Income Tax Appellate Tribunal - Ahmedabad
Shri Vajapur Patidar Co. Oparative ... vs The Ito, Ward-5, Patan on 11 May, 2022
आयकर अपीलीय अिधकरण, अहमदाबाद यायपीठ
IN THE INCOME TAX APPELLATE TRIBUNAL,
'' SMC'' BENCH, AHMEDABAD
(CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD)
BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER
And
SHRI SIDDHARATHA NAUTIYAL, JUDICIAL MEMBER
आयकर अपील सं./ITA No. 27/AHD/2022
िनधारण वष/Asstt. Year: 2017-2018
Shri Vajapur Patidar Co. Operative Credit I.T.O.,
Society Limited, Vs. Ward-5,
At. Vijapaur Po. Sanghpur, Patan.
Ta. Vijapaur,
Dist. Mehsana
PAN: AAMAS8935M
(Applicant) (Respondent)
Assessee by : None
Revenue by : Shri Umesh Agarwal, Sr.D.R
सुनवाई क तारीख/Date of Hearing : 05/05/2022
घोषणा क तारीख /Date of Pronouncement: 11/05/2022
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 26/11/2021 arising in the matter of assessment order passed under s. 250 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2017-2018.
ITA no.27/AHD/2022 A.Y. 2017-18 2
2. When the matter was called for hearing it was noticed that there was none appeared on behalf of the assessee despite the fact that case has already been listed for hearing. It is the trite law that assessee after filing the appeal should be vigilant enough to prosecute the same. But, we find that the assessee is not serious in pursuing the appeal filed by it. In the absence of any co-operation from the side of the assessee, we don't find any reason to keep the matter pending before us. Accordingly, we decide to proceed to adjudicate the appeal after hearing the learned DR appearing on behalf of the Revenue.
3. At the time of hearing, it was also noticed that there was a delay of 3 days in filing the appeal by the assessee. Considering the length of delay, the learned DR did not raise any objection if the same is condoned. Accordingly, we condone the delay and proceed to adjudicate the appeal filed by the assessee on merit.
4. The assessee has raised the following grounds of appeal:
1. The Ld. CIT (A) has erred both in law and on facts of the case in confirming addition of Rs. 203120/- on the amount of interest received from Co.Op Banks without appreciating facts that co.op. banks are co.op society and any income received by any co.op society from any co.op society is eligible for deduction u/s 80P(2)(d) of the IT Act. 1961. Hon'ble CIT (A) has confirmed addition on the ground that co.op bank is not a co.op society and considered the status of co.op Bank as bank not eligible to claim deduction u/s SOP. The addition is unwarranted and not legal hence is required to be deleted.
2. The Ld. CIT (A) has erred both in law and on facts of the case in confirming addition of Rs. 100000/- on account of basic deduction granted to various co op society on the basis of nature of activities carried out by the society without justifying nature of activities carried out by the appellant for members of the society hence addition made is unwarranted and is required to be deleted.
5. The only issue raised by the assessee is that the learned CIT-A erred in confirming the order of the AO by sustaining the disallowance of the deduction claimed by the assessee under section 80P(2)(d) of the Act with respect to the interest income from the co-operative banks.
6. The facts in brief are that the assessee in the present case is a co-operative society and engaged in the business of providing credit facilities to its members.
ITA no.27/AHD/2022 A.Y. 2017-18 3 The assessee in the year under consideration besides the income by way of interest from the members, has also shown interest income on the deposits made with Nationalized banks and co-operative banks amounting to ₹ 8,94,493/- only. The assessee on such interest income claimed deduction under section 80P(2)(d) of the Act. However, the AO was of the view that such interest income was not eligible for deduction under section 80P(2)(d) of the Act as the same is not arising from the deposits with the co-operative societies.
7. On appeal, the learned CIT-A upheld the order of the AO.
8. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
9. The learned DR before us submitted that the assessee wrongly claim the said interest income as deduction u/s 80P(2)(d) of the Act, 1961. In this regard the provisions with regard to allowing deduction in respect of interest income earned by a co-operative society are contained in section 80P(2)(d) of the Income-tax Act, 1961, which read as under :
"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"
9.1 According to the ld. DR, the provisions of the Act do not extend the deduction further, i.e., interest received from the investments made with co-operative banks. The learned DR vehemently supported the order of the authorities below.
