By Sri. Y v. Raviraj, Adv

���� Date of Judgment: 16.06.2017 ITA No.100066/2016 & Connected cases The Pr. Commissioner of Income Tax, C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. � IN THE HIGH COURT OF KARNATAKADHARWAD BENCH DATED THIS THE 16[th] DAY OF JUNE 2017 PRESENT THE HON’BLE DR. JUSTICE VINEET KOTHARIAND THE HON’BLE DR. JUSTICE H. B. PRABHAKARA SASTRY INCOME TAX APPEAL No.100066 of 2016 Connected with INCOME TAX APPEAL Nos.100064, 100065, 100067, 100068 & 100051-100054 of 2016 IN ITA No.100066/2016: BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX, C R BUILDING, NAVANAGAR, HUBBALLI. 2.INCOME TAX OFFICER,WARD-1, SIRSI,WARD-1, SIRSI, AACAT 0251 D. (By Sri. Y. V. RAVIRAJ, ADV.) …APPELLANTS AND: Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. THE TOTAGARS CO-OPERATIVESALE SOCIETY,TSS ROAD, NEW MARKET YARD,SIRSI. ... RESPONDENT (By Sri. A. SHANKAR, M. LAVA &S. S. HEGDE, ADVS.) THIS APPEAL IS FILED UNDER SECTION 260A OFTHE INCOME-TAX ACT, 1961 PRAYING TO: i.FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED ABOVE.QUESTIONS OF LAW STATED ABOVE. iiALLOW THE APPEAL AND SET ASIDETHE ORDERS PASSED BY THEINCOME TAX APPELLATE TRIBUNAL,BANGALORE BENCH ‘C’ IN ITANO.706/BANG/2015 DTD: 22.01.2016AND CONFIRM THE ORDER PASSEDBY THE INCOME TAX OFFICER,WARD-1 SIRSI, IN THE INTEREST OFJUSTICE AND EQUITY.THE ORDERS PASSED BY THEINCOME TAX APPELLATE TRIBUNAL,BANGALORE BENCH ‘C’ IN ITANO.706/BANG/2015 DTD: 22.01.2016AND CONFIRM THE ORDER PASSEDBY THE INCOME TAX OFFICER,WARD-1 SIRSI, IN THE INTEREST OFJUSTICE AND EQUITY. IN ITA No.100064/2016: BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX,C R BUILDING, NAVANAGAR,HUBBALLI.C R BUILDING, NAVANAGAR,HUBBALLI. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. 2.INCOME TAX OFFICER,WARD-1, SIRSI,AACAT 0251 D. (By Sri. Y. V. RAVIRAJ, ADV.) ... APPELLANTS AND: THE TOTAGARS CO-OPERATIVESALE SOCIETY,TSS ROAD, NEW MARKET YARD,SIRSI. ... RESPONDENT (By Sri. A. SHANKAR, M. LAVA &S. S. HEGDE, ADVS.) THIS ITA IS FILED U/SEC.260A OF THE INCOMETAX ACT, 1961, PRAYING TO: i.FORMULATE THE SUBSTANTIALQUESTION OF LAW STATED ABVOE.QUESTION OF LAW STATED ABVOE. ii.ALLOW THE APPEAL AND SET ASIDETHE ORDERS PASSED BY THEINCOME TAX APPELLATE TRIBUNAL,BANGALORE BENCH "C" IN ITANO.704/BANG/2015, DATED 22.01.2016AND CONFIRM THE ORDER PASSEDBY THE INCOME TAX OFFICER,WARD-I, SIRSI.THE ORDERS PASSED BY THEINCOME TAX APPELLATE TRIBUNAL,BANGALORE BENCH "C" IN ITANO.704/BANG/2015, DATED 22.01.2016AND CONFIRM THE ORDER PASSEDBY THE INCOME TAX OFFICER,WARD-I, SIRSI. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. IN ITA No.100065/2016: BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX,C R BUILDING, NAVANAGAR,HUBBALLI.C R BUILDING, NAVANAGAR,HUBBALLI. 2.INCOME TAX OFFICER,WARD-1, SIRSI,AACAT 0251 D.WARD-1, SIRSI,AACAT 0251 D. (By Sri. Y. V. RAVIRAJ ADV.) ... APPELLANTS AND: THE TOTAGARS CO-OPERATIVESALE SOCIETY,TSS ROAD, NEW MARKET YARD,SIRSI. ... RESPONDENT (By Sri. A. SHANKAR, M. LAVA &S. S. HEGDE, ADVS.)S. S. HEGDE, ADVS.) THIS ITA IS FILED U/SEC.260A OF THE INCOME-TAX ACT, 1961, PRAYING TO: i. FORMULATE THE SUBSTANTIALQUESTION OF LAW STATED ABOVE.QUESTION OF LAW STATED ABOVE. ii. ALLOW THE APPEAL AND SET ASIDETHE ORDERS PASSED BY THEINCOME-TAX APPELLATE TRIBUNAL,BENGALURU BENCH "C" IN ITATHE ORDERS PASSED BY THEINCOME-TAX APPELLATE TRIBUNAL,BENGALURU BENCH "C" IN ITA IN ITA No.100065/2016: BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX,C R BUILDING, NAVANAGAR,HUBBALLI.C R BUILDING, NAVANAGAR,HUBBALLI. 2.INCOME TAX OFFICER,WARD-1, SIRSI,AACAT 0251 D.WARD-1, SIRSI,AACAT 0251 D. (By Sri. Y. V. RAVIRAJ ADV.) ... APPELLANTS AND: THE TOTAGARS CO-OPERATIVESALE SOCIETY,TSS ROAD, NEW MARKET YARD,SIRSI. ... RESPONDENT (By Sri. A. SHANKAR, M. LAVA &S. S. HEGDE, ADVS.)S. S. HEGDE, ADVS.) THIS ITA IS FILED U/SEC.260A OF THE INCOME-TAX ACT, 1961, PRAYING TO: i. FORMULATE THE SUBSTANTIALQUESTION OF LAW STATED ABOVE.QUESTION OF LAW STATED ABOVE. ii. ALLOW THE APPEAL AND SET ASIDETHE ORDERS PASSED BY THEINCOME-TAX APPELLATE TRIBUNAL,BENGALURU BENCH "C" IN ITATHE ORDERS PASSED BY THEINCOME-TAX APPELLATE TRIBUNAL,BENGALURU BENCH "C" IN ITA Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. NO.705/BANG/2015, DATED:22.01.2016AND CONFIRM THE ORDER PASSEDBY THE INCOME TAX OFFICER,WARD-1 SIRSI. IN ITA No.100067/2016: BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX,C R BUILDING, NAVANAGAR,HUBBALLI. 2.INCOME TAX OFFICER,WARD-1, SIRSI,AACAT 0251 D.WARD-1, SIRSI,AACAT 0251 D. (By Sri. Y. V. RAVIRAJ ADV.) ... APPELLANTS AND: THE TOTAGARS CO-OPERATIVESALE SOCIETY,TSS ROAD, NEW MARKET YARD,SIRSI. (By Sri. A. SHANKAR, M. LAVA & S. S. HEGDE, ADVS.) ... RESPONDENT THIS ITA IS FILED U/SEC.260A OF THE INCOME- TAX ACT, 1961, PRAYING TO: i.FORMULATE THE SUBSTANTIALQUESTION OF LAW AS STATEDABOVE. