Citation Codes

Equivalent Citations

citation codes

Case Number

ITA 1262/BANG/2019

Disposition

allowed

Attorney(S)

Acts

INCOME TAX ACT
State Co-operative Societies Act, 1959 and the said Act
u/s 80P(2)(a) of Income Tax Act 1961 (Act)
Co-operative Society Act, 1959.
u/s 80P of the Income tax Act, 1961. 3.6

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Smart Summary

Concise Analytical Summary — ITA No.1262/Bang/2019

Bench: 'A' Bench, Income Tax Appellate Tribunal, Bangalore.
Members: Shri Chandra Poojari (Accountant Member) & Smt. Beena Pillai (Judicial Member).
Parties: M/s Ravindra Multipurpose Co-operative Society Ltd. (Appellant/Assessee) v. The Income-Tax Officer, Ward-3, Udupi (Respondent/Revenue).
Assessment Year: 2016-17. Date of pronouncement: 31-08-2021.

Factual and Procedural Background

The assessee, a co-operative society providing credit facilities to its members, filed return for AY 2016-17 claiming deduction under section 80P of the Income Tax Act. The return was selected for scrutiny, and during assessment proceedings the Assessing Officer (Ld. AO) observed that the society earned income not only from regular members but a majority from nominal/associate members. The Ld. AO denied the deduction claimed under section 80P(2)(a)(i), holding that the principle of mutuality was violated, and treated certain income as not eligible for the deduction; this view relied on the ratio in Citizen Co-op Society Ltd. (Civil Appeal No.10245 of 2017).

Aggrieved, the assessee appealed to the Commissioner of Income Tax (Appeals) [Ld. CIT(A)]. The CIT(A) upheld the AO's disallowance, noting violation of the Karnataka Co-operative Societies Act, 1959 (excess nominal/associate members relative to regular members) and applying the Citizen Co-op decision to deny section 80P relief. The assessee then appealed to the Income Tax Appellate Tribunal (this appeal), raising grounds challenging the CIT(A)'s confirmation of the disallowance (specifically a disallowance of Rs.29,08,581/- claimed under section 80P(2)(a)(i)) and seeking, by additional grounds, (1) an extent-wise allowance of deduction attributable to dealings with regular and nominal members and (2) allowance of deduction under section 80P(2)(d) in respect of interest earned from co-operative banks and co-operative societies.

Legal Issues Presented

Whether the authorities below were justified in denying the assessee's claim for deduction under section 80P(2)(a)(i) of the Act (Grounds 2-4 and Additional Ground No.1).
Whether interest income earned by the assessee from investments (in co-operative banks, nationalised banks or co-operative societies) is eligible for deduction under section 80P(2)(d) of the Act, where the assessee had claimed deduction under section 80P(2)(a)(i) (Additional Ground No.2).

Arguments of the Parties

Appellant's Arguments

The assessee claimed deduction under section 80P for profits attributable to the activity of providing credit facilities to its members; on appeal the assessee sought admission of additional grounds that (a) deduction should be allowed to the extent income is attributable to dealings with regular and nominal members, and (b) deduction under section 80P(2)(d) should be allowed for interest earned from co-operative banks/co-operative societies.
For admission of the additional grounds the Ld. Counsel argued these grounds arise from facts already on record, involve legal questions, and cited the Supreme Court decision in National Thermal Power Corporation Ltd. (NTPC) v. CIT (1998) 229 ITR 383 and Jute Corporation of India Ltd. (187 ITR 688) to support admission. The counsel submitted no prejudice would be caused to the revenue by admitting these grounds.