10. We have heard the ld. DR and perused the materials available on record. At the outset, we note that this tribunal in the case of The Uttar Gujarat Uma Co-op Credit Society Ltd. Vs. Income Tax Officer in ITA Nos. 1670 & 1671/Ahd/2018 for the Assessment Years 2014-15 & 2015-16 after due deliberations has decided the issue in favour of the assessee with respect to the interest income from the co- operative bank. But the ITAT in the case cited above has not allowed any benefit to ITA no.27/AHD/2022 A.Y. 2017-18 4 the assessee with respect to the interest income from the nationalised bank. The relevant and detailed finding of the ITAT reads as under:
9. We ha ve ca ref ull y consi dered t he r iva l submi ssions. T he di sp ut e c once rn s se ct io n 80 P of t he A ct w hi c h pr ov ides fo r ded uc t io n of in co me o f a c o -o p erat i ve so ci et y e ng a g ed in spe c if ied a cti vi t y ca ta lo g ued in Se ct io n 80 P(2) of t h e A ct. T he p ri nc ipa l cont r over sy in th e ca pti o ned a p peal is t ow a rds m a inta i na b ilit y of d e d uct i on u nd er s.80 P(2) (d ) of t he A ct i n t he ha nd s of t he c redi t co - ope r a ti ve so ciet y tow a r ds inte res t ea rn ed fr om dep osi t pla c e d w it h co - op e ra ti ve b a n ks, m ore s o, in t he l ig ht of insert io n of s. 8 0P(4 ) of t he A ct by F ina nce Ac t , 2 006 . T hus, t he in c ide nta l p oint in iss ue i s w het he r the b enefi t of S. 80 P d eni ed t o c oo p b a nks by the insert io n of 80 P(4) a d versel y i m pact s th e in ve st me nt in s uc h ba nks b y a c o - op s oc iet y or n ot ? It is c om mo n kn ow le d ge tha t a la r ge numb e r o f c o-o p. s oci et i es pl a ce the ir surp l us wit h co - op. ba n k s a nd se ek be nefi t of Se ct io n 80 P( 2) (d ) of t he A ct o n i nt ere st inc ome d erived . H enc e, a nua nced u nde rsta nd ing o f t he r ag ing co ntr o vers y is st ro ng l y nee d ed.
9. 1 I t is p re do mi na nt ly t h e c a se o f t he a ssessee tha t th e co -op er a ti ve ba n k s esse nti a lly c on tinue to be c o -o p era t ive soc iet ies a nd w hile 'co -
op e rati ve so ciet ies ' is a g enu s t e r m, t he 'co -op e rati ve ba nks' ar e sp eci es t he r et o. T her efo r e, su ch co - o pera ti ve ba n ks a r e e sse nt ia ll y co - op era t ive soc ie t ie s not wi th st a nding t h eir e ng a gem ent i n ba nki ng bu si nes s. C o ns eque ntl y, i t is cl a imed t ha t t he in vest m ent i n co -op era ti ve b a nk s a re t o b e trea t ed a t p a r w it h in ve st m en t i n co - ope ra ti ve s oci eti es f or t he pu rp ose s of e li gi bi lit y of ded u ct io n under s. 8 0P (2 )( d) o f t he Act. T he Re ve nue, on t he o t her ha nd, ha s co nte n d ed t ha t i n v iew of d efin it io n pr o v ide d f or c o-o pera t ive s oc iet ie s u nd er Se ct io n 2( 19 ) ; de d uc ti on p ro vi ded u nd er Se ct io n 8 0P( 2) ( d) r. w. s. 80P ( 4) of t he A ct is not a va i la ble t o invest me nt i n a c o- o pe ra t ive b a n k a s such in ve st me nt ca nnot be t r ea t ed a t pa r w it h t he in vest me nt i n co -o pera t iv e so ciet y. I t i s a ls o con t e nde d o n beha lf o f t he Re ve nu e t h a t t he pr o vis io n s of S ect ion 80P o f th e Ac t a re fo unded o n 'pr in cip le s o f m ut ua lit y' i. e. c omm o n i de nt it y b et ween t he c ont ri buto r s a nd pa rt ic ip a tor s. Th e dep o si t in t he co- op er a ti ve ba n k la ck s t he d e gree of p ro xim it y b et w een the me mb ers of t h e soc iet y w it h t ha t of c o- op era t ive ba n k a nd thu s of fe nds t hi s sa cros an ct pr i ncip le of m ut ua lit y. I t wa s t h us co nt end ed t hat int e res t i nco m e by a co -o p era t ive so ci et y fr om a co- op era t ive ba nk i s not c overe d i n th e fo ld of Se ct io n 8 0P ( 2) of t he A ct . I t is f ur th er ca se of t he a ss es see t ha t excl us ion o f c o - o p ba n ks f or e l ig ibil it y of d edu ct io n unde r S. 8 0P ow in g t o i ns er t io n of S. 8 0P (4 ) do e s not , in a n y m a nne r, t a ke a wa y t h e b en ef it a va ila bl e u nd er S. 80 P(2) ( d ) t o a n i nve sto r soc ie t y (e xc ludi ng c o- op ba nk) in a c o- op b a n k w hi c h i s a c o -o p soc iet y fo r a ll in t e nt a nd p urp ose s w hi le ca rr yi ng o n t he fu n ct io ns of a ba n k. I t is t h us pa d d led t ha t w hile a c o- o p so cie t y f un ct io ni ng as a co - o p ba nk is n ot ent it le d t o be nef i t of 80P ow ing t o e x clusio ns ma d e, a co -o p s oci ety not bei ng a co -o p b a nk r ema i ns u naff e ct e d by S. 80 (4 ) a n d ca n e n jo y th e ben efit s o f S. 80 P(2) ( d) co nf er red o n t he so ciet ies o n f ul fillm en t of pr e- req ui sit e s.
