2017 (3) TMI 1746 - AT - Income Tax

Tribunal affirms cooperative credit society's tax deduction eligibility under Section 80P; Income classification issues remanded

M/s Vaibhav Cooperative Credit Society Versus ITO 15 (3) (4) Mumbai And Vice-Versa.

M/s Vaibhav Cooperative Credit Society Versus ITO 15 (3) (4) Mumbai And Vice-Versa. - TMI Issues Involved:1. Deduction under Section 80P of the Income Tax Act.2. Classification of the assessee as a cooperative bank.3. Interest income classification as 'Income from Other Sources' vs. 'Business Income'.4. Applicability of Section 80P(2)(d) for interest income from cooperative banks.5. Classification of commission income and interest income from deposits with MSEB.6. Verification of income earned from MSEB as per 26AS.Issue-wise Detailed Analysis:1. Deduction under Section 80P of the Income Tax Act:The Revenue appealed against the CIT(A)'s decision allowing the assessee's deduction under Section 80P. The Revenue argued that the assessee, being a cooperative bank, was not eligible for this deduction under Section 80P(4). The Tribunal upheld the CIT(A)'s decision, noting that the assessee was a cooperative credit society, not a cooperative bank. The Tribunal emphasized that the assessee's activities were confined to its members, and thus, it was eligible for the deduction under Section 80P.2. Classification of the Assessee as a Cooperative Bank:The Revenue contended that the assessee met the criteria of a cooperative bank under the Banking Regulation Act, 1949, and thus should be classified as such. The Tribunal, however, found that the assessee's operations were limited to its members and did not include banking activities. The Tribunal referenced the CIT(A)'s detailed analysis, which concluded that the assessee was a cooperative society, not a cooperative bank, and therefore eligible for Section 80P benefits.3. Interest Income Classification as 'Income from Other Sources' vs. 'Business Income':The assessee argued that the interest income from fixed deposits should be classified as 'Business Income' and not 'Income from Other Sources'. The CIT(A) and the Tribunal, relying on the Supreme Court's decision in The Totgars Co-operative Sale Society Ltd., held that the interest from surplus funds invested in fixed deposits should be classified as 'Income from Other Sources'. Consequently, the deduction under Section 80P was not applicable to this interest income.4. Applicability of Section 80P(2)(d) for Interest Income from Cooperative Banks:The CIT(A) found that the interest income was received from scheduled and cooperative banks, not from investments in cooperative societies. Therefore, the provisions of Section 80P(2)(d) were not applicable. The Tribunal upheld this finding, noting that the interest income was correctly classified and the deduction under Section 80P was not applicable.5. Classification of Commission Income and Interest Income from Deposits with MSEB:The assessee contended that commission income and interest income from deposits with MSEB should be classified as 'Business Income'. The Tribunal noted that the CIT(A) had not conducted a detailed verification of these incomes. Consequently, the Tribunal remanded the issue back to the Assessing Officer for detailed verification and appropriate classification.6. Verification of Income Earned from MSEB as per 26AS:The Tribunal found that the CIT(A) had not adequately verified the income earned from MSEB as reflected in Form 26AS. The Tribunal remanded this issue back to the Assessing Officer for detailed verification, instructing that the assessee be given a reasonable opportunity to present their case.Conclusion:The Tribunal upheld the CIT(A)'s decision regarding the classification of the assessee as a cooperative society and the non-applicability of Section 80P(4). It also upheld the classification of interest income from fixed deposits as 'Income from Other Sources'. However, it remanded the issues concerning the classification of commission income, interest income from MSEB deposits, and verification of income as per Form 26AS back to the Assessing Officer for further verification. The Revenue's appeal was dismissed, and the assessee's appeal was allowed for statistical purposes.