Respondent's (Revenue) Arguments

The Ld. Departmental Representative (Ld. DR) opposed admission of the additional grounds, though the record states the Ld. DR could not effectively controvert the submissions made by the Ld. Counsel.
At the assessment and first appellate levels the Revenue's stance (through the Ld. AO and CIT(A)) was that the principle of mutuality was violated because the society admitted excess nominal/associate members (more than 15% of total members compared to regular members in contravention of the Karnataka Co-operative Societies Act, 1959), and therefore the society was not eligible for deduction under section 80P. The AO and CIT(A) relied on the decision in Citizen Co-op Society Ltd. (Civil Appeal No.10245/2017) to deny section 80P relief.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Tribunal in this Opinion
National Thermal Power Corporation Ltd. (NTPC) v. CIT (1998) 229 ITR 383	Principle permitting admission of additional grounds where they arise from facts on record and involve legal issues (admission criteria).	The Tribunal relied on NTPC to admit the assessee's additional grounds seeking further relief under section 80P.
Jute Corporation of India Ltd. (187 ITR 688)	Cited alongside NTPC in support of admission of additional grounds.	Referenced by the assessee's counsel to support admission; the Tribunal admitted the additional grounds.
Citizen Co-op Society Ltd. v. ACIT (Civil Appeal No.10245 of 2017, dated 08.08.2017)	Held that if the principle of mutuality is not satisfied, a society is not entitled to deduction under section 80P(2)(a)(i) of the Act.	Both the Ld. AO and the CIT(A) relied on this decision to deny the 80P deduction; the Tribunal considered that decision in the appellate record but, in light of later Supreme Court guidance (Mavilayi), remitted the issue back to the AO for fresh examination.
Mavilayi Service Cooperative Bank Ltd. v. CIT (2021) 123 taxmann.com 161 (SC)	Held that the expression "members" in section 80P(2)(a)(i) must be construed in the light of the definition of "members" in the concerned co-operative societies Act; factual examination must follow that construction.	The Tribunal relied on Mavilayi to conclude that the question of entitlement to deduction under section 80P(2)(a)(i) must be re-examined by the AO de novo, construing "members" under the relevant Karnataka Act, and remitted the matter to the AO with directions to grant the assessee proper hearing.
Totgars Co-operative Sale Society Ltd. — (Supreme Court) reported in 322 ITR 283 and related Karnataka High Court and subsequent decisions	Supreme Court: income from utilisation of surplus funds was taxable under "income from other sources" and not eligible for deduction under section 80P (in the facts of Totgars). Karnataka High Court later distinctions and subsequent High Court/bench decisions explored applicability to interest on deposits.	The Tribunal reviewed the line of authority originating in Totgars and the varying subsequent high court decisions to explain the legal landscape on whether interest on deposits is attributable to the business and deductible under section 80P; this exposition informed the remand on the 80P(2)(d) point.
Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO (230 Taxman 309)	Held by Karnataka High Court that interest on deposits made in banks (when funds arise from the banking business and are deposited pending lending) can be "attributable" to the business of providing credit and thus fall within the scope of section 80P(2)(a)(i).	The Tribunal cited this decision to demonstrate that there are precedents holding such interest to be attributable to the banking business and thus potentially deductible; it directed the AO to verify the interest earned from investments in co-operative societies for possible deduction under section 80P(2)(d).
Guttigedarara Credit Co-operative Society Ltd. v. ITO ([2015] 377 ITR 464)	Provides a similar view (to Tumkur Merchants) on treatability of interest as attributable to business in certain factual patterns.	Used by the Tribunal in the comparative discussion of authorities that support deduction where interest is attributable to the banking business of the co-operative society; informed the remand to the AO to verify co-operative society investments.
Pr. CIT And Anrs v. Totgars Co-operative Sale Society (reported in 392 ITR 74 and related 395 ITR 611)	These subsequent authorities reflect judicial differences: one line holds interest on deposits is not business income for purposes of section 80P(2)(d) when deposited with non co-operative banks; another holds that interest from investments in co-operative societies falls under section 80P(2)(d).	The Tribunal summarized these conflicting authorities to justify remanding the factual/verificatory question to the AO, specifically to verify interest earned from investments in co-operative societies which might be deductible under section 80P(2)(d).
SBI v. CIT (Gujarat High Court) reported in 389 ITR 578	Represents a view dissenting from certain Karnataka High Court rulings on the characterisation of interest.	Referred to in the Tribunal's analysis of divergent authorities; included in the comparative survey that led to a remand for factual verification by the AO rather than a final adjudication by the Tribunal.
Potters Cottage Industrial Co-Operative Society Ltd. (ITA Nos. 1257 & 1258/Bang/2019), order dated 30-08-2019 (coordinate bench)	Tribunal (coordinate bench) remanded the question of eligibility of interest from bank deposits under section 80P(2)(d) to the AO for verification, holding certain interest may be deductible to the extent it is invested with co-operative societies.	The present Tribunal respectfully followed that coordinate bench view and directed the AO to verify interest earned on investments in co-operative societies and to consider the assessee's claim under section 80P(2)(d) accordingly.