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. ii.ALLOW THE APPEAL AND SET ASIDETHE ORDERS PASSED BY THEINCOME-TAX APPELLATETRIBUNAL, BENGALURU BENCH 'C'IN ITA NO.707/Bang/2015, DATED22.01.2016 AND CONFIRM THE ORDERPASSED BY THE ONCOME TAXOFFICER, WARD-1, SIRSI. IN ITA No.100068/2016: BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX,C R BUILDING, NAVANAGAR,HUBBALLI.C R BUILDING, NAVANAGAR,HUBBALLI. 2.INCOME TAX OFFICER,WARD-1, SIRSI,AACAT 0251 D. (By Sri. Y. V. RAVIRAJ, ADV.) ... APPELLANTS AND: THE TOTAGARS CO-OPERATIVESALE SOCIETY,TSS ROAD, NEW MARKET YARD,SIRSI. (By Sri. A. SHANKAR, M. LAVA & S. S. HEGDE, ADVS.) ... RESPONDENT Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. THIS ITA IS FILED U/SEC.260A OF THE INCOME-TAX ACT, 1961, PRAYING TO: i.FORMULATE THE SUBSTANTIALQUESTION OF LAW AS STATEDABOVE.QUESTION OF LAW AS STATEDABOVE. ii.ALLOW THE APPEAL AND SET ASIDETHE ORDERS PASSED BY THEINCOME-TAX APPELLATETRIBUNAL, BENGALURU BENCH 'C'IN ITA NO.708/BANG/2015, DATED22.01.2016 AND CONFIRM TEH ORDERPASSED BY THE INCOME TAXOFFICER, WARD-1, SIRSI.THE ORDERS PASSED BY THEINCOME-TAX APPELLATETRIBUNAL, BENGALURU BENCH 'C'IN ITA NO.708/BANG/2015, DATED22.01.2016 AND CONFIRM TEH ORDERPASSED BY THE INCOME TAXOFFICER, WARD-1, SIRSI. IN ITA Nos.100051-100054/2016: BETWEEN: M/S THE TOTGARSCO-OPERATIVE SALE SOCIETY,REP. BY ITS GENERAL MANAGERSRI.RAVEESH ACHUT HEGDE,TSS BUILDING, NEW MARKET YARD,SIRSI 581402. ... APPELLANT (By Sri. A SHANKAR, M. LAVAAND S. S. HEGDE ADVS.) AND: INCOME TAX OFFICER,WARD-1, KAMATH BUILDING,TSS ROAD, SIRSI - 581402. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. (BY SRI. Y.V. RAVIRAJ ADV.) ... RESPONDENT THESE ITAs ARE FILED U/SEC.260A OF THEINCOME-TAX ACT, 1961, PRAYING TO: i) FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED ABOVEAND ANSWER THE SAME IN FAVOUROF THE APPELLANT.QUESTIONS OF LAW STATED ABOVEAND ANSWER THE SAME IN FAVOUROF THE APPELLANT. BETWEEN: M/S THE TOTGARSCO-OPERATIVE SALE SOCIETY,REP. BY ITS GENERAL MANAGERSRI.RAVEESH ACHUT HEGDE,TSS BUILDING, NEW MARKET YARD,SIRSI 581402. ... APPELLANT (By Sri. A SHANKAR, M. LAVAAND S. S. HEGDE ADVS.) AND: INCOME TAX OFFICER,WARD-1, KAMATH BUILDING,TSS ROAD, SIRSI - 581402. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. (BY SRI. Y.V. RAVIRAJ ADV.) ... RESPONDENT THESE ITAs ARE FILED U/SEC.260A OF THEINCOME-TAX ACT, 1961, PRAYING TO: i) FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED ABOVEAND ANSWER THE SAME IN FAVOUROF THE APPELLANT.QUESTIONS OF LAW STATED ABOVEAND ANSWER THE SAME IN FAVOUROF THE APPELLANT. ii) ALLOW THE APPEAL AND SET ASIDETHE FINDINGS, TO THE EXTENTAGAINST THE APPELLANT IN THEORDER PASSED BY THE INCOMETAX APPELLATE TRIBUNAL, 'C'BENCH, BENGALURU IN CORSSOBJECTION Nos.179 TO 182 / BANG /2014 DATED:22.01.2016 RELATING TOASSESSMENT YEARS 2007-2008 TO2010-2011 FILED IN ITA Nos.704 TO707/BANG/2015, TO MEET THE ENDSOF JUSTICE.THE FINDINGS, TO THE EXTENTAGAINST THE APPELLANT IN THEORDER PASSED BY THE INCOMETAX APPELLATE TRIBUNAL, 'C'BENCH, BENGALURU IN CORSSOBJECTION Nos.179 TO 182 / BANG /2014 DATED:22.01.2016 RELATING TOASSESSMENT YEARS 2007-2008 TO2010-2011 FILED IN ITA Nos.704 TO707/BANG/2015, TO MEET THE ENDSOF JUSTICE. JUDGMENT RESERVED ON : 12.06.2017.JUDGMENT PRONOUNCED ON : 16.06.2017. THESE APPEALS COMING ON FOR FINALHEARING ON 12 JUNE 2017 AND THE SAME HAVINGBEEN HEARD AND RESERVED FOR PRONOUNCEMENTOF JUDGMENT, THIS DAY, DR. VINEET KOTHARI, J.,PRONOUNCED THE FOLLOWING: Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. J U D G M E N T Mr.Y.V.Raviraj, Adv. for Revenue.Mr.A Shankar, Mr.M. Lava &Mr.S. S. Hegde Advs. for assessee. 1.The aforesaid five Income Tax Appeals are filedby the Revenue while another set of five appeals have beenfiled by the assessee and all the ten appeals are being disposedof by this common judgment. 2.The substantial questions of law involved in the present appeals filed by the Revenue are as follows: (I)“ Whether the assessee, Totagar Co-operative Sale Society, Sirsi, is entitled to100% deduction under Section 80P(2)(d) ofthe Income Tax Act, 1961 (for short ‘theAct’) in respect of whole of its income byway of interest earned by it during therelevant Assessment Years from 2007-2008to 2011-2012 on the deposits or investmentsmade by it during these years with a Co- Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. operative Bank, M/s.Kanara District CentralCo-operative Bank Limited? (II)Whether the Supreme Court decision in thecase of the present respondent assessee,Totgar Co-operative Sale Society Limiteditself rendered on 08[th] February 2010, inTotgar’s Co-operative Sale Society Limitedvs. Income Tax Officer, reported in (2010)322 ITR 283 SC : (2010) 3 SCC 223 for thepreceding years, namely Assessment Years1991-1992 to 1999-2000 (except AssessmentYear 1995-1996) holding that such interestincome earned by the assessee was taxableunder the head ‘Income from Other Sources’under Section 56 of the Act and was not100% deductible from the Gross TotalIncome under Section 80P(2)(a)(i) of theAct, is not