Case Law Details
Kalika Parameswari Co-operative Society Ltd Vs ITO (ITAT Bangalore)
Introduction: The case of Kalika Parameswari Co-operative Society Ltd vs. ITO, heard at the ITAT Bangalore, pertains to the allowance of deduction under Section 80P(2)(a)(i) of the Income Tax Act for interest income derived from mandatory cooperative bank investments under the State Societies Act. This article delves into the details of the case, analyzing the arguments presented by both the assessee and the tax authorities, as well as the final decision rendered by the tribunal.
Detailed Analysis: The appeals filed by Kalika Parameswari Co-operative Society Ltd against the orders of the CIT(A) were directed towards the disallowance of deduction under Section 80P of the Income Tax Act for the Assessment Years 2016-17, 2017-18, and 2018-19. The primary contention revolved around the treatment of interest income earned from investments with the Central District Co-operative Bank.
The Assessing Officer (AO) and the CIT(A) had upheld that interest income received from cooperative banks is to be assessed as “Income from Other Sources” under Section 56 of the Act, thereby denying the deduction under Section 80P. However, the appellant argued that such interest income should be eligible for deduction under Section 80P(2)(a)(i) as the investments were made in compliance with the Karnataka Co-operative Societies Act, 1959.
The tribunal noted the precedents set by the jurisdictional High Court and previous tribunal decisions, emphasizing that interest income from cooperative banks does not qualify for deduction under Section 80P(2)(a)(i) or Section 80P(2)(d) of the Act. However, it also considered the contention raised by the assessee regarding compliance with the state cooperative societies’ regulations.
Referring to the Registrar of Karnataka Co-operative Societies’ directions, which mandate certain investments with cooperative banks, the tribunal observed that such investments are made under compulsion to fulfill regulatory requirements. Citing relevant CBDT circulars and tribunal rulings, the tribunal concluded that if investments are made in adherence to statutory obligations, the interest income derived should be treated as business income eligible for deduction under Section 80P(2)(a)(i).
In light of this analysis, the tribunal directed the Assessing Officer to examine whether the interest income received on investments with cooperative banks was made in compliance with the Karnataka Co-operative Societies Act and relevant rules. If so, the interest income should be considered as business income eligible for deduction under Section 80P(2)(a)(i) of the Act.
Conclusion: The case of Kalika Parameswari Co-operative Society Ltd vs. ITO underscores the significance of compliance with regulatory provisions governing cooperative societies. While interest income from cooperative banks is generally not eligible for deduction under Section 80P, investments made under statutory compulsion may qualify for such benefits. This decision clarifies the nuanced interpretation of tax laws concerning cooperative societies’ income and sets a precedent for similar cases in the future.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals at the instance of the assessee are directed against three orders of CIT(A) (all orders are dated 05.09.2023), passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Years are 2016-17, 2017-18 and 2018-19.
2. There is a delay of 20 days in filing these appeals. Assessee has filed a petition for condonation of delay accompanied by affidavit of the President of the assessee society stating therein the reasons for late filing of these appeals. We have perused the reasons stated in the affidavit of the President of the assessee society for late filing of these appeals. We are of the view that there is reasonable cause for belated filing of these appeals and no latches can be attributed to the assessee. Hence, we condone the delay of 20 days in late filing of these appeals and proceed to dispose off the same on merits.
3. Common issues are raised in these appeals. Hence, they were heard together and are being disposed off by this consolidated order. Identical grounds are raised in these appeals. The grounds raised read as follows:
1. That the learned Commissioner of Income Tax (`Appeals’) [`CIT(A)’] – National Faceless Appeal Centre has erred on facts and circumstances of the case and in law so far as the first appellate order passed by him / her is prejudicial to the interest of the Appellant.