Court's Reasoning and Analysis

The Tribunal proceeded in two analytical strands corresponding to the two primary issues framed.

1. Admission of Additional Grounds

The Tribunal first considered the application to admit additional grounds filed by the assessee. The Ld. Counsel argued these grounds were legal in nature and arose from facts already on record; he relied on the Supreme Court decisions in NTPC and Jute Corporation for the proposition that such grounds could be admitted. The Ld. DR opposed admission but did not effectively controvert the submissions. The Tribunal, invoking NTPC, observed the additional grounds involved legal questions and were not res integra; accordingly the Tribunal admitted the additional grounds.

2. Section 80P(2)(a)(i) deduction (members/mutuality question)

The Tribunal reviewed the assessment and appellate records: the AO had denied the deduction after noting the society dealt with three categories of members (regular, associate and nominal) and that a majority of income arose from nominal/associate members; the AO and the CIT(A) applied the Citizen Co-op Supreme Court decision which holds that failure of the principle of mutuality negates entitlement to deduction under section 80P(2)(a)(i).

However, the Tribunal relied on the subsequent Supreme Court decision in Mavilayi Service Cooperative Bank Ltd. which instructs that the expression "members" in section 80P(2)(a)(i) is not defined in the Income-tax Act and must be construed in light of the definition of "members" in the concerned co-operative societies Act. Because Mavilayi requires construing "members" under the relevant co-operative Act and examining facts in that light, the Tribunal found that the matter could not be finally resolved on the basis of the record before it without a de novo factual and legal re-examination.

For that reason the Tribunal remitted the issue back to the Assessing Officer to re-examine the claim for deduction under section 80P(2)(a)(i) in the light of the Mavilayi judgment, directing that the assessee be given a proper opportunity to be heard in accordance with law.

3. Deduction under section 80P(2)(d) — interest on investments

The Tribunal noted divergent judicial authorities on whether interest earned on deposits/investments (with banks or other co-operative societies) is deductible under section 80P. The Tribunal surveyed the jurisprudence starting with the Supreme Court's Totgars decision (holding income from utilisation of surplus funds was taxable under other sources on its facts), through Karnataka High Court decisions such as Tumkur Merchants and Guttigedara which recognized that interest on deposits might be "attributable" to the business of providing credit to members and thus fall within section 80P(2)(a)(i), to later decisions which distinguished these authorities.

The Tribunal observed that section 80P(2)(d) specifically exempts interest derived from investments with other co-operative societies. Given the conflicting decisions on applicability to deposits in non-co-operative banks and the special status of investments with co-operative societies, the Tribunal followed a coordinate bench decision (Potters Cottage) that remanded the factual enquiry to the AO. The Tribunal therefore directed the AO to verify interest earned from investments made specifically in co-operative societies and to consider the assessee's claim under section 80P(2)(d) in accordance with law.

4. Disposition

Because both principal issues required factual or mixed factual-legal re-examination in light of binding Supreme Court guidance (Mavilayi) and the inconsistent line of authorities on interest income, the Tribunal did not decide the substantive claim finally but instead remitted both issues to the AO for fresh consideration. The Tribunal allowed the appealed grounds for statistical purposes.

Holding and Implications

Holding: Appeals allowed for statistical purposes.