applicable to the presentAssessment Years 2007-2008 to 2011-2012involved in the present appeals andtherefore, whether the Income Tax AppellateTribunal as well as CIT (Appeals) werejustified in holding that such interest income Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. was 100% deductible under Section80P(2)(d) of the Act? ” Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. was 100% deductible under Section80P(2)(d) of the Act? ” 3.The ratio decidendi of the Supreme Court decision in the case of assessee, Totagar’s Co-operative Sale SocietyLimited itself, was that such interest income earned by theassessee was not the income from the business as a Co-operative Society, but was income from other sources taxableunder Section 56 of the Act, whereas Section 80P(2)(a) of theAct included and permitted such 100% deduction if suchincome is earned by the co-operative society by carrying on thebusiness of banking or providing credit facilities to its membersor a cottage industry or the marketing of the agriculturalproduces grown by its members, etc. 4.The relevant portion of the judgment of theHon’ble Supreme Court is quoted below for ready reference: “At the outset, an important circumstance needs tobe highlighted. In the present case, the interest Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. held not eligible for deduction under Section80P(2)(a)(i) of the Act is not the interest receivedfrom the members for providing credit facilities tothem. What is sought to be taxed under Section 56of the Act is the interest income arising on thesurplus invested in short-term deposits andsecurities which surplus was not required forbusiness purposes. Assessee(s) markets theproduce of its members whose sale proceeds attimes were retained by it. In this case, we areconcerned with the tax treatment of such amount.Since the fund created by such retention was notrequired immediately for business purposes, it wasinvested in specified securities. The question,before us, is - whether interest on suchdeposits/securities, which strictly speaking accruesto the members' account, could be taxed asbusiness income under Section 28 of the Act? Inour view, such interest income would come in thecategory of "Income from other sources", hence,such interest income would be taxable underSection 56 of the Act, as rightly held by theAssessing Officer. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. In this connection, we may analyze Section80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions inrespect of certain Incomes". The Heading ofSection 80P indicates that the said section dealswith deductions in respect of income ofcooperative Societies. Section 80P(1), inter alia,states that where the gross total income of a Co-operative Society includes any income from one ormore specified activities, then such income shall bededucted from the gross total income in computingthe total taxable income of the assessee-Society.An income, which is attributable to any of thespecified activities in Section 80P(2) of the Act,would be eligible for deduction. The word"income" has been defined under Section 2(24)(i)of the Act to include profits and gains. This sub-section is an inclusive provision. The Parliamenthas included specifically "business profits" into thedefinition of the word "income". Therefore, we arerequired to give a precise meaning to the words"profits and gains of business" mentioned inSection 80P(2) of the Act. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. In the present case, as stated above,assessee-Society regularly invests funds notimmediately required for business purposes.Interest on such investments, therefore, cannot fallwithin the meaning of the expression "profits andgains of business". Such interest income cannotbe said also to be attributable to the activities ofthe society, namely, carrying on the business ofproviding credit facilities to its members ormarketing of the agricultural produce of itsmembers. When the assessee-Society providescredit facilities to its members, it earns interestincome. As stated above, in this case, interest heldas ineligible for deduction under Section80P(2)(a)(i) is not in respect of interest receivedfrom members. In this case, we are only concernedwith interest which accrues on funds not requiredimmediately by the assessee(s) for its businesspurposes and which have been only invested inspecified securities as "investment". Further, as stated above, assessee(s)markets the agricultural produce of its members. Itretains the sale proceeds in many cases. It is this Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. "retained amount" which was payable to itsmembers, from whom produce was bought, whichwas invested in short-term deposits/securities.Such an amount, which was retained by theassessee-Society, was a liability and it was shownin the balance-sheet on the liability-side.Therefore, to that extent, such interest