2. The learned CIT(A) has erred on facts and in circumstances of the case and in law by confirming the order of the learned Assessing Officer who has held that the interest income from co-operative banks as they are not co-operative societies and interest from co-operative banks are not eligible for deduction u/s 8oP(2)(d) of the IT Act, 1961. The learned CIT(A) has not appreciated the fact that co-operative banks are also co-operative societies only, and interest earned from deposits with cooperative societies are eligible for deduction u/s 8oP(2)(d) of the Income Tax Act, 1961.
3. The learned CIT(A) has erred on facts and in circumstances of the case and in law by confirming the order of the learned Assessing Officer who has held that interest income from co-operative banks and other banks are to be considered under income from other sources under section 56 of the Income Tax Act, 1961. Further, the learned CIT(A) has not allowed the expenditure under section 57 Income Tax Act, 1961.
4. Without prejudice to Ground no.2 and as an alternate plea the Appellant further submits that in respect of the income earned from the co-operative banks is entitled for deduction u/s 8013 (2) (d) of the Act inasmuch as the cooperative banks are also co-operative societies as per section 2(b1) of Karnataka Co-operative Societies Act, 1959.
5. The Appellant prays for leave to add, modify, delete, or introduce additional grounds of appeal at any time before the Appeal is disposed of.
4. Brief facts of the case are as follows:
Assessee is a co-operative society registered under the Karnataka Cooperative Societies Act, 1959. For the Assessment Years 2016-17, 2017-18 and 2018-19, assessee had filed return of income claiming deduction under section 80P of the Act, amounting to Rs.1,35,63924/- Rs.142,93,819/- and Rs.1,28,36,935/-respectively. The assessments were completed for Assessment Years 2016-17, 2017-18 and 2018-19 by disallowing the claim for deduction under section 80P of the Act.
5. Aggrieved, assessee filed appeals before the First Appellate Authority. The CIT(A) partly allowed appeals of the assessee for the Assessment Years 2016-17 and 2017-18 and dismissed the appeal for Assessment Year 2018-19. The CIT(A) held that interest income earned from investments with Central District Cooperative Bank is to be assessed as “Income from Other Sources” under section 56 of the Act, and the same is not entitled to deduction either under section 80P(2)(a)(i) or under section 80P(2)(d) of the Act. Thus, for the Assessment Years 2016-17 and 2017-18, the CIT(A) confirmed the disallowance under section 80P of the Act made by the AO to the extent of Rs.79,96,547/- and Rs.1,14,71,508/-respectively. For the Assessment Year 2018-19, since the entire amount of Rs.1,28,36,935/- claimed under section 80P of the Act was interest received from Central District Co-operative Bank, the entire claim of deduction disallowed by AO was con-firmed by the CIT(A).
6. Aggrieved by the orders of the CIT(A), assessee has filed the present appeals before the Tribunal. Assessee has filed three sets of Paper Books for each of the Assessment Years enclosing therein the written submissions filed, circular issued by the CBDT, English translation of the financial statements and the case laws relied on. The learned AR reiterated the submissions made before the income-tax authorities.
7. The learned DR supported the orders of the CIT(A).
8. We have heard the rival submissions and perused the material on record. For the relevant Assessment Years, assessee had received interest income from Central District Co-operative Bank which was assessed as “Income from Other Sources” under section 56 of the Act and to extent interest income assessed under the head “Income from Other Sources” was not granted deduction under section 80P of the Act. The said view of the AO which was confirmed by the CIT(A) is in conformity with the dictum laid down by the Hon’ble jurisdictional High Court in the case of PCIT Vs. Totgars Co-operative Society Ltd., reported in 395 ITR 611 (Karnataka). The Hon’ble jurisdictional High Court had categorically held that when interest income is received from co-operative bank, the same is to be assessed as “Income from Other Sources” which would not entail the benefit of deduction under section 80P(2)(a)(i) of the Act. Further, the Hon’ble jurisdictional High Court held that since the interest income is received from a cooperative bank and not from co-operative society, the same cannot be entitled to deduction under section 80P(2)(d) of the Act.
