Income Tax Appellate Tribunal - Bangalore
Varanga Vyavasayika Sahakari Sangha ... vs Income Tax Officer, Ward-1 & Tps, , Udupi on 27 May, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
SMC-'A' BENCH : BANGALORE
BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER
AND
SHRI WASEEM AHMED, ACCOUNTANT MEMBER
ITA No. 457/Bang/2024
Assessment Year : 2016-17
M/s. Varanga Vyavasayika
Sahakari Sangha Ltd., The Income Tax
Varanga, Officer,
Karkala Taluk, Ward - 1 & TPS,
Udupi Dist. - 576 144. Udupi.
PAN: AABAV1321R Vs.
APPELLANT RESPONDENT
Assessee by : Shri Mahesh R Uppin, Advocate
Shri Ganesh R Gale, Standing
Revenue by :
Counsel for Department
Date of Hearing : 17-04-2024
Date of Pronouncement : 27-05-2024
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER
Present appeal has been filed by assessee against the order passed by NFAC, Delhi dated 14.11.2023 for A.Y. 2016-17 on following grounds of appeal:
Page 2 of 22 ITA No. 457/Bang/2024"1. Whether the appellate authority was justified in sustaining the addition in respect of the Provisions made in the audited Profit & Loss A/c viz: Audit Fees Rs. 74,750/-, Staff Gratuity Fund Rs. 4,05,900/-, Leave Encashment Rs. 1,00,000/- and Service tax Rs. 2,00,000/- aggregating to Rs. 7,80,650/- in the impugned order even when appellant was held as eligible for deduction u/s. 80P of the Act;
2. Is the addition sustained in appeal not opposed to Sec. 40A(7) and Sec. 43(2) of the Act and run contrary to CBDT Circular No. 37/2016 dated 02-11-2016 which gives the relief in respect of any disallowance of business expenditure by way of deduction under Chapter --VI A of the Act to the extent profits so enhanced by such disallowance ; and
3. Both the authorities below passed the impugned Orders contrary to established principles laid down by the Hon'ble Supreme Court and High Court."
2. At the outset, the Ld.AR submitted that there is delay of 59 days in filing the present appeal.
2.1 The assessee has filed condonation petition vide affidavit dated 08.03.2024 seeking the delay to be condoned.
2.2 The assessee has submitted as under:
Page 3 of 22 ITA No. 457/Bang/2024 Page 4 of 22 ITA No. 457/Bang/2024 Page 5 of 22 ITA No. 457/Bang/20242.3 In view of the above, the assessee could not file the appeal before this Tribunal well in time and by the time the appeal papers were prepared for filing, there arose delay of about 59 days in filing the present appeal before this Tribunal. The reason for the delay in filing the present appeal was due to reason beyond the control of the assessee.
He thus prayed for the delay to be condoned.
Page 6 of 22 ITA No. 457/Bang/20242.4 The Ld.DR though objected however could not controvert the reasoning given by the Ld.AR for the delay that was caused in filing the present appeal.
We have perused the submissions advanced by both sides in the light of records placed before us.
2.5 In our opinion there is a sufficient cause for condoning the delay as observed by Hon'ble Supreme Court in case of Collector Land Acquisition Vs. Mst. Katiji & Ors., reported in (1987) 167 ITR 471 in support of his contentions.
2.6 It is also submitted by the Ld.AR that there is no malafide intention on behalf of assessee in not filing the present appeal within time.
The Ld.DR on the contrary opposed the delay to be condoned.
2.7 Considering the circumstances under which the delay was caused in filing the present appeal before this Tribunal we are of the opinion that there was no malafide intention of the assessee in causing the delay to file the present appeal. It is also that nothing contrary could be established by the revenue before us.
2.8 We place reliance on following observations by Hon'ble Supreme Court in case of Collector Land Acquisition Vs. Mst. Katiji & Ors., reported in (1987) 167 ITR 471 wherein, Hon'ble Court observed as under:-
"The Legislature has conferred the power to condone delay by enacting section 51 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters Page 7 of 22 ITA No. 457/Bang/2024 on de merits". The expression "sufficient cause" employed by the Legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice that being the life-purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message does not appear to have percolated down to all the other courts in the hierarchy.
And such a liberal approach is adopted on principle as it is realized that :
1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late.
