowed
to the Assessee. The Hon’ble Court followed decision of Hon’ble
Gujarat High Court in the case of SBI Vs. CIT 389 ITR 578(Guj.) in
which the Hon’ble Gujarat High Court dissented from the view
taken by the Hon’ble Karnataka High Court in the case of Tumkur
Merchants case (supra) The Hon’ble Court had to deal with the
following substantial question of law:
“(I)Whether the assessee, Totagar Co-operative Sale
Society, Sirsi, is entitled to 100% deduction under Section
80P(2)(d) of the Income Tax Act, 1961 (for short ‘the Act’) in
respect of whole of its income by way of interest earned by it
during the relevant Assessment Years from 2007-2008 to
2011-2012 on the deposits or investments made by it during
these years with a Co-operative Bank, M/s. Kanara District
Central Co-operative Bank Limited?
(II) Whether the Supreme Court decision in the case of the
present respondent assessee, Totgar Co-operative Sale
Society Limited itself rendered on 08th February 2010, in
Totgar’s Co-operative Sale Society Limited v. Income Tax
Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC
223 for the preceding years, namely Assessment Years
1991-1992 to 1999-2000 (except Assessment Year 1995-
1996) holding that such interest income earned by the
assessee was taxable under the head ‘Income from Other
Sources’ under Section 56 of the Act and was not 100%
deductible from the Gross Total Income under Section
80P(2)(a)(i) of the Act, is not applicable to the present
Assessment Years 2007-2008 to 2011-2012 involved in the
present appeals and therefore, whether the Income Tax
Appellate Tribunal as well as CIT (Appeals) were justified in
holding that such interest income was 100% deductible
under Section 80P(2)(d) of the Act?”
11. The Hon’ble Court held that such interest income is not
income from business but was income chargeable to tax under the
head income from other sources and therefore there was no
question of allowing deduction u/s.80P(2)(d) of the Act. The
following points can be culled out from the aforesaid decision:
1. What Section 80P(2)(d) of the Act, which was though
not specifically argued and canvassed before the Hon’ble
Supreme Court, envisages is that such interest or dividend
earned by an assessee co-operative society should be out of
7
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
the investments with any other co-operative society. The
words ‘Co-operative Banks’ are missing in clause (d) of
subsection (2) of Section 80P of the Act. Even though a co-
operative bank may have the corporate body or skeleton of a
co-operative society but its business is entirely different and
that is the banking business, which is governed and
regulated by the provisions of the Banking Regulation Act,
1949. Only the Primary Agricultural Credit Societies with
their limited work of providing credit facility to its members
continued to be governed by the ambit and scope of
deduction under Section 80P of the Act. (Paragraph 13 of
the Judgment).
2. The banking business, even though run by a Co-
operative bank is sought to be excluded from the beneficial
provisions of exemption or deduction under Section 80P of
the Act. The purpose of bringing on the statute book sub-
section (4) in Section 80P of the Act was to exclude the
applicability of Section 80P of the Act altogether to any co-
operative bank and to exclude the normal banking business
income from such exemption/deduction category. The words
used in Section 80P(4) are significant. They are: “The
provisions of this section shall not apply in relation to any co-
operative bank other than a primary agricultural credit
society …..”. The words “in relation to” can include
within its ambit and scope even the interest income
earned by the respondent-assessee, a co-operative
Society from a Co-operative Bank. This exclusion by
Section 80P(4) of the Act even though without any
amendment in Section 80P(2)(d) of the Act is sufficient
to deny the claim of the respondent assessee for
deduction under Section 80P(2)(d) of the Act. The only
exception is that of a primary agricultural credit society.