Direct consequences and practical implications:

The Tribunal admitted the assessee's additional grounds (relying on NTPC) and remitted the claim for deduction under section 80P(2)(a)(i) back to the Assessing Officer for de novo examination in the light of the Supreme Court decision in Mavilayi Service Cooperative Bank Ltd. The AO is directed to construe "members" under the relevant co-operative societies Act and afford the assessee a proper hearing.
On the question of interest income and section 80P(2)(d), the Tribunal directed the AO to verify the interest earned from investments in co-operative societies and to decide the claim in accordance with law, taking into account the divergent judicial authorities discussed in the opinion. In short, interest earned from investments in other co-operative societies is to be specifically examined for eligibility under section 80P(2)(d).
The Tribunal did not make a final determination on entitlement to the 80P deduction; instead it remitted factual and mixed questions back to the AO. The decision does not itself create new principle-level precedent; it follows and applies existing Supreme Court and High Court authorities and a coordinate-bench tribunal decision, and instructs re-examination consistent with those authorities.

Note: The present summary is strictly based on the text of the Tribunal's order in ITA No.1262/Bang/2019 (pronounced 31-08-2021) and does not include any outcome of the remand proceedings or subsequent developments not contained in that order.

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M/s. Ravindra Multipurpose Co-operative Society Limited, Udupi v. Income Tax Officer, Ward - 3, Udupi

IN THE INCOME TAX APPELLATE TRIBUNAL

'A' BENCH : BANGALORE

BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER

AND

SMT. BEENA PILLAI, JUDICIAL MEMBER

ITA No.1262/Bang/2019

Assessment Year : 2016-17 M/s Ravindra Multipurpose The Income-Tax Officer, Co-operative Society Ltd, Ward-3,

No.31018, Shyanubhog Udupi.

Building, Kukkundoor, Vs.

Udupi-576 117.

PAN - AAAAR 9986 M

APPELLANT RESPONDENT

Assessee by : Shri Ramasubramaniyan, C.A Revenue by : Smt. H Kabila, Addl.CIT Date of Hearing : 26-08-2021 Date of Pronouncement : 31-08-2021

ORDER

PER BEENA PILLAI, JUDICIAL MEMBER

Present appeals are filed by the assessee against the common order dated 30/03/2019 passed by the Ld.CIT(A) Mangaluru for assessment year 2016-17 on the following grounds.

"1. That the order of the learned Commissioner of Income-Tax (Appeals) is bad in so far it is prejudicial to the interests of the appellant and erroneous in law and against the facts and circumstances of the case.

2. That the learned Commissioner of Income-Tax (Apeals) erred in law and on facts in confirming the disallowance of Rs.29,08,581/- claimed as deduction u/s. 80P(2)(a)(i) of the Act.

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3. That the learned Commissioner of Income-Tax (Appeals) denied the deduction u/s. 80P(2)(a)(i) of the Act on the only ground that the appellant deals with nominal and associate members.

4. That the learned Commissioner of Income-Tax (Appeals) ought to have appreciated that the appellant is registered as Co-operative Society under Karnataka State Co-operative Societies Act, 1959 and the said Act allows the appellant to admit nominal and associate members. Each of the above grounds is without prejudice to one another, the appellant seeks the leave of the Hon'ble Income Tax Appellate Tribunal, Bangalore to add, delete, amend or otherwise modify each or any of the grounds of appeal either before or at the time of hearing this appeal."

2. Following Additional grounds has been raised by assessee vide application dated 31/12/2020:

"The appellant herein seeks the leave of the Hon'ble Tribunal to file the following additional grounds:

1. Without prejudice to the claim that the appellant is entitled to deduction u/s 80P(2)(a) of Income Tax Act 1961 (Act) the learned lower authorities ought to have allowed the deduction u/s 80P(2)(a) of the Act to the extent that such income is attributable to the dealing with regular members and nominal members.

2. That the learned lower authorities ought to have allowed the deduction u/s 80P(2)(d) of the Act in respect of the interest earned from Co-operative Banks and Co-operative Societies."

