Gujarat High Court
The Principal Commissioner Of Income ... vs Shree Aradhana Urban Co-Op. Credit ... on 3 March, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/400/2024 ORDER DATED: 03/03/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 400 of 2024
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THE PRINCIPAL COMMISSIONER OF INCOME TAX 1
Versus
SHREE ARADHANA URBAN CO-OP. CREDIT SOCIETY LTD.
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Appearance:
MR. KARAN SANGHANI, SENIOR STANDING COUNSEL FOR MRS
KALPANA K RAVAL(1046) for the Appellant(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 03/03/2025
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE D.N.RAY)
1. Heard learned Senior Standing Counsel Mr.Karan Sanghani for the Appellant.
2. The present Tax Appeal is filed under section 260A of the Income Tax Act, 1961, by the Appellant, arising from the order dated 28.11.2023 passed by the learned Income Tax Appellate Tribunal (for short, "the ITAT"), Surat, in ITA No. 630/SRT/2023 for the Assessment Year 2014-2015, proposing the following substantial questions of law:-
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(i) "Whether on facts and circumstances of the case and in law, the Hon'ble Tribunal had erred in deleting the addition of Rs. 9,56,635/ on account of denial of deduction u/s 80P(2)(d) of the Act, by ignoring the decision of Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. reported in 322 ITR 283, wherein it was held that interest earned from investments made in any bank not being cooperative society, is not deductible under section 80P(2)(d) of the Act?
(ii) "Whether on facts and circumstances of the case and in law, the Hon'ble Tribunal had erred in dismissing the appeal of the Revenue by overlooking the fact that the Hon'ble High Court of Karnataka in the case of Totgars Cooperative Sale Society (2017) 395 ITR, has held that the intention of legislature is clear that cooperative banks are not specie of genus cooperative society, which would entitle to exemption or deduction under the special provisions of chapter VI-A in the form of section 80P of the Act. This finding has also been approved by the Hon'ble High Court of Gujarat in the case Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. for A.Y.2015-16 in R/SCA No.20585 of 2019?"
(iii) Whether on facts and circumstances of the case and in law, the learned Tribunal had erred in law in relying upon the decision of Hon'ble Jurisdictional High Court in the case of Surat Vankar Sahkari Sangh Ltd. vs ACIT [2016] 72 taxmann.com 169 (Guj) which pertained to Α.Υ.1991-
92 to 1994-95, ignoring that section 80P(4) was inserted in the Finance Act 2006 w.e.f. 01.04.2007? (iii)
(iv) Whether on facts and circumstances of the case and in law, the learned Tribunal had erred in dismissing the appeal of Revenue by ignoring the facts that only the income received from the members will be eligible for deduction u/s. 80P(2)(a) of the Act.
3. The brief facts of the case are as follows:-
Page 2 of 12 Uploaded by BINA SHAH(HC00353) on Wed Mar 05 2025 Downloaded on : Wed Mar 05 21:56:48 IST 2025NEUTRAL CITATION C/TAXAP/400/2024 ORDER DATED: 03/03/2025 undefined 3.1 The assessee - Co-operative society had filed its return of income for the Assessment year 2014-15 on 21.09.2014, declaring the income as Rs. NIL. Subsequently, the case was selected for scrutiny, and the assessment under Section 143(3) of the Act was completed on 06.10.2016 by accepting the returned income filed by the assessee.
3.2 Further, upon verification of the assessment records, it was found that the assessee had shown interest income of Rs.9,56,635/-
on Fixed Deposit Receipts of Rs.1,17,87,577/- with Surat District Co-operative Bank Ltd. for the Financial Year 2013-14. The assessee had shown a total income of Rs. NIL after claiming deduction of Rs.9,56,635/-. According to the Appellant, this interest income was required to be treated as 'income from other sources' as the same is not eligible for deduction under Section 80P(2)(a) of the Act.
3.3 The Ld. PCIT-3, Surat, accorded approval to reopen the proceedings in this case. Subsequently, the Assessing Officer Page 3 of 12 Uploaded by BINA SHAH(HC00353) on Wed Mar 05 2025 Downloaded on : Wed Mar 05 21:56:48 IST 2025 NEUTRAL CITATION C/TAXAP/400/2024 ORDER DATED: 03/03/2025 undefined issued notices under Sections 148, 143(2) and 142(1) of the Act on 27.04.2018, 04.07.2019 and 21.08.2019 respectively.