(Paragraph-14 of the judgment)
3. The amendment of Section 194A(3)(v) of the Act
excluding the Co-operative Banks from the definition of “Co-
operative Society” by Finance Act, 2015 and requiring them
to deduct income tax at source under Section 194A of the
Act also makes the legislative intent clear that the Co-
operative Banks are not that specie of genus co-operative
society, which would be entitled to exemption or deduction
under the special provisions of Chapter VIA in the form of
Section 80P of the Act. (Paragarph 15 of the Judgment)
4. If the legislative intent is so clear, then it cannot
contended that the omission to amend Clause (d) of Section
80P(2) of the Act at the same time is fatal to the contention
raised by the Revenue before this Court and sub silentio, the
deduction should continue in respect of interest income
earned from the co-operative bank, even though the Hon’ble
Supreme Court’s decision in the case of Respondent
assessee itself is otherwise.(Paragraph 16 of the Judgment)
8
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
5. On the decision of the earlier decision of the Hon’ble
Karnataka High Court referred to in the earlier part of this
order, the Court held that it did not find any detailed
discussion of the facts and law pronounced by the Hon’ble
Supreme Court in the case of the respondent assessee
(Totagars Sales Co-operative society) and hence unable to
follow the same in the face of the binding precedent laid by
the Hon’ble Supreme Court. The Hon’ble Court observed
that in paragraph 8 of the said order passed by a co-
ordinate bench that the learned Judges have observed that
“the issue whether a co-operative bank is considered to be a
co- operative society is no longer res integra, for the said
issue has been decided by the Income Tax Appellate
Tribunal itself in different cases…………..”.
No other binding precedent was discussed in the said
judgment. Of course, the Bench has observed that a Co-
operative Bank is a specie of the genus co- operative
Society, with which we agree, but as far as applicability of
Section 80P(2) of the Act is concerned, the applicability of
the Supreme Court’s decision cannot be restricted only if the
income was to fall under Section 80P(2)(a) of the Act and
not under Section 80P(2)(d) of the Act.(Paragraph-18 of the
Judgment)
6. The Court finally concluded that it would not make a
difference, whether the interest income is earned from
investments/deposits made in a Scheduled Bank or in a Co-
operative Bank. Therefore, the said decision of the Co-
ordinate Bench is distinguishable and cannot be applied in
the present appeals, in view of the binding precedent from
the Hon’ble Supreme Court.” (Paragraph 19 of the
Judgment)
12. The Hon’ble Karantaka High Court in the aforesaid decision
also placed reliance on a decision of the Hon’ble Gujarat High
Court in the case of STATE BANK OF INDIA (SBI) vs.
COMMISSIONER OF INCOME TAX 389 ITR 0578 (Guj) did not
agree with the view taken by the Karnataka High Court in Tumkur
Merchants Souharda Credit Cooperative Ltd. (supra) that the
decision of the Supreme Court in Totgars Co-operative Sale
Society (supra) is restricted to the sale consideration received from
marketing agricultural produce of its members which was retained
in many cases and invested in short term deposit/security and that
the said decision was confined to the facts of the said case and did
not lay down any law. The Hon’ble Gujarat High Court held that in
the case of Totgars Co-operative Sale Society (supra) decided by
Hon’ble Supreme Court, the court was dealing with two kinds of
activities: interest income earned from the amount retained from the
amount payable to the members from whom produce was bought
9
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
and which was invested in short-term deposits/securities; and the
interest derived from the surplus funds that the assessee therein
invested in short-term deposits with the Government securities. The
Hon’ble Gujarat High Court in this regard referred to the decision of
the Karnataka High Court from which the matter travelled to the
Supreme Court wherein it was the case of the assessee that it was
carrying on the business of providing credit facilities to its members
and therefore, the appellant-society being an assessee engaged in
providing credit facilities to its members, the interest received on
deposits in business and securities is attributable to the business of
the assessee as its job is to provide credit facilities to its members
and marketing the agricultural products of its members. The
Hon’ble Gujarat High Court therefore held that decision in the case
of Totagar Co-operative Sales Society rendered by the Hon’ble
Supreme Court is not restricted only to the investments made by
the assessee therein from the retained amount which was payable
to its members but also in respect of funds not immediately
required for business purposes. The Supreme Court has held that
interest on such investments, cannot fall within the meaning of the
expression “profits and gains of business” and that such interest
income cannot be said to be attributable to the activities of the
society, namely, carrying on the business of providing credit
facilities to its members or marketing of agricultural produce of its
members. The court has held that when the assessee society
provides credit facilities to its members, it earns interest income.