2.1. It has been submitted by the Ld.Counsel that they emanate from the facts, that are already on record and that no new facts needs to be considered to adjudicate it. He submitted that these are legal issues to be looked into for adjudicating the claim of assessee. Ld.Counsel placed reliance on the decision of Hon'ble Supreme Court in case of National Thermal Power Corporation Ltd (NTPC) vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd., reported in 187 ITR 688. He submitted that no prejudice will be caused to the revenue upon admission

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of the additional grounds raised. He thus prayed for its admission.

2.2. On the contrary, the Ld.DR though opposed the admission of the additional grounds, could not controvert the submissions made by the Ld.Counsel.

2.3. We have perused the submissions advanced by the both sides and records placed before us.

2.4. We note that issue raised by the assessee in this additional ground is no longer res-integra. The ground raised by assessee under this application is a legal ground and needs to be admitted. We draw our support from the decision of Hon'ble Supreme Court in case of National Thermal Power Corporation Ltd (NTPC) v. CIT(supra).

Accordingly we admit the additional grounds is reproduced hereinabove.

Brief facts of the case are as under:

3. Assessee is a co-operative society providing credit facilities to its members. For years under consideration assessee filed its return of income after claiming deduction under section 80P of the Act. The return was selected for scrutiny under Cass and notice under section 143(2) was issued to assessee. In response to the statutory notices, representative of assessee appeared before the Ld.AO and filed requisite details as called for.

3.1 Ld.AO from the details filed by assessee observed that:

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(i) assessee has earned interest on investment in Co-operative banks, nationalised banks;

(ii) assessee has claimed deduction under section 80P(2)(a) of the act in respect of amount of profit attributable to the activity of providing credit facilities to its members.

3.2 In the instant case, it was noticed by the Ld.AO during assessment proceedings, that the assessee society was earning income not only from the members but majority of the income from the nominal/ Associate members. Taking into cognizance the ratio of decision of Hon'ble Supreme Court, in the case of Citizen Co-op Society Ltd, Hyderabad v. ACIT, C-9(1), Hyderabad in Civil Appeal No.10245 of 2017 dated 8.08.2017 the Ld.AO denied deduction claimed u/s.80P by holding that the asessee provided credit facilities to three categories of members viz., i) Regular member ii) Associate members and iii) Nominal members. Hence, Ld.AO disallowed the deduction claimed u/s.80P(2)(a)(i) of the Act.

3.3 The Ld.AO was of the view that principle of mutuality was violated by assessee and therefore denied the deduction in view of the decision of Hon'ble Supreme Court in case of Citizen co- operative society Ltd. in Civil appeal No. 10245/2017 dated 08.08.2017, on following grounds:

i) interest/dividend income was held to be income from other sources and excluded from the deduction under section 80P(2)(a)(i). For the deduction under section 80P(2)(d) was also

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denied relying on the decision of Hon'ble Karnataka High Court in case of M/s Totgars Co-operative so sale society Ltd. by order dated 16/06/2017.

ii) The principles of majority were violated relying on the decision of Hon'ble Supreme Court in case of M/s Citizen Co-operative Society Ltd., Hyderabad dated 08/09/2017.

3.4 Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld.CIT(A).

3.5.The Ld.CIT(A) came to the conclusion that as per the decision of Hon'ble Supreme Court in the case of Citizens Co-op Society (Supra), if the principle of mutuality is not satisfied, then the assessee is not entitled to deduction u/s 80P(2)(a)(i) of the Act.

3.5 In respect of members, the Ld.CIT(A) observed that the assessee admitted excess nominal/associate members which is more than 15% of the total members when compared to regular members which is in violation of Karnataka Co-operative Society Act, 1959. In view of the violation of the Karnataka Co-operative Society Act, the Ld.CIT(A) observed that the society is not eligible for deduction u/s 80P and as such ratio of the decision of Hon`ble Supreme Court decision in the case of Citizen Co-op Society Ltd, Hyderabad v. ACIT, C-9(1), Hyderabad in Civil Appeal No.10245 of 2017 dated 8.08.2017 is applicable to the facts of the assessee society.

