2019 (9) TMI 1289 - AT - Income Tax

High Court orders reassessment for deduction under section 80P(2)(a)(i)

M/s. Bapooji Pattin Souharda Sahakari Niyamit Versus Income Tax Officer, Ward – 1, Bagalkot.

The High Court directed the Assessing Officer to allow the assessee a fair opportunity to present evidence and substantiate their case regarding the ... Deduction u/s 80P - Interest earned from Schedule bank or cooperative bank - HELD THAT:- Interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d) was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991-92 to 1999-2000 decided by the Hon'ble Supreme Court. Therefore whether the source of funds were Assessee's own funds or out of liability was not subject matter of the decision of the Hon'ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision in the case of Tumukur Merchants Souharda Co-operative Ltd. [2015 (2) TMI 995 - KARNATAKA HIGH COURT] still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon'ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. [2010 (2) TMI 3 - SUPREME COURT] and of Hon'ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co-operative Ltd. [2015 (2) TMI 995 - KARNATAKA HIGH COURT] AO will afford adequate opportunity of being heard to the Assessee and for filing details / evidence for the assessee to substantiate its case, before deciding the issue. Issues:1. Entitlement to deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 on interest income earned from providing credit facilities.Analysis:The primary issue in this appeal is whether the assessee is entitled to the benefit of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for interest income earned from providing credit facilities to regular members and others. The Assessing Officer (AO) denied the claim, stating that the interest income was also from nominal members, co-members, and non-members. The CIT(A) upheld this decision, citing the Supreme Court's ruling that such income is not considered business income but income from other sources, hence not eligible for special deduction under section 80P(2)(a)(i) of the Act.The appellant relied on a decision of the Karnataka High Court in a similar case, while the Departmental Representative (DR) referred to a subsequent decision by the same High Court. The High Court's decision considered the nature of interest income for different assessment years and the claim under section 80P(2)(d) of the Act. The court concluded that interest earned from scheduled banks or cooperative banks is assessable under the head 'income from other sources,' not qualifying for deduction under section 80P(2)(d) of the Act. The High Court's decision emphasized that the source of funds for investments remained the same across different assessment years, leading to the restoration of the issue to the AO for a fresh decision based on the judgments of the Supreme Court and the High Court.Consequently, the AO was directed to provide the assessee with a fair opportunity to present evidence and substantiate their case before making a new decision on the matter. Ultimately, the appeal for the Assessment Year 2013-14 was allowed for statistical purposes, indicating that the issue needed further examination and clarification based on the legal precedents cited during the proceedings.