The interest which accrues on funds not immediately required by
the assessee for its business purposes and which has been
invested in specified securities as “investment” are ineligible for
deduction under section 80P(2)(a)(i) of the Act. (Paragraph-13 of
the Judgment)
13. It can thus be seen that the ratio laid down by the Hon’ble
Karnataka High Court in the case of Totalgars Cooperative Sales
Society in 395 ITR 611 (Karn) is that in the light of the principles
enunciated by the Supreme Court in Totgars Co-operative Sale
Society (supra), in case of a society engaged in providing credit
facilities to its members, income from investments made in banks
does not fall within any of the categories mentioned in section
80P(2)(a) of the Act. However, section 80P(2)(d) of the Act
specifically exempts interest earned from funds invested in co-
operative societies. Therefore, to the extent of the interest earned
from investments made by it with any co-operative society, a co-
operative society is entitled to deduction of the whole of such
income under section 80P(2)(d) of the Act. However, interest
earned from investments made in any bank, not being a co-
operative society, is not deductible under section 80P(2)(d) of the
Act.
14. The CIT was therefore justified in exercising his powers of
revision u/s.263 of the Act and directing the AO to tax interest
10
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
income in question as it is neither of the nature specified in
Sec.80P(2)(a)(i) or 80P(2)(d) of the Act.
15. The argument of the learned counsel for the Assessee has
been that the AO has applied his mind and allowed the deduction
and therefore the jurisdiction u/s.263 of the Act cannot be
exercised. On this argument, the learned DR pointed out that the
jurisdiction u/s.263 of the Act was exercised by the CIT not for the
reason that the AO failed to make proper enquiries before
concluding the Assessment but on the ground that his decision was
contrary to decision of Hon’ble Jurisdictional High Court and
therefore this argument of the learned counsel for the Assessee
cannot be accepted. The argument that the view taken by the AO
was a possible view and hence revision u/s.263 of the Act is bad is
again not acceptable because, the view that ought to have been
adopted was the later binding decision of the High Court in the case
of Totagar co-opeartive sales society 395 ITR 611 (Karn.).
16. The argument that co-operative Banks are also co-operative
societies is again without any basis in the light of the law explained
in the case of Totagar co-opeartive sales society 395 ITR 611
(Karn.). The reliance placed by the learned counsel for the
Assessee on the earlier decisions of the Hon’ble Karnataka High
Court in the case of Tumkur Merchants Souharda Credit
Cooperative Ltd. (supra) that the decision in Totgars Co-operative
Sale Society (supra) stands explained by the later decision in the
case of Totagar co-opeartive sales society 395 ITR 611 (Karn.).
17. We however find that the Assessee has raised the following
grounds of appeal in its appeal, viz.,
“5. Without prejudice to the above, the learned Principal
Commissioner ought to have considered the submissions of
the appellant to the effect that interest received by it
amounting to Rs. 1,32,726 from deposits with Mysore &
Chamarajanagar District Central Co-operative Bank made
out of Reserve Fund in compliance with rule 23(2) of the
Karnataka Co-operative Societies Rules, 1960 constituted its
income from the business of providing credit facilities to the
members and accordingly, ought to have held that the
Income Tax Officer rightly allowed deduction thereof under
section 80-P(2)(a)(i) of the Income Tax Act, 1961.
6. Without prejudice to the above, the learned Principal
Commissioner ought to have taken note of the submissions
made by the appellant that interest received by it amounting
to Rs. 1,32,726 from deposits with Mysore &
Chamarajanagar District Central Co-operative Bank made in
compliance with section 58 of the Karnataka Co-operative
Societies Act, 1959 constituted its income from the business
of providing credit facilities to the members and accordingly,
ought to have held that the deduction under section 80-
11
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
P(2)(a)(i) of the Income Tax Act, 1961 in respect thereof was
rightly allowed by the Income Tax Officer.
7. Without prejudice to the above, the learned Principal
Commissioner ought to have considered the submissions of
the appellant to the effect that the interest received by it
amounting to Rs. 1,32,726 from deposits with Mysore &
Chamarajanagar District Central Co-operative Bank made in
compliance with rule 28 of the Karnataka Co-operative
Societies Rules, 1960 constituted its income from the
business of providing credit facilities to the members and
accordingly, ought to have held that the appellant was eligible
for deduction thereof under section 80-P(2)(a)(i) of the
Income Tax Act, 1961.”
18. The issue raised by the Assessee in the aforesaid grounds
require examination because if there are statutory compulsions that
the money should be invested in a particular manner to run
business of the Assessee then the interest income arising from
such investments have business nexus and should be considered
as income derived from the business of providing credit facility to
the members. This aspect requires examination by the AO as it
has not been raised before the CIT. We therefore modify the order
of the CIT by remanding the issue raised in ground No.5 to 7 alone
to the AO for examination afresh. In other respects we confirm the
order of the CIT.”