3.6 The Ld.CIT(A) also held that, in the assessee's case, mutuality principles have failed as substantial business is being

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carried out with the general public or nominal members and also in view of the assessee being registered as Souharda Co-operative Society and not as Co-operative Society and taking into account the byelaws and the nature of business carried out by the assessee, the society is not eligible for deduction u/s 80P of the Income tax Act, 1961.

3.6 The Ld.CIT(A) thus upheld the order of Ld.AO.

4 Aggrieved by the order of Ld.CIT(A) assessee is in appeal before us now.

4.1. We have considered the rival submissions of both sides in the light of records placed before us.

4.2. The issue that arises for consideration is:

(i) whether the authorities below were justified in denying the claim of the assessee for reduction u/s 80P(2)(a)(i) of the Act. (Grounds 2-4, Additional Ground no.1)

(ii) whether, interest income earned by assessee is eligible for deduction u/s 80P(2)(d) of the Act, whereas the deduction is one claimed u/s 80P(2)(a)(i) of the Act. (Additional ground 2)

5. Ground No.1 is general in nature and therefore do not require any adjudication.

6. Grounds 2-4 & Additional Ground No.1:

In respect of associate/nominal members, Hon'ble Supreme Court in the case of Mavilayi Service Cooperative Bank Ltd. v. CIT (2021) 123 taxmann.com 161 (SC) has held that the expression

"Members" is not defined in the Income-tax Act. Hence, it is necessary to construe the expression "Members" in section

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80P(2)(a)(i) of the Act in the light of definition of that expression as contained in the concerned co-operative societies Act. In view of this, the facts are to be examined in the light of principles laid down by the Hon'ble Supreme Court in Mavilayi Service Cooperative Bank Ltd. (supra). Accordingly, we remit this issue of deduction u/s.80P(2)(a)(i) of the Act to the file of Ld.AO to examine the same de novo in the light of the above judgment. Needless to say that proper opportunity of being heard is to be granted to assessee in accordance with law

Accordingly grounds 2-4 and Additional Ground No.1 stands allowed for statistical purposes.

7. Additional Ground 2 is in respect of interest from investment in Co-operative banks, nationalised banks.

7.1 This issue has been decided by coordinate bench of this Tribunal in case of Potters Cottage Industrial Co-Operative Society Ltd., for assessment years 2015-16 in ITA No 1257 & 1258/Bang/2019 by order dated 30-08-2019. This Tribunal observed and decided as under:

"We note that the Ld.AO denied deduction under section 80P(2)(d) of the Act, as well in respect of interest income received by assessee from deposits kept with banks for the years under consideration. The Ld.AO assessed the interest income received from bank deposits under the head income from other sources.

The Ld.Counsel placed reliance on the decision of Hon'ble Karnataka High Court in keep case of Totgars co-operative sale society Ltd. vs ITO reported in (2015) 58 Taxmann.com 35.

We have perused plethora of decisions on this issue by Hon'ble Karnataka High Court and the ratio laid down by Hon'ble Supreme Court. Hon'ble Supreme Court in the case of the Totgars Co-operative Sale Society Ltd. Vs. ITO reported in 322 ITR 283 held that, Income from

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utilisation of surplus funds was taxable under the head income from other sources, and therefore not eligible for deduction u/s 80P. Hon'ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO reported in 230 Taxman 309, dealt with an issue where deduction u/s.80P(2)(a)(i) of the Act was claimed on interest from the deposits made in a nationalized bank which was used for providing credit facilities to its members. The Assessee therein claimed that the said interest amount is attributable to the credit facility provided by the assessee and forms part of profits and gains of business. Hon'ble Karnataka High Court after considering the decision by Hon'ble Supreme Court in case of Totgars(supra) held that, since the word income is qualified by the expression "attributable" to the business of Banking, is used in Sec.80P(2)(a)(i) of the Act, it has to receive a wider meaning and should be interpreted as covering receipts from sources other than the actual conduct of business. Hon'ble Karnataka Court held that a Cooperative Society that is carrying on with 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, cannot be kept 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. Hon'ble Karnataka Court distinguished the facts in the decision of the Hon'ble Supreme Court in the case of Totgars (supra) by observing that Hon'ble Supreme Court was dealing with a case where the assessee-cooperative society, apart from providing credit facilities to the members, was 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 which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-Society 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 or under Section 80P(2)(a)(iii) of the Act. Therefore, in the facts of Totgars (supra), Hon'ble Supreme Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. The Court also observed that even the

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Hon'ble Supreme Court made it clear that, they are confining the said judgment to the facts of that case.

