2023 (8) TMI 1417 - AT - Income Tax

Cooperative bank interest qualifies for section 80P(2)(d) deduction as cooperative societies under Kerala Act

The Income Tax Officer, Ward-4, Kollam. Versus The Adichanalloor Farmers Service Co-operative Bank Limited., Mundela Service Co-operative Bank Limited., Peroorkada Service Cooperative Bank Limited., Pazhayakunnummel Service Co-operative Bank Limited., Pidavoor Service Co-operative Bank Limited., Nagaroor Service Co-operative Bank Limited.

The Income Tax Officer, Ward-4, Kollam. Versus The Adichanalloor Farmers Service Co-operative Bank Limited., Mundela Service Co-operative Bank Limited., ... Issues Involved:1. Deduction under Section 80P(1) of the Income-tax Act, 1961.2. Classification of income as business income or income from other sources.3. Applicability of Section 80P(2)(d) for interest income from co-operative banks and treasuries.Summary:Issue 1: Deduction under Section 80P(1) of the Income-tax Act, 1961The Tribunal initially decided the appeals based on the decision in Chirakkal Service Co-operative Bank Ltd. v. CIT, which was later overruled by a larger bench decision in CIT v. Poonjar Service Co-operative Bank Ltd. The Tribunal recalled the appellate orders following the decision in Kil Kotagiri Tea & Coffee Estates Co. Ltd. v. ITAT, with retrospective effect. The assessee societies, registered as Primary Agricultural Credit Societies (PACSs), claimed deductions under Section 80P(1) r/w Section 80P(2)(a)(i), which was denied by the Assessing Officer (AO) based on their lending profiles and definitions under the Banking Regulation Act, 1949 (BRA) and the Kerala Act.Issue 2: Classification of income as business income or income from other sourcesThe Tribunal noted that income assessed as business income would qualify for deduction under Section 80P(1) r/w Section 80P(2)(a)(i) to the extent it relates to eligible activities specified thereunder. The Tribunal emphasized that the correct way to read the different heads of exemption under Section 80P is to treat each as a separate and distinct head of exemption. Income falling within any one head of exemption would be free from tax, notwithstanding the conditions of another head of exemption.Issue 3: Applicability of Section 80P(2)(d) for interest income from co-operative banks and treasuriesThe Tribunal observed that interest on deposits with banks and treasuries, claimed deductible under Section 80P(1) r/w Section 80P(2)(d), does not find mention in the Grounds of Appeal but is permissible under the Rules. The decision in Peroorkada Service Co-operative Bank Ltd. clarified that interest income from District co-operative banks/State co-operative banks is deductible under Section 80P(2)(d), while interest income from treasuries is not. The Tribunal noted that the exclusion under Section 80P(4) applies only to co-operative banks, not co-operative societies, and the benefit of Section 80P(2)(a)(i) extends only to the provision of credit to members.Conclusion:The Tribunal directed the AO to:a) Allow deduction for income assessed as business income under Section 80P(1) r/w Section 80P(2)(a)(i) for eligible activities.b) Allow deduction for interest or dividend income from co-operative societies and co-operative banks under Section 80P(1) r/w Section 80P(2)(d).c) Tax any remaining income, irrespective of the head of income.The income deductible would be net of expenditure as per the provisions of the Act. The appeals were disposed of on these terms.