9. 2 Bef ore w e pr oceed t o dea l w it h t he is sue i n ha nd , it w oul d b e a pt t o qu ot e t he releva nt pr o vi sio ns go ve r ni ng t he co nt ro vers y i n ha nd.
9. 2. 1 Se ct io n 2( 19) d efi ne s t he mea ni ng of e xpr essio n 'C o-op So ciet y' as u nde r:
ITA no.27/AHD/2022 A.Y. 2017-18 5 " co -o pera ti ve so ciet y" mea n s a co- oper a ti ve s oc iet y regis ter ed u nd e r t he C o- o p era t iv e S oc ie t ies A ct , 191 2 (2 of 19 12 ), o r u nder a n y o th er la w f or the t ime b ein g i n f or ce i n a ny St a t e f or t he reg ist ra t io n of c o- op era t ive s o ci eti es;
9. 2. 2 I nc ome u nd er S. 2( 24 ) of t he A ct a ls o i nc lud es:
t he pro fit s a nd g a ins o f a n y b usi nes s of b a nk in g ( in c lu ding pr o vi di ng c re dit fa cil it ie s) c a rri ed on by a co -op era t ive s o ci et y w it h it s m embe rs
9. 2. 3 T he rel eva nt p ort io n of S. 80-P go ver nin g d e d uc ti on a va ila b le t o c o- op era t ive s o ci eti es is a lso qu ot e d he re un der:
"De duc ti on i n r es pe ct of i nc om e of c o- o perati ve s oci e ti es .
80 P. (1) Wh ere, i n t he case of a n a sse ss e e bei ng a c o-o pera t iv e soc ie t y, t he g ro s s t o t al i nc om e i ncl ud es a n y i nc om e ref erred t o i n sub- se ct io n ( 2) , t he re sha ll be ded uct e d, i n a cco rd an ce w it h a nd sub je ct t o t he pro vis io ns of t his se c ti on, t he s um s sp e cif ied in su b- se cti on ( 2 ), i n com puti ng t he t ota l in come of t h e a sse ssee.
( 2) T he su ms refer red t o in s ub- se ct i on (1) sha ll b e t h e f o ll owi ng, na me l y :--
(a) in t he ca se o f a c o- op era t ive s o ci et y e ngag e d i n--
( i) c ar ryi ng on t he bu sin ess of b an kin g or p r ovi di ng cre d it fa cilit i es t o it s memb e rs; o r ( ii) a c ott a ge ind ust r y ; or ( iii ) -- -
( iv) -- -
( v) -- -
( vi) -- -
( vii ) -- --
t he w ho le of t he a m ou nt of pr of i ts a n d gai ns o f b us i n es s a t tri but ab le t o an y o n e o r m ore of su ch a ct i vit ie s :
( b) -- --- --- - --
( c) -- --- --- - --
( d)
in respe ct of a n y in c o me b y w a y of i nt ere st or di vi de nd s der ive d by t he co -o per a t ive s o ci et y fr om it s in vest me nt s w it h a n y ot her c o- op era ti ve so ci et y, t he whol e of s uc h i n com e;
( e) --- - -- - -- - -
(f)
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( 4) T he p r o visi ons o f t hi s se ct io n sha ll not app ly i n re la t io n t o a n y co- op er a ti v e b an k o the r t ha n a p rim a r y a gr icult ur al c red it so ci et y or a p r im a r y co - o per a t ive a gr ic ult ura l a nd r u ra l de velop me nt ba n k.