3.3 The Assessing Officer completed the re-assessment proceedings under Section 143(3) read with Section 147 of the Act, adding Rs.9,56,635/- to the returned income of the Assessee.
3.4 Aggrieved by the aforesaid order, the Assessee preferred an appeal before the Ld. CIT(A), who, vide order, dated 21.07.2023, allowed the Assessee's appeal.
3.5 Aggrieved by this order, the Revenue preferred an appeal before the Ld. ITAT, who vide order dated 28.11.2023, dismissed the Revenue's appeal. Hence, this Appeal.
4. Mr. Karan Sanghani, learned Senior Standing Counsel for the Appellant -Department has placed reliance on the decision of the Hon'ble Karnataka High Court in the case of Principal Commissioner of Income Tax Hubbali Vs.Totgars Cooperative Sales Societies reported in (2017) 83, taxmann.com Page 4 of 12 Uploaded by BINA SHAH(HC00353) on Wed Mar 05 2025 Downloaded on : Wed Mar 05 21:56:48 IST 2025 NEUTRAL CITATION C/TAXAP/400/2024 ORDER DATED: 03/03/2025 undefined 140(Karnataka) to stress that the interest earned by the Assessee which was a Co-operative Bank was not eligible for deduction under Section 80P(2)(d) of the Income Tax Act. Mr.Sanghani, learned Senior Standing Counsel submitted that the character and the nature of the income determines its taxability or otherwise.
According to Mr.Sanghani, learned Senior Standing Counsel, as held in Totgars (Supra), a Co-operative Bank does not fall under the purview of "Co-operative Society" referred to in Section 80P(2)(d) of the Act. In the present case, the Assessee has earned interest income from such co-operative bank and claimed deduction under Section 80P(2)(d) of the Act and therefore, following the decision of Totgars (Supra), the Tribunal has erred in confirming the decision of the CIT(Appeals) which has allowed the deduction.
5. DISCUSSION & FINDINGS:-
The present issue has been discussed threadbare and in painstaking detail in the decision in the case of Principal Commissioner of Income -tax Vs. Ashwinkumnar Arban Page 5 of 12 Uploaded by BINA SHAH(HC00353) on Wed Mar 05 2025 Downloaded on : Wed Mar 05 21:56:48 IST 2025 NEUTRAL CITATION C/TAXAP/400/2024 ORDER DATED: 03/03/2025 undefined Co-operative Society Ltd. reported in (2024) 168 taxmann.com 314 (Gujarat) wherein, it has been held as under :-
"31. The Hon'ble Apex Court in case of Kerala State Co- operative Agricultural & Rural Development Bank Ltd. vs. Assessing Officer (supra) while considering various provisions of the Banking Regulation Act read with provisions of the Income Tax Act has held that the provision of section 80P(4) of the Act would not be applicable to a cooperative bank which is not a bank as per the provisions of the BR Act,1949, as under:
"5. Interpretation.-- In this Act, unless there is anything repugnant in the subject or context, X X X
(b) "banking" means 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;
(c) "banking company" means any company which transacts the business of banking in India.
Explanation.--Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;"
32. After considering the above interpretation of various provisions and the Case laws, the Hon'ble Apex Court has analyzed the provisions as under:
"14.1. In Apex Co-operative Bank of Urban Bank of Maharashtra and Goa Ltd., it was categorically held that under Section 56 of the BR Act,1949 only three co- operative banks have been defined, namely, state cooperative bank, central co-operative bank and primary co-operative bank which are covered under Section 56 Page 6 of 12 Uploaded by BINA SHAH(HC00353) on Wed Mar 05 2025 Downloaded on : Wed Mar 05 21:56:48 IST 2025 NEUTRAL CITATION C/TAXAP/400/2024 ORDER DATED: 03/03/2025 undefined (cci) read with (ccvii) read with the provisions of the NABARD Act, 1981. Thus, it is only these three banks which are co-operative banks which require a licence under the BR Act, 1949 to engage in banking business. If any bank does not fall within the nomenclature of the aforesaid three banks as defined under theNABARD Act, 1981, it would not be a co-operative bank within the meaning of Section 56 of BR Act, 1949 irrespective of whatever nomenclature it may have or structure it may possess or incorporated under any Act. It was further stated that if a bank has to be a state co-operative bank, there has to be a declaration made by the State Government in terms of Section 2(u) of NABARD Act, 1981. Hence, it is necessary to go into the question as to, whether, the appellant herein has been so declared as a state cooperative bank. This question would need not detain us for long as the Kerala High Court in A.P. Varghese had categorically stated that the "Kerala State Co-operative Bank" is a "state co-operative bank" as defined under the NABARD Act, 1981. Therefore, the appellant bank has not been declared as a state co-
operative bank under the provisions of NABARD Act, 1981. Further, in the case of Mavilayi Service Co- operative Bank, this Court observed that a co-operative bank would engage in banking business on obtaining a licence under Section 22(1b) of the BR Act, 1949. In the instant case, the appellant herein is not a co-operative bank having regard to the aforesaid conspectus of the provisions so as to require a licence under the aforesaid provision for carrying on banking business. In the circumstances, the question could still arise as to whether the appellant herein is entitled to benefit of deduction under Section 80P of the Act.