2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated.
As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. ......................................................1.Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period."
2.9 Considering the submissions by both sides and respectfully following the observation by Hon'ble Supreme Court, we find it fit to condone the delay caused in filing the present appeal as it is not attributable to the assessee.
Accordingly, the delay in filing the present appeal stands condoned.
3. Brief facts of the case are as under:
3.1 The assessee society had filed its return of income for the A.Y. 2016-17 On 04.10.2016 declaring total income of Rs.NIL after claiming deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 of Rs.32,85,687/-. The then assessing officer completed the assessment u/s 143(3) of the I.T.Act on 17-12- Page 8 of 22 ITA No. 457/Bang/2024
2018 after disallowing the deductions claimed by the assessee and determined the income at Rs.32,85,687/-.
3.2 Subsequently, it was noticed by the Principal Commissioner of Income Tax, Panji that the assessee has debited expenses amounting to Rs.7,80,650/- on account of provision/ reserve for audit fees, gratuity fund, leave encashment and service tax. The assessing officer has not disallowed these expenses claimed by the assessee and accordingly, a notice dated 25.02.2021 was issued to the assessee proposing to pass an appropriate order u/s 263 of the Act, since the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue.
3.3 The assessee is a primary agricultural credit society registered under the provisions of Karnataka Co-operative Societies Act, 1959. The assessee is in the business of providing credit facilities to its members for their agriculture related activities, selling of fertilizers, manure and PDS distribution and other allied activities as permitted under its Bye-laws duly approved by the Registrar of Co-operative Societies. The assessee is doing its business exclusively with its members well within the frame work of law and it is not doing any business with non- members.
3.4 As per the revision order u/s. 263 of the Act, the A.O. made additions of Rs. 7,80,650/- disallowing the various provisions made in the Profit & Loss A/c u/s. 37 of the Act and thus, re-
Page 9 of 22 ITA No. 457/Bang/2024determined the Total income of the assessee at Rs. 40,66,337/- (as against its returned income of Rs. Nil) by denying the benefit of deduction u/s. 80P of the Act and levied tax plus interest of Rs. 20,55,815/- vide Order dated 03-03-2022 and raising a Demand Notice of even date for the said tax amount.
3.5 In the assessment proceedings, contrary to the order of the Tribunal to concede the benefit of deduction to Nominal members, the A.O. declined to give the same. Secondly, without examining the chargeability of interest on investments in the light of the judgement of Hon'ble High Court of Karnataka in ITA:
307/2014 in Tumkur Grain Merchants Souharda Co-operative Ltd.
3.6 The Ld.AO proceeded to hold the same as being ineligible for deduction u/s. 80P of the Act on the ground that it was chargeable u/s. 56 of the Act. Further, as per the revision order u/s. 263 of the Act, the A.O. made additions of Rs. 7,80,650/-
disallowing the various provisions made in the Profit & Loss A/c u/s. 37 of the Act and thus, re-determined the Total income of the assessee at Rs. 40,66,337/- (as against its returned income of Rs. Nil) by denying the benefit of deduction u/s. 80P of the Act and levied tax plus interest of Rs. 20,55,815/- vide Order dated 03-03-2022.
3.7 Aggrieved by the order of the Ld.AO, assessee preferred appeal before the Ld.CIT(A).
Page 10 of 22 ITA No. 457/Bang/20243.8 Before the Ld.CIT(A), assessee submitted that assessee is eligible for deduction u/s. 80P(2)(d) on the interest / dividend earned from investments made in other co-operative societies / co-operative banks. In support of the claim, assessee relied on the decision of this Tribunal. The Ld.CIT(A) however relying on the decision of Hon'ble Supreme Court in case of Citizen Co- operative Society Ltd. vs. ACIT reported in (2017) 84 taxmann.com 114 and the decision of Hon'ble Karnataka High Court in case of Totagars Co-operative Sales Society vs. ACIT reported in (2017) 395 ITR 611 disallowed the claim of assessee u/s. 80P(2)(d) of the act for the year under consideration.
