2023 (10) TMI 1350 - AT - Income Tax

Cooperative society entitled to section 80P(2)(a)(i) deduction for interest income from statutorily compulsory bank investments

Canara Bank Staff Credit Co-operative Society Ltd Versus ITO Ward-7 (2) (2) Bengaluru

ITAT Bangalore held that cooperative society was entitled to deduction under section 80P(2)(a)(i) for interest income from investments made with Apex ... Deduction u/s. 80P(2)(a)(i) - amounts invested with Apex Co-operative Bank and other banks - AO noticed that interest income received by the assessee was out of investments made with banks and consequently he held that assessee is not entitled to deduction u/s 80P(2)(a)(i) - HELD THAT:- The interest income is received out of investments made with Apex Co-operative Bank. It is the case of the assessee that the investments are made out of compulsions as per the Karnataka Co-operative Societies Act, 1959, and the relevant Rules. As decided in the case of CIT Vs. Karnataka State Co-operative Apex Bank [2001 (8) TMI 9 - SUPREME COURT] had held that when amounts are invested by the Co-operative Societies as per the statutory requirements, the same would be entitled to deduction under section 80P(2)(a)(i) of the Act. The Bangalore Bench of the Tribunal in the case of M/s. The Bharathi Co- operative Credit Society [2022 (12) TMI 30 - ITAT BANGALORE] held that If the amounts are invested in compliance with the Karnataka Co-operative Societies Act, necessarily, the same is to be assessed as income from business, which entails the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act. Insofar as deduction u/s 80P(2)(d) of the I.T.Act is concerned, we make it clear that interest income received out of investments with cooperative societies is to be allowed as deduction. We restore this issue to the files of the AO. AO is directed to examine whether the amounts invested with Apex Co-operative Bank and other banks, are out of compulsions under the Karnataka Co-operative Societies Act, 1959, and the relevant Rules. If it is found that the investments are made out of compulsions under the Act and the relevant Rules, the interest income received out of the investments made under such compulsions would be liable to be taxed as 'business income' which would entail the benefit of deduction u/s 80P(2)(a)(i) of the Act. With the aforesaid observation, we restore the matter to the AO - Appeal filed by the assessee is allowed for statistical purposes. Issues:The judgment involves the disallowance of deduction under section 80P(2)(a)(i) and section 80P(2)(d) of the Income Tax Act, 1961 for the Assessment Year 2017-18.Deduction under section 80P(2)(a)(i):The appeal was against the CIT(A)'s order disallowing the deduction claimed by the assessee under section 80P(2)(a)(i) of the Act. The AO disallowed a portion of the deduction as income from other sources, citing investments made with banks. The assessee argued that investments were made as per statutory requirements and should be treated as business income, relying on the judgment in CIT Vs. Karnataka State Co-operative Apex Bank. The Tribunal referred to relevant legal provisions and directed the AO to examine if investments were made under statutory compulsions, stating that such interest income would be considered business income eligible for deduction under section 80P(2)(a)(i).Deduction under section 80P(2)(d):The CIT(A) did not grant deduction under section 80P(2)(d) of the Act to the extent disallowed by the AO. The assessee contended that interest income received from investments with cooperative societies should be allowed as deduction under section 80P(2)(d). The Tribunal, considering precedents and legal provisions, upheld the argument and directed the AO to allow the deduction if investments were made in compliance with the Karnataka Co-operative Societies Act and Rules.Conclusion:The Tribunal allowed the appeal for statistical purposes, restoring the issue to the AO for further examination based on the legal principles discussed in the judgment and relevant precedents.