We lost on s.80P before the Tribunal. Can we raise the s.57 cost of funds point for the first time in the High Court, and does interest we charge our own employees qualify under s.80P(2)(a)(i)?
No on both counts, on this decision. The Punjab and Haryana High Court refused to entertain questions on s.57(iii) and on deduction of costs against interest assessed under s.56 because no such plea had been argued before the Tribunal, holding that they did not arise from the Tribunal's order and raised no substantial question of law. It also upheld the Tribunal's view that s.80P(2)(a)(i) is available only in respect of the society's core activities, so that interest from other banks and interest received from employees who are not members does not qualify.
Decided by the High Court (Ajay Kumar Mittal J and Raj Rahul Garg J) on 2016-05-10, reported as ITA No. 17 of 2016 (O&M) (Punjab and Haryana High Court). It bears on section 80P, section 80P(2)(a)(i), section 56, section 57, section 57(iii), section 260A of the Income Tax Act 1961, in Co-operative Societies, Deductions & Disallowances and Appeals matters.
The s.57 netting argument is the standard fallback when interest is pushed into income from other sources, and this is what happens when it is kept in reserve: it is lost. A ground not argued before the Tribunal does not arise from the Tribunal's order, and s.260A gives the High Court no way in. Practitioners who intend to argue in the alternative must argue it in the alternative at the Tribunal, on the record, with figures. The decision is also a clean Revenue-side authority on the 'core activity' limit to s.80P(2)(a)(i), which is the counterweight to the Karnataka line on 'attributable to', and it makes the separate point that interest from employees who are not members falls outside the clause.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The appellant co-operative society filed a return declaring nil income after claiming a deduction of Rs 22,16,98,658 under s.80P. The Assessing Officer assessed total income at Rs 37,73,960, disallowing the s.80P claim. The Commissioner (Appeals) partly allowed the appeal. By a consolidated order dated 28 April 2015 the Tribunal dismissed the assessee's appeal and allowed the Revenue's appeal, the latter concerning a disallowance of Rs 27,19,241 claimed under s.80P(2)(a)(i) in respect of interest received from employees who were not members of the society. Six questions were proposed in the appeal under s.260A, including whether a one per cent expense deduction under s.57(iii) was correct and whether deductions for costs under s.57 should be allowed against interest assessed under s.56.
The appeal was dismissed; no substantial question of law arose (para 10). Question (i) was general in nature and not a substantial question of law (para 5). Question (ii), on deduction under s.80P(2)(a)(i) for interest earned from banks other than co-operative banks, stood concluded against the assessee by the Court's own decision dated 10 May 2011 in ITA No. 643 of 2010 (para 6). Questions (iii) and (vi), on s.57, did not arise from the Tribunal's order because no such plea had been argued before the Tribunal (para 7). On questions (iv) and (v), the Tribunal had correctly held that the benefit of s.80P(2)(a)(i) is available where the interest is earned from the core activity of the society and that interest earned from employees does not fall within it (paras 8 and 9).
On the s.80P point the Court proceeded on the footing that its earlier decision of 10 May 2011 in the assessee's own group had already decided the issue in favour of the Revenue, and set out the proposition it had there accepted: that interest arising to a co-operative society carrying on the business of providing credit facilities to its members, or marketing the agricultural produce of its members, on surplus not immediately required for business purposes and invested in short-term deposits and securities, is taxable as income from other sources under s.56, and cannot be said to be attributable either to the activity in s.80P(2)(a)(i) or that in s.80P(2)(a)(iii). On the s.57 questions the Court's reasoning was jurisdictional: a plea not argued before the Tribunal does not arise from the Tribunal's order and therefore raises no substantial question of law for the High Court under s.260A. On the employees' interest, the Court found that nothing had been demonstrated to show that the Tribunal's approach was erroneous or perverse.
Question Nos. (iii) and (vi) as have been sought to be raised now do not arise from the order of the Tribunal as no such plea was argued before the Tribunal.