3.9 Aggrieved by the orders of the Ld.CIT(A), assessee is in appeal before this Tribunal.
4. The Ld.AR submitted that assessee being a primary agricultural credit co-operative society is engaged in the business of providing credit facilities to its members agriculturists. He submitted that assessee claims 80P(2)(a)(i) in respect of the interest income earned by it by providing credit facilities to its members which has been disallowed by the authorities below relying on the ratio of Hon'ble Supreme Court in case of Citizen Co-operative Society Ltd. (supra). The Ld.AR submitted that assessee is a co-operative society registered under Karnataka Co- operative Societies Act whereas Citizen Co-operative Society has been observed to be a mutually aided co-operative society and was functioning as a bank that had a RBI approval. He thus submitted that the ratio laid down therein is not applicable to Page 11 of 22 ITA No. 457/Bang/2024 assessee as assessee does not have a RBI approval to function like a bank.
5. The Ld.AR submitted that insofar as the associate and nominal members are concerned, the ratio of Hon'ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT (supra) would be applicable to the facts of the case. He referred to the relevant observations by Hon'ble Supreme Court that reads as under:
"45. To sum up, therefore, the ratio decidendi of Citizen Co-operative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.
46. It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, 'nominal members' are 'members' as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions' Federation Ltd. v. CIT [1997] 11 SCC 287 referred to section 80P of the IT Act and then held:Page 12 of 22 ITA No. 457/Bang/2024
"8. The expression "members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in Section 80- P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression "members" in Section 80- P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under:
"2. (n) 'Member' means a person who joined in the a pplication for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;""
Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i).
47. Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non-members under section 59(2) and (3), which reads as follows:
"59. Restrictions on loans.-- (1) A society shall not make a loan to any person or a society other than a member:
Provided that the above restriction shall not be applicable to the Kerala State Co-operative Bank.
Provided further that, with the general or special sanction of the Registrar, a society may make loans to another society.
(2) Notwithstanding anything contained in sub-section (1), a society may make a loan to a depositor on the security of his deposit.
(3) Granting of loans to members or to non-members under sub-section (2) and recovery thereof shall be in the manner as may be specified by the Registrar."
Thus, the giving of loans by a primary agricultural credit society to non-members is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra)."
Page 13 of 22 ITA No. 457/Bang/20246. The Ld.AR submitted that, the investments made by the assessee from which interest / dividend has been earned, is to be considered for deduction u/s. 80P(2)(d). He placed reliance on the decision of Coordinate Bench of this Tribunal in following cases:-
a) Hon'ble Supreme Court in case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum & Ors. in Civil Appeal Nos. 10069 of 2016 dated 14.09.2023.
b) M/s. Mangalore Yanthrika Meenugarara Prathamika Sahakari Sangha vs. ITA Nos. 1096 to 1098/Bang/2023 vide order dated 01.04.2024
c) M/s. Mudur Vyavasaya Seva Sahakari Sangha Ltd., Mudur vs. ITO in ITA No. 1038/Bang/2023 vide order dated 22.03.2024
7. On the contrary, the Ld.DR vehemently opposed the arguments of the assessee by submitting that principle of mutuality is not satisfied as assessee extends credit facilities to nominal / associate members who do not have any right in the assessee society. In respect of 80P(2)(d) deduction, the Ld.DR submitted that interest / dividend income earned by assessee by making investments which has been simply accrued falls out the ambit of 80P and therefore the Ld.AO has rightly treated the entire interest as income from other sources. He thus vehemently supported the orders passed by the authorities below on both these accounts for the years under consideration. We have perused the submissions advanced by both sides in the light of records placed before us.
Page 14 of 22 ITA No. 457/Bang/20247.1 Based on the observations by Hon'ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT (supra), we note that, Karnataka Co-operative Societies Act, 1959 defines Members to include nominal / associate members u/s. 2(f). Considering the definition of "Member" under the Karnataka Co- operative Societies Act, the present assessee qualifies for deduction u/s. 80P(2)(a)(i). At the cost of repetition, we draw reference from following observations of Hon'ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT (supra):-
"46. It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, 'nominal members' are 'members' as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions' Federation Ltd. v. CIT [1997] 11 SCC 287 referred to section 80P of the IT Act and then held:
"8. The expression "members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in Section 80- P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression "members" in Section 80- P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section 2(n) of the Cooperative Societies Act. The said provision reads as under:
"2. (n) 'Member' means a person who joined in the a pplication for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to 'members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;""Page 15 of 22 ITA No. 457/Bang/2024
Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i)."
Accordingly, the assessee is eligible to claim the respective deduction u/s. 80P.