E xpl a na ti on. --F o r t he pu rp ose s o f t hi s s ub -sect io n, --
(a) " co-o p era t ive ba n k" a nd "p ri ma r y a g ri cu lt ura l cr e dit so ciet y" sha ll h a ve t he mea ni ng s re spe ct ivel y a ssi gned to them in Pa rt V of t he Ba n king Re gu la t io n Act , 1 949 ( 10 of 1 949 );
( b) "p rim a ry co - op era ti ve a gri cult ura l a nd r ur a l d evel opm en t ba nk" me a ns a so ci et y h a v ing i ts area of op e ra t i on co n fined t o a ta l uk a nd t he pr in cip a l ob jec t o f whic h is to pro vid e for lo ng -t er m cr edi t fo r a gri c ult u ra l a n d r ur a l d evel opm ent a cti vitie s . "
9. 2. 4 P a rt V of B a nki ng Reg ul a ti o n A ct , 19 49 def ine s ' co -op era t i ve ba nk' in S ect io n 5 ( cc i) a s und er:
" Co - op era t ive ba n k' mean s a sta t e c o- ope r a ti ve b a n k, a c ent ra l co - op e rati ve b a n k a nd a prim a ry c o- op era t ive b a nk;
9. 2. 5 A 'pr im a ry c o-o p era t i ve ba n k' a s p e r Se ct i on n 5 ( c c v) of Part V of Ba n king Re gula t io n A c t, 1 94 9 rea d s t o m ea n :
"( c cv) "p rima ry co -o pera t ive ba n k" m ea ns a c o- ope r ati ve s oc iet y, ot her t ha n a pr im a ry a gri cult ur al cr e dit s o cie ty, -
......... ............ ...... ....
9. 2. 6 A s p er c la u se ( cc vii ) of Se ct io n 5 , how e ver, 'Cen tra l C o- o p Ba n k' a n d ' Sta t e Co - op Ba n k' s ha ll ha ve t he sa me m e aning s r es pe cti ve ly as sig ne d t o t he m i n t he Nat io na l B a nk f or A gr ic ul ture a n d R ura l De vel opm e nt ( NAB A RD) A ct , 198 1. NAB A RD, in t ur n d efi nes t hes e tw o t e rm s a s u nd er:
Se ct io n 2 (d ) of NA BA RD defi ne s 'centra l co -o perat iv e b a n k' mea ns t he "d . "c e nt ra l c o -o p er a t ive b a n k" mea ns t he pr in ci pa l co- o pera t ive s oc ie t y in a d ist rict in a St a te , t he p r ima ry ob je ct o f w hi ch is t he fi na nci n g of o t her co - op era t ive so cie tie s in t ha t di st ri ct:... ...... . "
u. " Sta t e c o-op e rat iv e ba nk" mea ns t he pri ncip al c o- op era t i ve s oc ie t y in a S t at e, t he p rima r y o bj ect of w hi ch is t h e fi na n ci ng of ot her co - op e rati ve s ociet ies in t he St a te:... ...... ......... "
9. 3 Ha vi ng no ted t he rel eva nt pr o vision s i n e a rlie r pa ra , it w ou ld be expe die nt t o fi rst ly r efer t o t he d e cis io n of T he C it iz e n Co- Opera ti v e S oc ie t y Lt d. (sup ra) t o ga t he r the rul es of i nter pre t a t io n of va rio u s sub - sect io ns of t he be neficia l p ro v isio n of S. 8 0P. T he Ho n'b le S uprem e C o urt int er a lia ha s o bse rv ed t ha t d iff ere nt hea d s of exem p t io n e nume ra te d i n t he Se ct io n 80 P of t he A ct s hou ld b e t re a t ed a s se pa ra t e a nd d ist inct hea d o f 'e xem p ti o n'. I f a n y pa r ti c ula r c a te g o ry of a n inc om e fa ll s w it hi n a n y o ne hea d of 'e xem pt io n ', t he a sse ss ee w o ul d b e fr ee from t a x no tw it h st and ing ITA no.27/AHD/2022 A.Y. 2017-18 7 t ha t t he c ond it i o ns of o t he r hea d o f exem pt ion a re n ot sa t isf ied a nd su ch inc om e is not fr ee fr o m ta x u nd e r ot her h ea d of 'ex em p ti on '. T h us , in view of t he ex pr e ss ju d ici a l di ct a , pr ovis io n s of Sect io n 8 0P ( 2)(a ) a n d 80 P(2) (d) a re m ut ua ll y e x clu si ve and a re t o be rea d i ndep e nd en t of ea c h ot her.