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Handle my notice → Ask a CA on WhatsAppNo on both counts, on this decision. The Punjab and Haryana High Court refused to entertain questions on s.57(iii) and on deduction of costs against interest assessed under s.56 because no such plea had been argued before the Tribunal, holding that they did not arise from the Tribunal's order and raised no substantial question of law. It also upheld the Tribunal's view that s.80P(2)(a)(i) is available only in respect of the society's core activities, so that interest from other banks and interest received from employees who are not members does not qualify. This was decided by the High Court (Ajay Kumar Mittal J and Raj Rahul Garg J) and bears on section 80P, section 80P(2)(a)(i), section 56, section 57, section 57(iii), section 260A of the Income Tax Act 1961. It is reported as ITA No. 17 of 2016 (O&M) (Punjab and Haryana High Court). The s.57 netting argument is the standard fallback when interest is pushed into income from other sources, and this is what happens when it is kept in reserve: it is lost. A ground not argued before the Tribunal does not arise from the Tribunal's order, and s.260A gives the High Court no way in. Practitioners who intend to argue in the alternative must argue it in the alternative at the Tribunal, on the record, with figures. The decision is also a clean Revenue-side authority on the 'core activity' limit to s.80P(2)(a)(i), which is the counterweight to the Karnataka line on 'attributable to', and it makes the separate point that interest from employees who are not members falls outside the clause. If it applies to you, the first step is this: Take the s.57(iii) cost of funds plea before the Tribunal in writing, as an alternative ground, with a computation. Do not save it for the High Court.
The appellant co-operative society filed a return declaring nil income after claiming a deduction of Rs 22,16,98,658 under s.80P. The Assessing Officer assessed total income at Rs 37,73,960, disallowing the s.80P claim. The Commissioner (Appeals) partly allowed the appeal. By a consolidated order dated 28 April 2015 the Tribunal dismissed the assessee's appeal and allowed the Revenue's appeal, the latter concerning a disallowance of Rs 27,19,241 claimed under s.80P(2)(a)(i) in respect of interest received from employees who were not members of the society. Six questions were proposed in the appeal under s.260A, including whether a one per cent expense deduction under s.57(iii) was correct and whether deductions for costs under s.57 should be allowed against interest assessed under s.56. The matter was decided on 2016-05-10 by the High Court (Ajay Kumar Mittal J and Raj Rahul Garg J). On those facts the High Court held as follows. The appeal was dismissed; no substantial question of law arose (para 10). Question (i) was general in nature and not a substantial question of law (para 5). Question (ii), on deduction under s.80P(2)(a)(i) for interest earned from banks other than co-operative banks, stood concluded against the assessee by the Court's own decision dated 10 May 2011 in ITA No. 643 of 2010 (para 6). Questions (iii) and (vi), on s.57, did not arise from the Tribunal's order because no such plea had been argued before the Tribunal (para 7). On questions (iv) and (v), the Tribunal had correctly held that the benefit of s.80P(2)(a)(i) is available where the interest is earned from the core activity of the society and that interest earned from employees does not fall within it (paras 8 and 9).
On the s.80P point the Court proceeded on the footing that its earlier decision of 10 May 2011 in the assessee's own group had already decided the issue in favour of the Revenue, and set out the proposition it had there accepted: that interest arising to a co-operative society carrying on the business of providing credit facilities to its members, or marketing the agricultural produce of its members, on surplus not immediately required for business purposes and invested in short-term deposits and securities, is taxable as income from other sources under s.56, and cannot be said to be attributable either to the activity in s.80P(2)(a)(i) or that in s.80P(2)(a)(iii). On the s.57 questions the Court's reasoning was jurisdictional: a plea not argued before the Tribunal does not arise from the Tribunal's order and therefore raises no substantial question of law for the High Court under s.260A. On the employees' interest, the Court found that nothing had been demonstrated to show that the Tribunal's approach was erroneous or perverse. In the words reproduced by the source cited on this page: "Question Nos. (iii) and (vi) as have been sought to be raised now do not arise from the order of the Tribunal as no such plea was argued before the Tribunal." The decision followed or applied Commissioner of Income Tax-II, Chandigarh v. M/s Punjab State Cooperative Federation of Housing Building Societies Ltd., ITA No. 643 of 2010, decided 10 May 2011 (Punjab and Haryana) — followed.