7.2 In respect of deduction available to the assessee on interest/dividend earned from fixed deposit / investments, Hon'ble Supreme Court in case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. KSCARDB vs. The Assessing Officer, Trivandrum & Ors. (supra), Hon'ble Supreme Court analysed applicability of section 80P(2)(d) deduction to an assessee in great detail.
7.3 At the outset, assessee invested in SCDCC Bank to meet the statutory requirement as provided u/s. 58 of the Karnataka Co-operative Societies Act, 1959 as it is imperative to carry on the business of providing banking or credit facilities to the members. It is submitted that, the investments are made out of Reserve funds of the society. It was thus submitted that the case law relied on by the Ld.CIT(A) is M/s. Totgars Co-operative Sales Society reported in 322 ITR 283 (SC) which are distinguishable on facts being:
It is primarily engaged in the business of providing credit facilities to its members and marketing their agricultural produce.
At the time of marketing the produce, the sale proceeds are retained, and as the funds are not immediately required, the same was deposited and interest is earned.Page 16 of 22 ITA No. 457/Bang/2024
The funds used for investment are out of amount payables to the members retained by them.
As interest was earned on money due to the members, that was deposited with the Bank, the same was held to be taxed as 'IFOS' u/s 56 of the Act (emphasis drawn from paras 10-11 of the judgment).
7.4 Now coming to the merits of the disallowance made u/s.
80P(2)(d) by the authorities below, the word 'attributable' used in the said Section is of great importance. Hon'ble Supreme Court considered the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute, in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (at page 93) as under:--
"As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor- General, it has used the expression "derived from", as, for instance, in section 80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity."
(emphasis supplied) Page 17 of 22 ITA No. 457/Bang/2024 7.5 Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to"
being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co- operative 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, the society 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.
7.6 In this context when we look at the decision of Hon'ble Supreme Court in case of Totgars Co-operative Sale Society's case reported in (2010) 188 Taxman 282, relied by the Ld.DR. Hon'ble Supreme Court was dealing with a case where the assessee therein, apart from providing credit facilities to the members, was Page 18 of 22 ITA No. 457/Bang/2024 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 payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such amount retained by the assessee therein 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. On these facts Hon'ble Supreme Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Hon'ble Supreme Court, also clarified that, they are confining the said judgment to the facts of that case.
7.7 In the instant case, there is nothing on record to come to the conclusion that the amount which was invested in banks to earn interest was amount due to its members, and that, it was a liability. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for objects of the society, but was required to be invested as required by the Karnataka Co-operative Societies Act, 1959. Therefore they had deposited the money out of which interest was earned. The said interest is thus attributable to carrying on the business of the assessee and therefore it is liable to be deducted in terms of Section 80P(2)(d) of the Act. In fact similar view is taken by the Hon'ble Andhra Pradesh High Court in the case of CIT v. Andhra Page 19 of 22 ITA No. 457/Bang/2024 Pradesh State Co-operative Bank Ltd. reported in [2011] 12 taxmann.com 66.
7.8 We note that recently Hon'ble Supreme Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. vs. AO reported in (2023) 154 taxmann.com 305 has in detail analysed the allowability of deduction u/s. 80P(2)(d) of the Act. Hon'ble Court observed and held as under:
"15.8 Since the words 'bank' and 'banking company' are not defined in the NABARD Act, 1981, the definition in sub- clause (i) of clause (a) of section 56 of the BR Act, 1949 has to be relied upon. It states that a co-operative society in the context of a co-operative bank is in relation to or as a banking company. Thus, co-operative bank shall be construed as references to a banking company and when the definition of banking company in clause (c) of section 5 of the BR Act, 1949 is seen, it means any company which transacts the business of banking in India and as already noted banking business is defined in clause (b) of section 5 to mean the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. Thus, it is only when a co-operative society is conducting banking business in terms of the definition referred to above that it becomes a co-operative bank and in such a case, section 22 of the BR Act, 1949 would apply wherein it would require a licence to run a co-operative bank. In other words, if a cooperative society is not conducting the business of banking as defined in clause (b) of section 5 of the BR Act, 1949, it would not be a co-operative bank and not so within the meanings of a state co-operative bank, a central co- operative bank or a primary co-operative bank in terms of section 56(c)(i)(cci). Whereas a co-operative bank is in the nature of a banking company which transacts the business of banking as defined in clause (b) of section 5 of the BR Act, 1949. But if a co-operative society does not transact the business of banking as defined in clause (b) of section 5 of the BR Act, 1949, it would not be a co- operative bank. Then the definitions under the NABARD Act, 1981 would not apply. If a co-operative society is not a Page 20 of 22 ITA No. 457/Bang/2024 co-operative bank, then such an entity would be entitled to deduction but on the other hand, if it is a co-operative bank within the meaning of section 56 of BR Act, 1949 read with the provisions of NABARD Act, 1981 then it would not be entitled to the benefit of deduction under sub-section (4) of section 80P of the Act.