9. 4 We a re pr e se ntl y co n cer ned w it h t he a va ila b ilit y of de d uc ti on t o a c o- op soc iet y w it hi n t h e rea lm of Sect io n 8 0P (2)(d ) o f t he A ct . T w o t hi n gs nee d t o be noted in t his re gar d ; fi rs tl y, u nlike Se ct io n 8 0P (2 ) (a) or ( b) o r ( c) o f t he A ct w he re t he a s se sse e is q ua lifi ed f or d ed u ct ion of " pro f it s & ga i ns of b us ines s" a tt rib ut a bl e t o o ne o r m or e of ac t ivit i es en um er ated in t he se su b - se cti o ns, S ect io n 80P ( 2) ( d) of t he A ct, in s ha r p d epa rt ur e , pr o v ide s for de d uc ti on of "w ho le of s uc h in come " [ wi t ho ut a ny di st inct io n on na t ur e of inco m e ] as d erive d by a c o- ope ra ti ve so ciet y f rom its invest me nt w it h a n y ot her c o-o p era t i ve s ocie t y. Need less t o sa y, in a t axin g A ct , o ne ha s t o l ook merel y at w ha t i s cl ea rl y sa id. T he re is no ro om f o r a n y i nte nd me nt a nd o n e ha s t o l o ok f a irl y a t t he lan g ua g e u sed. T h us, sco pe of be nefi t und er s. 8 0P( 2 )( d ) i s n ot r estr ic te d t o 'b u sine ss inc ome ' a lo ne but a ls o ext end s t o i nc om e d eriv ed f ro m i nvestm ent s ord ina ri ly fa lli ng u nde r t he hea d ' inco m e fro m ot her so urc es ' a s w ell ; se c o ndl y d oct ri ne o f m ut ua lit y i s not n eces sa r ily a pr e- co nd it io n in a p pr op ria t e ci r c um st a nc es, fo r i ns t an ce 80P (2) ( a( ii ); a nd t hi rd ly a nd q uit e sig nif i ca nt ly ; t he invest me nt b y a co - op so cie t y in a c o- o p so c iet y sho ul d result i n i nt erest o r di vid end i nc om e fro m it s in vest me nt . Th us w ha t i s per ti ne nt is t ha t t he invest me nt b y t he a ssessee so ci et y s ho uld be pa rk ed i n a not he r ' c o-op soc ie t y' for t h e p ur po s es of sub -c la us e 2 ( d) o f S. 80 P. T he m oo t que st io n t hus na t ura lly em e rge s i s ; w het her t he in ve st me nt i n a co -op b a nk is t o b e reg a rded as i nve stme n t i n- eff ect in a c o-o p s ociet y or not ?
9. 5 A t t hi s ju nc tu re, we a ls o t a ke si m ul ta ne o u s not e of s uc h Se ct io n 80 P(4) of t he A ct insert ed b y F i na nce A ct, 2 00 6 where b y a co -op er a ti ve ba n k ha s b ee n d e pri ved of d e d uc ti o n unde r s. 8 0P of t he Act . T o p ut it sli gh t ly dif feren t ly, wi t h a dvent of se cti o n 8 0P (4 ) , c o- op b a nks ha ve bee n br o ugh t to ta x by den yi ng t hem t he be nefit of Se ct io n 8 0P of t he Act .
9. 6 T he i nsert io n of Se ct io n 8 0P (4 ) of t he A ct ha s p ur p o rted ly a ls o ob f usca t e d a n d ca st a sper sio n o n th e d ed uc tib ili ty of i nco me der ived b y a c o- op era t ive so ciet y fr om i nv es tm ents p la c ed wit h co -op era ti ve ba n k u nd er S. 8 0P (2 ) (d ) of th e Act. I n t hi s co nt e xt, it w o uld b e interes ti ng to no t e t ha t t he af ore sa id c la us e 80P ( 4) it self ho ld s t ha t a co - op e ra ti ve b a n k m a y a ls o po ss ib ly in clud e 'a cred it so ci e ty'; f o r i nst a nc e, a pri ma ry a gr icult u ra l c re dit so ciet y. T heref o re, o n a n i nci si ve re adi ng o f Se ct io n 80 P( 4) o f t he A ct , it a pp ear s t ha t co -o p erat i ve ba n ks ca n a lso be co - o per a ti ve so ci ety f o r t he p urp os es of Se ct io n 80 P(2) ( d) of t he A ct . T hus , o n a c on jo int rea di ng of Sec ti on 8 0P (2 ) (d ) a nd 8 0P ( 4) , it w o ul d ap pea r t ha t w hi le t he c o- ope ra t ive ba n k s in cer t ai n c as es [ as spec if ied in S ec ti o n 8 0P (4 ) ] ma y not q u a lif y fo r ded uct io n und er s. 80P o f t he A c t, a co - oper a ti ve s oc ie t y p e r s e w o uld n ot c om e w i th in t he mi schief of s ub - se ct io n 4 o f the A ct of Sect ion 80 P o f t he A ct a nd w o uld co nti nu e t o ava il t he b enef it o f S ect i on 80P ( 2) ( d) of the A ct . T h us , si mp ly p ut , w h ile a co- ope rat i ve ba nk h a s bee n st rip ped of t he b e nefit of Se ct io n 80P of t h e Act o n i ts va ri o us in co me b y ins erti o n of S. 8 0P (4 ), t he in ve st me nt in su ch c o -o pera t iv e b a n k [ b ear ing t he le g a l t r ap p i ng s of a c o- op so ciet y ] b y a co -op soc iet y a s e nvi sa g ed i n Sect io n 8 0P (1 ) of the A ct is no t d ive sted of suc h b e nefi t.