14.2. In Mavilayi Service Co-operative Bank, it has been observed that Section 80P of the Act is a beneficial provision which was enacted in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and therefore, has to be read liberally in favour of the assessee. That once the assessee is entitled to avail of deduction, the entire Page 7 of 12 Uploaded by BINA SHAH(HC00353) on Wed Mar 05 2025 Downloaded on : Wed Mar 05 21:56:48 IST 2025 NEUTRAL CITATION C/TAXAP/400/2024 ORDER DATED: 03/03/2025 undefined amount of profits and gains of business that are attributable to any one or more activities mentioned in sub- section (2) of Section 80P must be given by way of deduction vide Citizen Cooperative Society. This is because sub-section (4) of Section 80P is in the nature of a proviso to the main provision contained in sub- sections (1) and (2) of Section 80P. The proviso excludes co- operative banks, which are co-operative societies which must possess a licence from the Reserve Bank of India to do banking business. In other words, if an entity does not require a licence to do banking business within the definition of banking under Section5(b) of the BR Act, 1949, then it would not fall within the scope of sub-section (4) of Section 80P.
14.3. While analysing Section 80P of the Act in depth, the following points were noted by this Court:
i) Firstly, the marginal note to Section 80P which reads "Deduction in respect of income of co-
operative societies" is significant as it indicates the general "drift" of the provision.
ii) Secondly, for purposes of eligibility for deduction, the assessee must be a "co-operative society".
iii) Thirdly, the gross total income must include income that is referred to in sub-section (2).
iv) Fourthly, sub-clause (2)(a)(i) speaks of a co- operative society being "engaged in", inter alia, carrying on the business of banking or providing credit facilities to its members.
v) Fifthly, the burden is on the assessee to show, by adducing facts,that it is entitled to claim the deduction under Section 80P.
vi) Sixthly, the expression "providing credit facilities to itsmembers" does not necessarily mean Page 8 of 12 Uploaded by BINA SHAH(HC00353) on Wed Mar 05 2025 Downloaded on : Wed Mar 05 21:56:48 IST 2025 NEUTRAL CITATION C/TAXAP/400/2024 ORDER DATED: 03/03/2025 undefined agricultural credit alone. It was highlighted that the distinction between eligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be deducted.
vii) Seventhly, under Section 80P(1) (c), the co- operative societies must be registered either under Cooperative Societies Act, 1912, or a State Act and may be engaged in activities which may be termed as residuary activities i.e. activities not covered by sub-clauses (a) and (b), either independently of or in addition to those activities, then profits and gains attributable to such activity are also liable to be deducted, but subject to the cap specified in sub- clause (c).
viii) Eighthly, sub-clause (d) states that where interest or dividend income is derived by a co- operative society from investments with other cooperative societies, the whole of such income is eligible for deduction, the object of the provision being furtherance of the co-operative movement as a whole.
14.4. In paragraph 42 of Mavilayi Service Co-operative Bank, this Court observed that the object and purpose of sub-section (4) of Section 80P is to exclude only co- operative banks that function on par with other commercial banks i.e. which lend money to members of the public. That on a reading of Section 3 read with Section 56 of the BR Act, 1949, the primary co-operative bank cannot be a primary agricultural credit society. As such co-operative bank must be engaged in the business of banking as defined by Section 5(b) of the BR Act, 1949, which means accepting, for the purpose of lending or investment, of deposits of money from the public. Also under Section 22(1)(b) of the BR Act, 1949, no co-
Page 9 of 12 Uploaded by BINA SHAH(HC00353) on Wed Mar 05 2025 Downloaded on : Wed Mar 05 21:56:48 IST 2025NEUTRAL CITATION C/TAXAP/400/2024 ORDER DATED: 03/03/2025 undefined operative society can carry on banking business in India, unless it is a co-operative bank and holds a licence issued in that behalf by Reserve Bank of India. It was pointed out that as opposed to the above, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities.