Similar view taken in case of Guttigedarara Credit Co-operative Society Ltd. vs. ITO reported in [2015] 377 ITR 464 by Hon'ble Karnataka High Court. In a subsequent decision of Pr.CIT And Anrs vs. Totagars Co- Operative Sale Society reported in 392 ITR 74 in the context of deduction u/s.80P(2)(d) of the Act, it was held by Hon'ble Karnataka high Court that deduction 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 is available under sec.80P(2)(d) of the Act. Hon'ble Karnataka high Court held that decision by Hon'ble Supreme Court in case of Totgars (supra), was not on the deduction claimed u/s.80P(2)(d) of the Act, but was rendered in respect of deduction claimed under Section 80P(2)(a)(i) of the Act. Hon'ble Karnataka High Court in the case of Pr.CIT Anr. vs. Totgars Co- Operative Sale Society reported in 395 ITR 611 took a different view and held that interest income earned on deposits whether with any other bank will be in the nature of income from other sources and not income from business and therefore the deduction u/s.80P(2)(d) of the Act cannot be allowed to the Assessee. The Hon'ble Court followed decision of Hon'ble Gujarat High Court in the case of SBI Vs. CIT reported in 389 ITR 578, wherein Hon'ble Gujarat High Court dissented from the view taken by the Hon'ble Karnataka High Court in the case of Tumkur Merchants case (supra). It can thus be seen that the ratio laid down by the Hon'ble Karnataka High Court in the case of Totagars Cooperative Sales Society in 395 ITR 611 is that, in light of the principles enunciated by Hon'ble Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. Thus interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by assessee with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. This needs to be verified by the Ld.AO.

On the basis of above discussions, and in the interest of Justice we remand this issue back to the Ld.AO to verify the interest earned from investments made in co-operative societies that is eligible for deduction under section 80P(2)(d) of the Act."

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11.2 Respectfully following the above view, we direct the Ld.AO to verify the interest earned on investment earned from co-operative societies and to consider the claim of assessee in accordance with law under section 80p(2)(d) of the Act.

Accordingly these grounds raised by assessee stands allowed for statistical purposes.

Accordingly, the appeals filed by assessee for assessment years under consideration stands allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 31^stAugust, 2021 Sd/- Sd/-

(CHANDRA POOJARI) (BEENA PILLAI)

Accountant Member Judicial Member Bangalore,

Dated, the 31^stAug, 2021. /Vms/

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Copy to:

1. Appellant

2. Respondent

3. CIT

4. CIT(A)

5. DR, ITAT, Bangalore

6. Guard file By order Assistant Registrar, ITAT, Bangalore

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		Date	Initial
1.	Draft dictated on	On Dragon		Sr.PS
2.	Draft placed before author	-8- 2021		Sr.PS
3.	Draft proposed & placed before the second member	-8- 2021		JM/AM
4.	Draft discussed/approved by Second Member.	-8- 2021		JM/AM
5.	Approved Draft comes to the Sr.PS/PS	-8- 2021		Sr.PS/PS
6.	Kept for pronouncement on	-8- 2021		Sr.PS
7.	Date of uploading the order on Website	-8- 2021		Sr.PS
8.	If not uploaded, furnish the reason	--		Sr.PS
9.	File sent to the Bench Clerk	-8- 2021		Sr.PS
10.	Date on which file goes to the AR
11.	Date on which file goes to the Head Clerk.
12.	Date of dispatch of Order.
13.	Draft dictation sheets are attached	No		Sr.PS

M/s. Ravindra Multip... v. Income Tax Officer, ...