incomecannot be said to be attributable either to theactivity mentioned in Section 80P(2)(a)(i) of theAct or in Section 80P(2)(a)(iii) of the Act.Therefore, looking to the facts and circumstancesof this case, we are of the view that the AssessingOfficer was right in taxing the interest income,indicated above, under Section 56 of the Act. An alternative submission was advanced bythe assessee(s) stating that, if interest income inquestion is held to be covered by Section 56 of theAct, even then, the assessee-Society is entitled tothe benefit of Section 80P(2)(a)(i) of the Act inrespect of such interest income. We find no meritin this submission. Section 80P(2)(a)(i) of the Actcannot be placed at par with Explanation (baa) toSection 80HHC, Section 80HHD(3) and Section Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. 80HHE(5) of the Act. Each of the said sections hasto be interpreted in the context of its subject-matter. For example, Section 80HHC of the Act, atthe relevant time, dealt with deduction in respectof profits retained for export business. The scopeof Section 80HHC is, therefore, different from thescope of Section 80P of the Act, which deals withdeduction in respect of income of cooperativeSocieties. Even Explanation (baa) to Section80HHC was added to restrict the deduction inrespect of profits retained for export business. Thewords used in Explanation (baa) to Section80HHC, therefore, cannot be compared with thewords used in Section 80P of the Act which grantsdeduction in respect of "the whole of the amount ofprofits and gains of business". A number ofjudgements were cited on behalf of the assessee(s)in support of its contention that the source wasirrelevant while construing the provisions ofSection 80P of the Act. We find no merit becauseall the judgements cited were cases relating toCooperative Banks and assessee-Society is notcarrying on Banking business. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. We are confining this judgement to the factsof the present case. To say that the source ofincome is not relevant for deciding theapplicability of Section 80P of the Act would notbe correct because we need to give weightage tothe words "the whole of the amount of profits andgains of business" attributable to one of theactivities specified in Section 80P(2)(a) of the Act.An important point needs to be mentioned. Thewords "the whole of the amount of profits andgains of business" emphasise that the income inrespect of which deduction is sought mustconstitute the operational income and not theother income which accrues to the Society. In thisparticular case, the evidence shows that theassessee- Society earns interest on funds which arenot required for business purposes at the givenpoint of time. Therefore, on the facts andcircumstances of this case, in our view, suchinterest income falls in the category of "OtherIncome" which has been rightly taxed by theDepartment under Section 56 of the Act.” Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. 5.Before adverting to the rival contentions raised by both the sides before us, we consider it necessary to reproduce the provisions of Section 80P of the Act with its heading from its Chapter VIA of the Act of 1961. Chapter VIA provides fordeductions in respect of certain income from the gross totalincome for computing net taxable income of the Co-operativeSocieties . 6.Section 80P of the Act reads as under: “ 80P. Deduction in respect of income of co-operative societies. (1) Where, in the case of an assessee being a co-operative society, the gross total income includesany income referred to in sub-section (2), thereshall be deducted, in accordance with and subjectto the provisions of this section, the sums specifiedin sub-section (2), in computing the total income ofthe assessee. (2) The sums referred to in sub-section (1) shall bethe following, namely:- (a) in the case of a co-operative society engagedin-in- (i) carrying on the business of banking orproviding credit facilities to its members, or Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. (ii) a cottage industry, or (iii) the marketing of the agriculturalproduce grown by its members, or (iv) the purchase of agricultural implements,seeds, livestock or other articles intendedfor agriculture for the purpose of supplyingthem to its members, or (v) the processing, without the aid of power,of the agricultural produce of its members,or (vi) the collective disposal of the labour ofits members, or (vii) fishing or allied activities, that is to say,the catching, curing, processing, preserving,storing or marketing of fish or the purchaseof materials and equipment in connectiontherewith for the purpose of supplying themto its members, the whole of the amount of profits and gainsof business attributable to any one or more of suchactivities: Provided that in the case of a co-operativesociety falling under sub-clause (vi), or sub-clause(vii), the