ITA no.27/AHD/2022 A.Y. 2017-18 8
9. 7 J oining t he is s ue in h a nd , a s per Sec ti on 80 P(2) (d) of t he A ct , t he on ly req uirem en t is t h a t t he inc om e sho uld b e r ec ei ved fr om i nve st m en t b y a co- op era ti ve so ci e ty in o th er co - ope ra t ive soc iet y a nd it is cl a imed t ha t c o- op era t ive ba nk na mely 'A hm ed a ba d Dist ri ct Co -oper a ti ve Ba n k', in t he pr ese nt ca se, i s n ot hi n g but a co- op era t i ve so cie t y re co gn ised b y t he c om pe t e nt a ut ho rit y o f t he St a t e a s c onte m pla t e d u nde r Se ct io n 2 (1 9) o f t he Ac t. O n t hese fa ct s, t he e lig ib ilit y of ded ucti on u nde r S ec ti on 80 P(2) (d ) of t he A ct is req u ire d t o be e va l ua te d in d e pen dent of m ut ua lit y d o ct r i ne t a ke n a wa y b y i nser ti o n o f S. 2( 24 )( v iia ) . T he a sse ssee soc iet y w oul d t h us be ent itl ed t o b e nef it o f se ct io n 80P (2)( d) on i nt erest in com e fr om invest me nt i n co -o p b a n k. A s n ot i ce d f rom the d ef initi o n of 'c o- o p ba nk' w it h r efere nce to Ba n king Regu la t io n A ct , 194 9; r ea d w it h N AB AR D Ac t , it is oste n sib le t hat the c o- op ba nks of va ri o u s t yp e s are e sse nt i al ly co-o p. soc ie t ie s. He n ce, the cla i m o f d e d uc ti on ma d e und e r S. 8 0P( 2) ( d) by a co - op s ociet y in s uch co -o p ba nks ca n not b e de nied not w it hs ta ndi ng t ha t som e t he se co -op ba nks a re no t el igi ble f or 80 P benef it s d esp it e bei ng c o-op soc ie t ie s.
9. 8 C o up l ed w it h t hi s, cer ta i n o bser va ti o ns ma de b y t he H on' ble G uja ra t Hig h co urt i n S ta t e Ba n k of Indi a ( sup ra ) a nd i n Sa b a r ka nt ha Di st ri ct ( supra ) a ls o rei nfo r ces t ha t in t erest e a r ned on f ixe d dep osi t wit h co -o pera t ive ba n k c an be sa id t o b e q ua lifi e d f o r de d uct ion u nd er s.8 0P of t he A ct no t wit hst a nd in g t hat suc h ob ser va t io ns a pp ear to be in t h e na t ur e o f a n ob it er i n t he co nt ext o f t hose ca s es.
9. 9 A t t hi s st a g e, it w ou ld a ls o b e p ert in ent t o a ga in r e sta t e tha t f or t he pu rp ose s of Se ct io n 8 0P of t he A ct , t he pr in cip le of m ut ua li t y ha s bee n ob lit era t ed in vi ew of inserti o n of Se ct io n 2(2 4 ) (v iia ) of t he A ct b y F ina n ce A ct , 20 06 a nd suc h p ri ncip les t h u s n o l ong e r ser ve a s st ri ct g ui d ing pri nci p le t o te st t he re li ef el ig ib le u nd er S. 80 P(2) ( d) of t he Ac t. T herefor e, t he p lea ra is ed o n b e ha l f of the Re ve n ue t ow ar d s a bs e nc e of pr in ci pl e of mut ua l it y in su ch d e po si ts w it h co - ope r a ti ve b a n ks is a d a m p sq ui b . T h us, t he a sse ssee bei ng a co - o pera t ive so ciet y a s c o nte mp la t ed under s. 8 0 P( 1) o f t he A ct , ca nnot b e d e p ri ve d of b enef it o f S . 80 P( 2) (d ) d esp it e p ur po rt ed a bse nce of m ut ua lit y in in vest me nt wi th a co - op b a nk. We, t hu s, con cu r w it h pl ea of a sse sse e f o r a l low a bi lit y of ded uc ti on o n int er est i n co me der ive d fr om co -o p er a tive soc iet y i n t he f or m o f C o- o pera t iv e ba nk o n fi rst pr in cip les . The iss ue i s a c co rdi ng ly r e solv ed in f a vour of the a s se ssee a nd a ga i nst t he R e venue.
