2016 (10) TMI 1154 - AT - Income Tax

Tribunal grants deduction under section 80P(2) for cooperative society's interest income.

M/s. Puthupally Village Service Cooperative Bank Ltd. Versus The Assistant Commissioner of Income-tax, Circle-1, Kottayam

The Tribunal partially allowed the appeal, granting the assessee the benefit of deduction u/s. 80P(2) based on the society's classification and activities ... Claim of deduction u/s. 80P(2) disallowed - Held that:- The Hon’ble High Court of Kerala in the case of Chirakkla Service Coop Bank Ltd. [2016 (4) TMI 826 - KERALA HIGH COURT] had held that a primary agricultural credit society, registered under the Kerala Cooperative Societies Act, 1969 is entitled to the benefit of deduction u/s. 80P(2). Thus we hold that the assessee-Society is entitled to the benefit of deduction u/s. 80P(2) of the Act. Interest received from the Government Treasury - to be included under the head “income from other sources” or “income from business - Held that:- In the instant case, the assessee is a cooperative Bank. The investment in treasury/banks and earning interest on the same is part of the banking activity of the assessee’s cooperative bank. Therefore, the said income is eligible for deduction u/s 80P(2)(a)(i) of the Act. Therefore, the Income Tax Authorities were not justified in treating interest income received by the assessee as ‘income from other source’ and denying the benefit of section 80P(2) of the Act. Thus this ground of the assessee is allowed. Issues:1. Whether the CIT(A) was justified in confirming the disallowance of deduction u/s. 80P(2) of the Act.2. Whether the interest received from the Government Treasury should be categorized as 'income from other sources' or 'income from business.'Analysis:Issue 1:The appeal was against the CIT(A)'s order confirming the disallowance of deduction u/s. 80P(2) of the Act. The assessee, a primary agricultural credit society, claimed the deduction, but the Assessing Officer denied it, citing the society's primary engagement in banking activities. The CIT(A) upheld the denial, leading to the appeal. The assessee argued citing a judgment by the Hon'ble High Court of Kerala in a similar case, establishing entitlement to the deduction u/s. 80P(2). The Tribunal reviewed the facts, confirming the society's classification and activities under the Kerala Cooperative Societies Act, thus entitling it to the deduction u/s. 80P(2) based on the High Court's judgment.Issue 2:Regarding the interest received from the Government Treasury, the CIT(A) upheld the Assessing Officer's decision to categorize it as 'income from other sources,' denying the deduction u/s. 80P(2). However, the Tribunal referred to a similar case where the Cochin Bench ruled in favor of the assessee, distinguishing a Supreme Court judgment cited by the CIT(A). The Tribunal found that as the assessee, a cooperative bank, invested in treasury/banks as part of its banking activities, the interest income qualified as 'income from business' eligible for deduction u/s. 80P(2)(a)(i). Consequently, the Income Tax Authorities were deemed unjustified in treating the interest income as 'income from other sources' and denying the deduction.In conclusion, the Tribunal partially allowed the appeal, granting the assessee the benefit of deduction u/s. 80P(2) and dismissing the Stay Petition. The judgment was pronounced on 31st-10-2016 by the Tribunal comprising SHRI B. P. JAIN, AM & GEORGE GEORGE K., JM, with legal representation for both the assessee and the revenue.