14.5. It was further observed in the said case that some primary agricultural credit societies had sought for banking licence from Reserve Bank of India but the same was turned down by observing that such a society was not carrying on the business of banking and that it did not come under the purview of Reserve Bank of India requiring a licence for its business.
14.6. Thereafter in paragraph 48 of the judgment, it was observed that a deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication. That subsection (4) of Section 80P which is in the nature of a proviso 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 Reserve Bank of India."
33. In view of the above dictum of law as well as the provisions of the Act which are considered we are of the opinion that the provisions of section 80P(2)(d) would be applicable in the facts of the case and the PCIT was not justified in invoking revisional powers under section 263 of the Act which is rightly reversed by the Tribunal holding that the cooperative bank is a cooperative society registered under the Gujarat State Cooperative Societies Act and in view of the various decisions of the Court, the Tribunal after following the same has come to the conclusion that the assessment was not erroneous allowing deduction of section 80P(2)(d) of the Act which is in consonance with the various decisions of the Court as a twin condition invoking section 263 as to the assessment being erroneous and prejudicial to the interest of the revenue are not being fulfilled.
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34. In view of the foregoing reasons we answer the question in favour of the assessee and against the Revenue. Tax Appeals are being devoid of any merit accordingly dismissed. No order as to costs."
6. We find that the learned ITAT has held as under :-
"4. I have considered the rival submissions of both the parties and have gone through the orders of the authorities below. I find that the Assessing Officer made addition of Rs.9,56,635/- by disallowing the deduction under Section 80P(2)(d) of the Act. Such income was earned by the assessee on fixed deposit with Surat District Cooperative Bank. I further find that before the ld. CIT(A), the assessee filed detailed written submissions as has been recorded in para 4.1 of his order. The ld. CIT(A) by following the decision of Hon'ble Gujarat High Court in Sabarkantha District Co-operative Milk Producers Union Ltd. Vs CIT in Tax Appeal no. 473 of 2014 and other decisions of Ahmedabad Tribunal, allowed relief to the assessee. The ld. CIT(A) held that the assessee has furnished evidence that Surat District Cooperative Bank is a cooperative society registered under Gujarat State Cooperative Societies Act. I find that in a series of decisions, the various Benches of the Tribunals held that the cooperative banks are primarily cooperative societies and interest earned on deposits with such cooperative bank is exempt under Section 80P(2)(d) of the Act. The Hon'ble Jurisdictional High court in the case of Surat Vankar Sahakari Sangh Ltd. Vs ACIT (2016) 72 taxmann.com 169 (Guj) also held that the assessee cooperative society was eligible for deduction under section 80P(2)(d) in respect of gross interest received from cooperative bank without adjusting interest paid to said bank. I further find that such decision of Hon'ble High Court in Surat Vankar Sahakari Sangh Ltd, Vs ACIT (supra) has been followed in a serious of decisions by me or by the Division Bench of Surat Tribunal. Therefore, in view of the aforesaid factual and legal discussion, I do not find merit in the grounds of appeal raised by the revenue and I affirm the order of ld. CIT(A). Considering the facts that the appeal of the revenue is dismissed on merit, therefore, the issue of tax effect involve in Page 11 of 12 Uploaded by BINA SHAH(HC00353) on Wed Mar 05 2025 Downloaded on : Wed Mar 05 21:56:48 IST 2025 NEUTRAL CITATION C/TAXAP/400/2024 ORDER DATED: 03/03/2025 undefined the present appeal have become academic. "
7. We are in complete agreement with the aforesaid findings of the Income Tax Appellate Tribunal which had applied the law and the facts correctly as declared by this Court in a series of decisions and therefore, we are of the opinion that the appeal is devoid of any merit and that no question of law much less any substantial question of law arises from the impugned order of the Tribunal.
The appeal is accordingly dismissed.
(BHARGAV D. KARIA, J) (D.N.RAY,J) BINA SHAH Page 12 of 12 Uploaded by BINA SHAH(HC00353) on Wed Mar 05 2025 Downloaded on : Wed Mar 05 21:56:48 IST 2025