9. 10 We a re co ns cio us of t he d ec is io n of t he Ho n' ble Ka rna t ka Hi gh C ou rt in P r. C IT vs . Tot a ga rs Co. o pera t ive Sa le s S oc iet y ( 20 18 ) 39 5 ITR 6 1 1 (Ka r n) w he r ei n it w a s he ld t ha t interest in com e not a risi ng fr om b u si ne ss op e rati ons i s no t el igib le f or d edu ct io n under s. 8 0P of t he Ac t. A rea di ng o f t he ju dg me nt of th e H on 'b le Hi gh C ou rt sh ow s tha t it w as g ui ded by na ture of a ct i v it y t o det erm in e t he cha ra ct er o f i nco me f o r th e p u rp o se s of Se ct io n 80 P(2) (d) of t he Act . Pla cing r el ia nce upo n the jud gm ent s r end er e d i n t he c ont ext of 80 P(2) (a )(i ) of t he A ct, t he Ho n' ble H ig h Co u rt c o nc lu ded t ha t t he dedu ct i on of int er est in co me is no t pe r missib le unles s it a r is es fr om bu si ne ss op er a t io n s. C lea rl y, t he di sti n ct io n b etw ee n Se ct io n 80P ( 2) ( a) a nd 80 P(2) (d) o f t he A ct o f s ubs ta n t ia l na t ur e (a s d is cussed in pa ra 9. 4 of t hi s ord er) wa s n ot b r oug h t t o t he no ti ce of H on 'b le Hig h C ou rt . T he d ed uct io n u nd er s. 80P( 2) ( a) or (b ) o r ( c) of t he A ct is a v a ila b le o nl y on a cco u nt o f ITA no.27/AHD/2022 A.Y. 2017-18 9 inc om e/p r of it s a r ising from b us i ness a ct ivi t y. How ever, t hi s req ui re m ent i s no t a pp li ca b le unde r s. 80P (2)( d) of t he A ct whe re w hol e of t h e i n come a ris ing f rom i nt e res t o r di vid e nd et c. i s a llow a b le w it h out s uc h lim it a t io n of bu si ne ss ac t ivit y. T hi s ca r di nal dif fe re nc e o f over w he l mi ng na t ur e w a s no t br o ugh t t o t he no t ice o f the Ho n'b le Hig h C o u rt. Con seq uent ly, t he dec isio n ren der ed b y t he Hon 'bl e Hig h C o ur t a pp ea rs t o b e s ub sil ent i o. T hus, go ver ne d b y t he ob ser va ti ons of t he Ho n'b le Gu ja ra t Hi gh C o ur t i n t he ca se of Sa b a rka nt ha D ist ri c t ( s upr a ) a nd St a t e Ba n k of I nd ia ( su pra ) , w e ha ve no t hes it ati o n t o a ffi rm t he p le a o f t he a sse ssee fo r a l lo w a bi lit y o f ded uct io n.
9. 11 I t is, how e ve r, fo r t h e as se ssee to d e mo n st ra te o n fac ts t ha t t he invest ee co -op era t i ve b a nk in quest ion is r ecog n is ed a s a co- ope r a ti ve soc ie t y indee d wi t hi n t he m ea ning of Se ct io n 2( 19 ) of t he Ac t . A self - dec lara t io n f ro m t he respec ti ve c o- op. ba n k i n t his reg a rd or a n y o th er suit a bl e d ocu me nt m a y di s cha rg e t he on us of t he a sse ssee t o w a rds t he st at us of t he co - op. b a nk. Sim il a rl y, t he a ss e ssee is e nti tl ed t o a va i l ded uct io n of resul ta n t 'i nc om e' d eri ve d a n d n ot gr o ss re ce ipt o f int ere st u nd er S. 80 P(2) (d) of t he A ct i n a c c ord w it h b a sic rat i ona le o f t a xa ti o n. Hence, al l ex pe nses/ lo sse s a t tr ib ut a bl e t o su ch inter est in co me a r e r equire d t o b e nece ssa rily de du ct ed a nd o nl y re s ulta n t int e rest in co me is el ig ib le f o r ded uct io n u nd er S. 80 P( 2) ( d) of t he A ct . T he AO w o uld t hus b e a t li be rt y t o a s cer t ai n t hese fa ct ua l a sp e ct s f or w hic h t he a sse s see sha ll pr o vi de suit a bl e a ssist a n ce.