7.2 In the instant case, it was contended that
majority of the interest income is earned out of
investments made with Central Co-operative Banks
and is in compliance with the requirement under the
Karnataka Co-operative Societies Act and Rules. If
the amounts are invested in compliance with the
Karnataka Co-operative Societies Act, necessarily,
the same is to be assessed as income from business,
which entails the benefit of deduction u/s 80P(2)(a)(i)
of the I.T.Act. Insofar as deduction u/s 80P(2)(d) of
the I.T.Act is concerned, we make it clear that
interest income received out of investments with co-
operative societies is to be allowed as deduction.
7.3 Moreover, the Hon’ble Apex Court in the case of
Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT
& Anr. (supra) had settled various issues for claiming
deduction u/s 80P(2)(a)(i) of the I.T.Act. The gist of
the judgment of the Hon’ble Apex Court are as
follows:-
12
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
(i) Section 80P is a benevolent provision enacted
by the Parliament to encourage and promote the
credit of the co-operative sector in general must be
read liberally and reasonably, if there is ambiguity,
in favour of the assessee (para 45 of the judgment).
(ii) The co-operative societies extending credit
facilities are entitled to deduction u/s 80P(2)(a)(i) and
if there are loans to non-members, only profits
attributable to the transactions with the non-
members alone is liable to be excluded from the
deduction. That is to say that the transactions with
non-members per se would not disentitle a co-
operative society from claiming the deduction under
the section. If the state Act (the Co-operative Law)
provides for enrollment of ‘nominal members’, the
loans given to such nominal members would qualify
for the purpose of deduction u/s 80P(2)(a)(i). (Para 30
to 46 of the Judgment)
(iii) Under clause (d) of section 80P(2), the interest
or dividend income derived by a co-operative society
from investments with other co-operative society is
also eligible for the deduction whole of such income.
(Para 35 of the Judgment)
(iv) The restrictive clause in sub-section (4) of
section 80P applies only a co-operative bank and not
to co-operative societies or to co-operative societies
extending credit facilities to its members. Further,
only a bank having obtained the license under the
Banking Regulation Act, 1949, shall be covered
under the said restrictive clause u/s 80P(4). The
Hon’ble Court has also elaborately explained the
correct meaning & scope of the Proviso under the
said sub-section (4) of section 80P declaring that the
proviso carves out an exception to the exclusion in
sub-section (4).
7.4 In the light of the above judgment of the Hon’ble
Apex Court in the case of Mavilayi Service Co-
operative Bank Ltd. & Ors. v. CIT & Anr. (supra), the
13
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
matter needs to be examined afresh by the A.O. de
hors the observations of the CIT. The A.O. is directed
to follow the dictum laid down by the Hon’ble Apex
Court in framing the fresh assessment. It is ordered
accordingly.
8. In the result, the appeal filed by the assessee is
allowed for statistical purposes.”
6.1 Since the facts considered by the Tribunal in the case of
Prathamika Krushi Pattina Sahakari Niyamata v. Pr.CIT
(supra) are identical to the facts of the case under
consideration, respectfully following the same, we direct the
A.O. to consider the issue afresh, based on the above order of
the Tribunal.
7. Since the facts in the case for assessment year 2015-
2016 (ITA No.577/Bang/2020) are identical to the facts for
assessment year 2016-2017 (ITA No.578/Bang/2020), on
similar directions given by us for assessment year 2015-2016,
the A.O. is directed to consider the issue afresh for the
assessment year 2016-2017, as well. It is ordered accordingly.
8. In the result, the appeals filed by the assessee are
allowed for statistical purposes.
Order pronounced on this 09th day of December, 2021.
Sd/- Sd/-
(Beena Pillai) (Chandra Poojari)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore; Dated : 09th December, 2021.
Devadas G*
14
ITA Nos.577-578/Bang/2020
M/s.Gnanaganga Gruha Nirmana Sahakara Sanga Niyamita
Copy to :
1. The Appellant.
2. The Respondent.
3. The Pr.CIT Mysore
4. The CCIT-1, Bengaluru.
5. The DR, ITAT, Bengaluru.
6. Guard File.
Asst.Registrar/ITAT, Bangalore
Comments