9. In the instant case, we notice that assessee has raised a contention before the CIT(A) that these investments with the Central District Co-operative Bank is in compliance with the requirement under the Karnataka Co-operative Societies Act, 1959, and the relevant Rules (refer paragraph 4.1 of the CIT(A)’s order for the Assessment Year 2016-17). Therefore, it was sub-mitted that such interest income received on investments made under compulsion under the relevant Act and the Rules is entitled to deduction under section 80P(2)(a)(i) of the Act. We find that the CIT(A) has not adjudicated the contentions raised by the assessee.
10. As per the directions of Registrar of Karnataka Co-operative Societies which is placed at pages 52-53 of the Paper Book filed by the assessee, we find that all primary co-operative societies are to be mandatorily made to invest 25% of total deposits as liquid fund (SLR) and 3% of the total deposits as cash reserve (CRR) with the concerned Central District Co-operative Banks to run credit facilities by a primary agricultural credit co-operative society in the State of Karnataka. The CBDT Circular No.18/2015 dated 02.11.2015 has clarified that interest in-come from SLR/non-SLR investment by banking company and a cooperative society shall be chargeable under the head “profit and gains of business or profession”. On identical factual situation, we find the Bangalore bench of the Tribunal in the case of M/s. Kachur Credit Co-operative Society Ltd., Vs. ITO in ITA No.478/Bang/2023 (order dated 26.09.2023), by following earlier orders of the Tribunal, had held as follows:
“8. I have heard the rival submissions and perused the material on record. The solitary issue for adjudication is whether a sum of Rs.5,07,822/-can be allowed as a deduction under sections 80P(2)(a)(i) of the Act. Admittedly, the amount of Rs.5,07,822/- has been received by the assessee from South Canara District Central Co-operative Bank Ltd. It is the claim of the assessee that the amounts are invested in compliance with the relevant Acts and Rules. On identical facts, the Bangalore Bench of the Tribunal in the case of Bharat Co-operative Credit Society Vs. ITO (supra) by following the Co-ordinate Bench’s order in the case of Vasavamba Co-operative Society Ltd., Vs. PCIT in ITA No.453/Bang/2020 (order dated 13.08.2021) had stated that if the investments made with the Central Co-operative Bank is out of compulsions under Karnataka State Co-operative Societies Act, 1959 and Rules, the income received from such investments would be entitled to the benefit of deduction under section 80P(2)(a)(i) of the Act. The relevant finding of the Tribunal in the case of Bharat Co-operative Credit Society Vs. ITO (supra) reads as follows:
“7.1 In the instant case, it was contended that majority of the interest income is earned out of investments made with Cooperative 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 cooperative societies is to be allowed as deduction.”
9. In view of the above order of the Tribunal, I restore the issue to the files of the AO to examine whether interest income received amounting to Rs.5,07,822/- from South Canara District Central Co-operative Bank Ltd., is out of compulsions and in compliance with the Karnataka State Cooperative Societies Act, 1959 and the relevant Rules. If it is so, the same interest income is to be assessed as income from business which would entail the benefit of deduction under section 80P(2)(a)(i) of the Act. With the aforesaid observation, I restore the matter to the AO. It is ordered accordingly.”
11. In light of the above orders of the Tribunal, we direct the AO to examine whether the interest income received on investment with Central Co-operative Bank is out of compulsions under the Karnataka Co-operative Societies Act, 1959, and the relevant Rules. If it is so, the same may be considered as ‘business income’ and entitled to deduction under section 80P(2)(a)(i) of the Act. In other words, if assessee society does not comply with the relevant provisions of the Act, and the Rules of Karnataka Co-operative Societies Act, 1959, it cannot carry on its cooperative activities, namely carry on the business of banking or providing credit facilities to its members. Therefore, if the investments are out of compulsion under the Act and relevant Rules, necessarily it is part of assessee’s business activity entailing the benefit of section 80P(2)(a)(i) of the Act. It is ordered accordingly.
12. In the result, appeals filed by the assessee are allowed for statistical purposes.
Pronounced in the open court on the date mentioned on the caption page.
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