15.9 section 56 of the BR Act, 1949 begins with a non- obstante clause which states that notwithstanding anything contained in any other law for the time being in force, the provisions of the said Act, shall apply to, or in relation to, co-operative societies as they apply to, or in relation to, banking companies subject to certain modifications. The object of section 56 is to provide a deeming fiction by equating a co-operative society to a banking company if it is a co-operative bank within the meaning of the said provision. This is because Chapter V of the BR Act, 1949, deals with application of the Chapter to co-operative societies which are co-operative banks within the meaning of the said chapter. For the purpose of these cases, what is relevant is that throughout the BR Act, 1949, unless the context otherwise requires, - references to a "banking company" or "the company" or "such company" shall be construed as references to a co- operative bank. Therefore, while considering the meaning of a co-operative bank inherently, such a co-operative society must be a banking company then only it would be construed as a co-operative bank requiring a licence under section 22 of BR Act, 1949 in order to function as such a bank.
15.10 Further, while considering the definition of a co- operative bank under section 56(cci) of the BR Act, 1949, to mean a state co-operative bank, a central co-operative bank and a primary co-operative bank which is defined in (ccviii) thereof, to have meanings respectively assigned to them in the NABARD Act, 1981 would imply that if a state co-operative bank is within the meaning of NABARD Act, 1981 then it would be excluded from the benefit under section 80P of the Act. Conversely, if a co-operative society is not a cooperative bank within the meaning of section 56 of the BR Act, 1949, it would be entitled to the benefit of deduction under section 80P of the Act."
7.9 We therefore direct the A.O. to verify whether interest / dividend is received by the assessee out of investments made with Cooperative Societies. If the assessee earns interest / dividend income out of investments with co-operative society, as Page 21 of 22 ITA No. 457/Bang/2024 observed by Hon'ble Supreme Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. Cited (supra), the same is entitled to deduction u/s 80P(2)(d) of the I.T. Act.
7.10 Without prejudice to the above, we make it clear that if the interest earned by assessee from the banks, the same be considered under the head "Income from other sources"
and necessary relief to be granted to the assessee u/s 57 of the Act in respect of cost of funds and proportionate administrative and other expenses in accordance with law. Accordingly, the issue is restored to the file of Ld.AO for denovo consideration with the above observations.
7.11 In respect of the provisions made in the profit and loss account towards audited fees, staff gratuity fund, leave encashment and service tax aggregating to Rs.7,80,650/- are merely provisions and not an ascertained liability which are not allowable. We accordingly uphold the view of the Ld.CIT(A) in respect of the same.
7.12 However, the disallowance so sustained will increase the business profits of the assessee and would be eligible for proportionate deduction u/s. 80P(2)(a)(i) of the act. In support, we rely on the CBDT Circular No. 37/2016 dated 02.11.2016 wherein the issue of claim of higher deduction on enhanced profits has been considered in favour of assessee. Accordingly, Page 22 of 22 ITA No. 457/Bang/2024 the Ld.AO is directed to allow the deduction u/s. 80P(2)(a)(i) on such increased profits proportionally.
In the result, ground nos. 1 and 2 raised by assessee stands partly allowed as indicated hereinabove.
Order pronounced in the open court on 27th May, 2024.
Sd/- Sd/-
(WASEEM AHMED) (BEENA PILLAI)
Accountant Member Judicial Member
Bangalore,
Dated, the 27th May, 2024.
/MS /
Copy to:
1. Appellant 2. Respondent
3. CIT 4. DR, ITAT, Bangalore
5. Guard file 6. CIT(A)
By order
Assistant Registrar,
ITAT, Bangalore