10 . T he a lt er na t ive cla im of t he a sse ss ee for a llo w a nc e of pro -ra t a expe ndit ur e a g ai n st t he i nt ere st in co me fr om in ve st me nt in co- ope r a ti ve ba n k s et c. is re nder ed inf ruct u o us in view of the e nd orsem ent of t he m a in pl ea. I n view of o ur find i ng s t ha t t he a sse ssee i s e nt it led fo r ded uct io n u nd er s . 80P (2 ) ( d) o f t he A ct f or r esult a nt i ncom e de r ive d f rom in vest me nt s pl a ced w it h c o-o pera tiv e b a n ks, w e do not seek t o de li neate f ur ther. T herefor e, A O m a y a ll ow c la i m of de duct io n und er s. 80 P( 2) ( d) of t he A ct on n et i nc om e f r om int er e st a ft e r r ed u ct i on of a ll in c ide nta l e xpe nses inc ur r ed t o ea rn s uc h in c ome. T he is sue is t hus r emi tt ed ba c k t o A O f o r qua nti fica ti o n of ded ucti o n of inte r es t in co me i n a c co rda n ce wit h la w o n bei ng sa t isf ied tha t t he re ce iv er c o-op erat i ve b a n k sa t isf ie s t o b e a c o- op e rati ve s ociet y equa ll y.
11 T he int erest in com e o f Rs . 1, 13 9/- d er ived b y t he as se sse e s oc ie t y fr om i nves tm e nt w it h p r iva te b a nk i. e. Ax is Ba n k is how ev er, ne it her qua li fie d u nde r s. 80P ( 2 )( a )( i) of th e A ct in the li gh t of t he ra t io of T he C iti z e n C o -Ope r at i ve S oci et y Lt d. (s up r a ) no r unde r s. 80 P( 2)( d) of t he A ct . T h us , t he a ss essee is no t e nti tl e d fo r de d uc t ion or i nt ere st der i ved fr om th e pr iva t e b an k.
12 . I n t he result , a pp ea l o f t he a s sesse e is pa rt l y a ll ow ed.
10.1 The facts of the case on hand are identical to the facts of the case as discussed above. Thus, respectfully following the principles laid down by the order of the ITAT in the case cited above, we hold that the assessee is entitled for deduction under section 80P(2)(d) of the Act, 1961 with respect to the interest ITA no.27/AHD/2022 A.Y. 2017-18 10 income earned by it from the co-operative bank. However, respectfully following the order of the ITAT cited above, we further hold that the assessee shall not be entitled, for the interest income earned from the nationalized bank if any, to be eligible for deduction under section 80P(2)(d) of the Act, 1961. Hence the ground of appeal of the assessee is partly allowed.
10.2 Coming to next issue with regard to basic deduction as provided under section 80P(2)(c) of the Act and prayed by the assessee in the ground of appeal before us. The provisions of section 80P(2)(c) of the Act, provides that a co- operative society engaged in activities other than those specified in clause ( a) or clause (b) of section 80P(2) (either independently of or in addition to all or any of the activities so specified), following deduction shall be allowed from its profits and gains attributable to such activities :
(i) Rs. 1,00,000 in case of consumers' co-operative society
(ii) Rs. 50,000 in any other case 10.3 The expression 'profits and gains' in clause (c) of sub-section (2) of section 80P of the Act is not confined to 'Profits and gains of business'. The Bombay High Court in the case of CIT v. Ratanabad Co-operative Housing Society Ltd. [1995] 81 Taxman 257/215 ITR 549 has held as under:
"Letting out of the shops of the assessee-society to persons other than its members did not fall as an activity of the assessee-society either in clause (a) or clause (b) of sub-section (2) of section 80P. It was an activity of the assessee-society other than those specified in clauses
(a) and (b) of sub-section (2) of section 80P and as such, the question arose whether the income derived by the assessee-society from letting out the shops to persons other than its members was exempt from tax under section 80P(2)(c)."
10.4 Thus, in case of co-operative credit society, income to which benefit of section 80P(2)(a)(i) is not allowed, e.g., rental income, interest income from surplus funds kept in FDs' of banks, etc., basic exemption as provided for in section 80P(2)(c) must be granted.
ITA no.27/AHD/2022 A.Y. 2017-18 11 10.5 It also appears that, though the word 'activity' is not defined, yet the investment activity, activity of renting of immovable property, etc., and the consequent income attributable to such activities would be covered under section 80P(2)(c) of the Act. Hence, we direct the AO to allow the deduction under section 80P(2)(c) of the Act. Thus the ground of appeal of the assessee is allowed.
11. In the result appeal of the assessee is partly allowed.
Order pronounced in the Court on 11/05/2022 at Ahmedabad.
Sd/- Sd/-
(SIDDHARATHA NAUTIYAL) (WASEEM AHMED)
JUDICIAL MEMBER ACCOUNTANT MEMBER
(True Copy)
Ahmedabad; Dated 11/05/2022
Manish