rules and bye-laws of the society restrictthe voting rights to the following classes of itsmembers, namely:- Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. (1)the individuals who contributetheir labour or, as the case may be,carry on the fishing or alliedactivities;their labour or, as the case may be,carry on the fishing or alliedactivities; the whole of the amount of profits and gainsof business attributable to any one or more of suchactivities: Provided that in the case of a co-operativesociety falling under sub-clause (vi), or sub-clause(vii), the rules and bye-laws of the society restrictthe voting rights to the following classes of itsmembers, namely:- Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. (1)the individuals who contributetheir labour or, as the case may be,carry on the fishing or alliedactivities;their labour or, as the case may be,carry on the fishing or alliedactivities; (2)the co-operative credit societieswhich provide financial assistanceto the society;which provide financial assistanceto the society; (3) the State Government; (b) in the case of a co-operative society, being aprimary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by itsmembers to- (i)a federal co-operative society, being asociety engaged in the business ofsupplying milk, oilseeds, fruits orvegetables, as the case may be; orsociety engaged in the business ofsupplying milk, oilseeds, fruits orvegetables, as the case may be; or (ii)the Government or a local authority;oror (iii)a Government company as defined insection 617 of the Companies Act,1956 (1 of 1956), or a corporationestablished by or under a Central,State or Provincial Act (being acompany or corporation engaged insupplying milk, oilseeds, fruits orvegetables, as the case may be, to thepublic), the whole of the amount ofprofits and gains of such business;section 617 of the Companies Act,1956 (1 of 1956), or a corporationestablished by or under a Central,State or Provincial Act (being acompany or corporation engaged insupplying milk, oilseeds, fruits orvegetables, as the case may be, to thepublic), the whole of the amount ofprofits and gains of such business; (c) in the case of a co-operative society engaged inactivities other than those specified in clause (a) or Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. clause (b) (either independently of, or in additionto, all or any of the activities so specified), somuch of its profits and gains attributable to suchactivities as does not exceed,- (i)where such co-operative society is aconsumers' co-operative society, onehundred thousand rupees; andconsumers' co-operative society, onehundred thousand rupees; and (ii)in any other case, twenty fiftythousand rupees.thousand rupees. Explanation.- In this clause,"consumers’ co-operative society" means a society for thebenefit of the consumers; (d) in respect of any income by way of interest ordividends derived by the co-operative society fromits investments with any other co-operativesociety, the whole of such income; (e) in respect of any income derived by the co-operative society from the letting of godowns orwarehouses for storage, processing or facilitatingthe marketing of commodities, the whole of suchincome; (f) in the case of a co-operative society, not beinga housing society or an urban consumers' societyor a society carrying on transport business or asociety engaged in the performance of anymanufacturing operations with the aid of power,where the gross total income does not exceedtwenty thousand rupees, the amount of any incomeby way of interest on securities or any income fromhouse property chargeable under section 22. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. Explanation.- For the purposes of this section an"urban consumers' co- operative society" means asociety for the benefit of the consumers within thelimits of a municipal corporation, municipality,municipal committee, notified area committee,town area or cantonment. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. Explanation.- For the purposes of this section an"urban consumers' co- operative society" means asociety for the benefit of the consumers within thelimits of a municipal corporation, municipality,municipal committee, notified area committee,town area or cantonment. (3) In a case where the assessee is entitled also tothe deduction under section 80HH or section80HHA or section 80HHB or section 80HHC orsection 80HHD or section 80-I or section 80IA orsection 80J, the deduction under subsection (1) ofthis section, in relation to the sums specified inclause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to theincome, if any, as referred to in those clauseincluded in the gross total income as reduced bythe deductions under section 80HH, section80HHA, section 80HHB, section 80HHC, section80HHD, section 80-I, section 80-IA, section 80Jand section 80JJ. (4) The provisions of this section shall not applyin relation to any co-operative bank other than aprimary agricultural credit society or a primaryco-operative agricultural and rural developmentbank. Explanation.