It was decided by the High Court on 2016-05-10 and is reported as ITA No. 17 of 2016 (O&M) (Punjab and Haryana High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 80P, section 80P(2)(a)(i), section 56, section 57, section 57(iii), section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed; no substantial question of law arose (para 10). Question (i) was general in nature and not a substantial question of law (para 5). Question (ii), on deduction under s.80P(2)(a)(i) for interest earned from banks other than co-operative banks, stood concluded against the assessee by the Court's own decision dated 10 May 2011 in ITA No. 643 of 2010 (para 6). Questions (iii) and (vi), on s.57, did not arise from the Tribunal's order because no such plea had been argued before the Tribunal (para 7). On questions (iv) and (v), the Tribunal had correctly held that the benefit of s.80P(2)(a)(i) is available where the interest is earned from the core activity of the society and that interest earned from employees does not fall within it (paras 8 and 9). It arises in Co-operative Societies, Deductions & Disallowances and Appeals matters, on section 80P, section 80P(2)(a)(i), section 56, section 57, section 57(iii), section 260A of the Income Tax Act 1961, and was decided by Ajay Kumar Mittal J and Raj Rahul Garg J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the Tribunal has not dealt with an alternative ground that was in fact argued, move a s.254(2) application rather than hoping to raise it under s.260A. Separate interest received from members from interest received from employees who are not members, and from interest on deposits with banks; the last two were both held outside s.80P(2)(a)(i) here. When the department cites this decision, check whether the taxpayer in your case actually argued s.57 below — the holding on questions (iii) and (vi) is procedural, not a ruling that s.57 is unavailable.
Validity check could not be completed. Later treatment was not checked. The decision predates Mavilayi Service Co-operative Bank (SC, 2021); Mavilayi requires s.80P to be read liberally and in favour of the assessee, and a later court might not describe the test as one of 'core activities' in those terms, but Mavilayi did not disturb Totgar's (SC, 2010) on the taxability of interest on surplus funds, which is the substance of what was applied here. The holding on questions (iii) and (vi) is a pleading and jurisdiction point and is unaffected by either Supreme Court decision. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Trap in this document: the passage numbered 17 that appears in the report — 'After considering the rival submissions we find that the Hon'ble Supreme Court has clearly held that deduction u/s 80P(2)(a)(i) of the Act is available only in respect of core activities of the Society and interest earned from other banks cannot be said to be the core activity' — is the Tribunal's paragraph, reproduced inside the High Court's paragraph 8. It is not the High Court's own paragraph 17; the High Court's judgment ends at paragraph 10. The quote used here is taken from paragraph 7, verified as the Court's own words. The framing of the six questions of law in the ?type=print rendering was compressed and has not been reproduced as the Court's words; question (ii) alone was retrieved verbatim. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed; no substantial question of law arose (para 10). Question (i) was general in nature and not a substantial question of law (para 5). Question (ii), on deduction under s.80P(2)(a)(i) for interest earned from banks other than co-operative banks, stood concluded against the assessee by the Court's own decision dated 10 May 2011 in ITA No. 643 of 2010 (para 6). Questions (iii) and (vi), on s.57, did not arise from the Tribunal's order because no such plea had been argued before the Tribunal (para 7). On questions (iv) and (v), the Tribunal had correctly held that the benefit of s.80P(2)(a)(i) is available where the interest is earned from the core activity of the society and that interest earned from employees does not fall within it (paras 8 and 9).
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