Gandhinagar District Co-op. Milk Producers Union Ltd Vs ACIT (ITAT Ahmedabad)
Conclusion: Since cooperative banks were considered cooperative societies for the purpose of Section 80P(2)(d), thereby making assessee’s interest and dividend income eligible for deduction. Such income fostered cooperative financial activity and should qualify for tax relief, contradicting AO’s decision to exclude cooperative banks from the definition of “co-operative society.”
Held: Assessee was a co-operative society, registered under Gujarat Co- operative Societies Act, 1961, engaged in the collection of raw milk from primary milk cooperative societies. AO disallowed deductions claimed under Section 80P(2)(d) and treated government grants of Rs.50,00,000/- received during the year as revenue receipts. AO concluded that the phrase “Co-operative Society” in Section 80P(2)(d) did not include cooperative banks. Since the interest income and dividend were earned from cooperative banks and not directly from cooperative societies, AO disallowed the deduction. AO emphasized that cooperative banks were distinct entities engaged in banking business governed by the Banking Regulation Act, 1949, and were explicitly excluded from Section 80P benefits by virtue of Section 80P(4). AO relied on the decision of the Karnataka High Court in Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka), which held that cooperative banks were not equivalent to co-operative societies for the purpose of claiming deductions under Section 80P(2)(d). It was held that AO disallowed the deduction, relying on the Karnataka High Court’s decision in Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society, which held that cooperative banks were distinct from cooperative societies and did not qualify under Section 80P(2)(d). CIT(A) upheld this disallowance. It was found that AO and CIT(A) relied on non-jurisdictional decisions, specifically from the Karnataka High Court, which were not binding within the jurisdiction of Gujarat. The precedence was given to relevant jurisdictional decisions of Hon’ble Gujarat High Court and the Co-ordinate bench, which had consistently allowed such deductions. Jurisdictional precedents, including CIT vs. Sabarkantha District Co-Op. Milk Producers Union Ltd. and The Kalol Co. Op. Credit and Supply Society Ltd. vs. ITO, support the eligibility of income earned from cooperative banks for deduction under Section 80P(2)(d). These decisions along with other decisions relied on, affirmed that cooperative banks were considered cooperative societies for the purpose of Section 80P(2)(d), thereby making assessee’s interest and dividend income eligible for deduction. Income fostered cooperative financial activity and should qualify for tax relief, contradicting AO’s decision to exclude cooperative banks from the definition of “co-operative society.”