—For the purposes of this sub-section,— (a)“co-operative bank” and “primaryagricultural credit society” shall have themeanings respectively assigned to them inagricultural credit society” shall have themeanings respectively assigned to them in Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. Part V of the Banking Regulation Act, 1949(10 of 1949); (b)“primary co-operative agricultural andrural development bank” means a societyhaving its area of operation confined to ataluk and the principal object of which is toprovide for long-term credit for agriculturaland rural development activities. ”rural development bank” means a societyhaving its area of operation confined to ataluk and the principal object of which is toprovide for long-term credit for agriculturaland rural development activities. ” CONTENTIONS OF THE APPELLANTS / REVENUE: 7.Mr.Y.V.Raviraj, learned counsel appearing for theRevenue has made the following submissions:- (i) That the controversy stands covered by the SupremeCourt’s decision in the case of assessee Co-operative Societyitself in ‘Totgar’s Co-operative Sale Society Limited vs.Income Tax Officer, reported in (2010) 322 ITR 283 SC :(2010) 3 SCC 223, and the Income Tax Tribunal as well as CIT(Appeals), have erred in allowing the deductions in respect ofthe whole of the interest income earned by the respondent-assessee for Assessment Years 2007-08 to 2011-12 underconsideration merely because such interest was earned from the Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. deposits and investments made by the respondent-assessee withanother Co-operative Bank, namely, M/s.Kanara DistrictCentral Co-operative Bank. He submitted that whether thedeposits and investments of surplus funds of the respondent-assessee not immediately required for business purposes, ismade with the Scheduled Banks or Nationalised Banks orwhether Co-operative Banks does not make a difference, as faras the character of the income earned by the respondent-assessee is concerned and if it does not partake the character ofits business operational income from its business as a co-operative Society, the same would continue to be fully taxableand will not be eligible for 100% deduction under Section80P(2) of the Act, as held by the Hon’ble Supreme Court. deposits and investments made by the respondent-assessee withanother Co-operative Bank, namely, M/s.Kanara DistrictCentral Co-operative Bank. He submitted that whether thedeposits and investments of surplus funds of the respondent-assessee not immediately required for business purposes, ismade with the Scheduled Banks or Nationalised Banks orwhether Co-operative Banks does not make a difference, as faras the character of the income earned by the respondent-assessee is concerned and if it does not partake the character ofits business operational income from its business as a co-operative Society, the same would continue to be fully taxableand will not be eligible for 100% deduction under Section80P(2) of the Act, as held by the Hon’ble Supreme Court. (ii) The learned counsel for the Revenue further urgedthat shifting of its claim for 100% deduction from Section80P(2)(a) of the Act to 80P(2)(d) of the Act does not make adifference because sub-section (4) inserted in Section 80P(2)(d) Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. of the Act with effect from 01[st] April 2007 by Finance Act,2006 excludes Co-operative Banks other than PrimaryAgricultural Credit Society or a Primary Co-OperativeAgricultural and Rural Development Bank as defined under theBanking Regulation Act, 1949 from the applicability of Section80P of the Act and therefore, even the interest income earnedby the respondent-assessee from the deposits from investmentsmade by it with the Co-operative Bank, namely M/s.KanaraDistrict Central Co-operative Bank Limited would not beexempted or 100% deductible under clause (d) of the Section80P(2) of the Act, which stipulates that the income by way ofinterest or dividends derived by a Co-operative Society from itsinvestments with any other co-operative society, would be sodeductible. The learned counsel for the Revenue submitted that theCo-operative Bank even though might be registered as a Co-operative Society is not a Co-operative Society eligible for Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. receiving the benefit of exemption or 100% deduction underSection 80P of the Act, as its Banking business is governed bythe provisions of a special law like Banking Regulation Act,1949. (iii) The learned counsel for the Revenue further urgedthat the amendment of Section 194A(3)(v) of the Act byFinance Act, 2015 with effect from 01[st] June 2015 excludingthe Co-operative Banks from the genus category of Co-operative Societies and making it liable to deduct income tax atsource on the interest paid by it to other persons, furtherindicates that the legislative intent is to exclude Co-operativeBanks from the beneficiary category of co-operative societiesentitled to exemption or 100% deduction of its income underSection 80P of the Act. (iv) The learned counsel for the Revenue furthersubmitted that the income of a Co-operative Society entitled for100% deduction under Section 80P of the Act, as referred to Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. (iv) The learned counsel for the Revenue furthersubmitted that the income of a Co-operative Society entitled for100% deduction under Section 80P of the Act, as referred to Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. Clauses (a) to (f) of Sub-section (2) of Section 80P of the Act,are its business income earned from the co-operative activitieslike providing credit facilities to its members, running a cottageindustry, marketing of agricultural produces, agriculturalimplements, seeds, livestock, collective disposal of labour,fishing or allied activities or supply of milk and oil seeds, fruits,vegetables, etc. and the income derived from renting godownsor warehouses, etc. He, therefore, submitted that in order topromote the co-operative movement, these deductions fromgross total income were provided in Section 80P of the Act topromote such co-operative movement, whereas the interestincome earned on investments or deposits of surplus funds wasnever intended to be given the benefit of exemption or 100%deduction and therefore, not only the decision rendered by theHon’ble Supreme Court in the case of respondent assessee itselfcovers the field even for these assessment years from 2007-2008 to 2011-2012, but subsequently, the legislativeamendments also makes the legislative intent explicit that the Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. income earned by the Co-operative Bank or even through orfrom the Co-operative Banks are not entitled for suchexemption or 100% deduction. CONTENTIONS OF THE ASSESSEE: 8.Mr.A.Shankar, learned counsel appearing for the respondent-assessee made the following submissions at Bar: (I) That the Supreme Court’s decision in the case of theassessee itself for the preceding years is not applicable to thepresent Assessment Years in question, because, the assesseeCo-operative Society shifted its deposits and investments inscheduled banks, which was the fact available before theHon’ble Supreme Court, to a Co-operative Bank, KanaraDistrict Central Co-operative Bank Limited,which,undoubtedly, is also a co-operative society and therefore, thededuction under Section 80P(2)(d) of the Act is clearlyavailable to the assessee Co-operative Society under Section80P(2)(d) of the Act, which was not the claim of deduction Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. made before the Hon’ble Supreme Court as the deposits werenot with the Co-operative Society / Co-operative Bank andinterest income was not received from another Co-operativeSociety but Scheduled Banks. (II) The learned counsel for the assessee also urged thatthe Co-operative Society is a genus term and the co-operativeBank is also a specie of Co-operative Society and since, clause80P(2)(d) of the Act permits such 100% deduction in respect ofthe income by way of interest or dividends derived by the Co-operative Society (Assessee) from its investments with anyother Co-operative Society (including Co-operative Bank) andthe whole of such interest income is eligible for 100%deduction. (III) It was also urged that the provisions of Section80P(4) of the Act inserted by the Finance Act 2006 with effectfrom 01[st] April 2007, excluding the applicability of Section 80Pof the Act to any Co-operative Bank other than a Primary Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. (III) It was also urged that the provisions of Section80P(4) of the Act inserted by the Finance Act 2006 with effectfrom 01[st] April 2007, excluding the applicability of Section 80Pof the Act to any Co-operative Bank other than a Primary Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. Agricultural Credit Society or a Rural Development Bank, isnot applicable in the present case because the Assessee Co-operative Society is not a Co-operative Bank, but is only a Co-operative Society registered under the provisions of Co-operative Society Act as defined under Section 2(19) of the Act. The learned counsel for the assessee also urged thatSection 2(19) of the Act defines a “Co-operative Society” tomean a Co-operative Society registered under the Co-operativeSocieties Act, 1912, or any other law for the time being in forcein any State for the registration of the Co-operative Societies.He submitted that there is no dispute or doubt that therespondent Society is duly registered Co-operative Society andtherefore, exclusion of Co-operative Banks under subsection (4)of Section 80P of the Act does not hit the respondent Assessee. (IV) It was also urged that one of the appeals againstthis Respondent assessee, namely ITA No.100069 of 2016 forAssessment Year 2012-2013in the case of CIT Vs. Totagar’s Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. Co-operative Sale Limited, has already been dismissed by a co-ordinate Bench of this Court on 05[th] January 2017 holding thatthe aforesaid Supreme Court’s decision relied upon by theRevenue is not applicable to the Assessment Year 2012-2013 inquestion, because the said decision dealt with the interpretationof the deduction under Section 80P(2)(a)(i) of the Act and notunder Section 80P(2)(d) of the Act and the Court has held thatthe Co-operative Bank is a specie of the genus term Co-operative Society and therefore, the present appeals filed by theRevenue also deserves to be similarly dismissed. (V) That for the five appeals filed by the assessee on thelimited ground of rejection of its cross-objections by theIncome Tax Appellate Tribunal on the issue of justifiability ofthe reassessment under Section 147 / 148 of the Act for some ofthe Assessment Years, the learned counsel for the assesseeurged that if the question of exemption / deduction is decidedagainst the assessee by this Court, the right to agitate the Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. justifiability of reassessment under Section 147 / 148 of the Actmay be kept open. However, if such issue on exemption /deduction under Section 80P(2)(d) of the Act is decided infavour of the assessee, then the said question in cross-objectionwould only be academic. (VI) It was also urged that for certain Assessment Yearsfalling between the Assessment Years 2000-2001 to 2006-2007,the Assessing Authority itself had allowed the claim of theassessee under Section 80P(2)(d) of the Act and the Revenuehas not contested the matter further. However, in the absence of any such material placedbefore us, we are unable to verify the same and in the absenceof any such question raised before us for those AssessmentYears, the answer to the questions raised before us cannotdepend upon that. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. 9.We have heard the learned counsels at length andperused the record and the judgments cited at the Bar. (VI) It was also urged that for certain Assessment Yearsfalling between the Assessment Years 2000-2001 to 2006-2007,the Assessing Authority itself had allowed the claim of theassessee under Section 80P(2)(d) of the Act and the Revenuehas not contested the matter further. However, in the absence of any such material placedbefore us, we are unable to verify the same and in the absenceof any such question raised before us for those AssessmentYears, the answer to the questions raised before us cannotdepend upon that. Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. 9.We have heard the learned counsels at length andperused the record and the judgments cited at the Bar. 10.Admittedly and undoubtedly, the respondentassessee is a Co-operative Society engaged mainly in theactivity of marketing of agricultural produces grown by itsmembers. The assessee co-operative society also acceptsdeposits from its members and provides credit facility to itsmembers, runs Kirana Stores, rice mills, live stocks, vansection, medical shops, Areca-nut trading section, lodging,plying and hiring of goods carriage, etc. 11.The Assessment Years involved in the presentbatch of appeals are Assessment Years 2007-2008 to 2011-2012. The bone of contention is that the deduction underSection 80P(2) of the Act is now claimed by the respondentassessee under Section 80P(2)(d) of the Act and not underSection 80P(2)(a) of the Act. The reason is that now theinvestments and deposits after the Supreme Court’s decision Date of Judgment: 16.06.2017ITA No.100066/2016 & Connected casesThe Pr. Commissioner of Income Tax,C R Building, Navanagar, Hubballi. & Anr. Vs.The Totagars Co-Operative Sale Society, Sirsi. against the assessee reported in (2010) 322 ITR 283 (SC), theassessee has shifted the deposits and investments fromSchedule Banks to Co-operative Bank and such Co-operativeBank is essentially a Co-operative Society also and Clause (d)allows deduction of income by way of interest or dividendsderived by the assessee Co-operative Society from itsinvestments with any other Co-operative Society. 12.The sheet anchor of the contention of the learnedcounsel for the assessee misses two essential points required forclaiming the exemption or 100% deduction from gross totalincome for a co-operative society: (i) that the character ornature of income, namely interest on investments or deposits,does not change irrespective of the fact whether it is earned orreceived from a Schedule Bank or Co-operative Bank. (ii) thatWhat the Hon’ble Supreme Court held in the case of therespondent assessee itself, against the assessee, was that suchinterest income on its surplus