2017 (3) TMI 260 - AT - Income Tax

Cooperative society eligible for tax deduction under section 80P(2)(a)(i) affirmed by ITAT

The Income Tax Officer, Ward-3, Shivamogga Versus M/s. Malnadu Credit Co-operative Society Ltd.,

The ITAT Bangalore Bench dismissed the Revenue's appeals, affirming the eligibility of the cooperative society for deduction under section 80P(2)(a)(i) of ... Additions made u/s. 80P(2)(a)(i) - Held that:- As per sec. 2(19) of the Act, a co-operative society means a co-operative society registered under the co-operative societies Act 1912 or under any law for the time being in force in any state for the registration of co-operative societies. The provisions of the IT Act 1961 either in sec. 2(19) or u/ s. 80P do not make any discrimination between the co-operative societies carrying on banking business and other co-operative societies. Co-operative banks are primarily co-operative societies by constitution and 'banks' by the nature of business. In the case of Menasi Seemeya Group Gramagala Seva Sahakari Sangha Niyamita [2015 (2) TMI 1094 - ITAT BANGALORE ] it was held that the restrictive interpretation given to co-operative society u/ s. 80P(2) (d) was ·not warranted. The ITAT B'lore Bench in this case through a detailed reasoning came to conclusion that the interest and dividend earned by the appellant from co-operative bank was eligible for deduction u/ s. 80P(2) (d) of the Act. Thus held that the interest income earned on deposits made with other co-operative banks/society are fully deductible u/s. 80P(2)(a)(i) from the income liable to tax though the assessee has claimed the same as exempt u/ s. 80P(2) (d) and the same is also exempt u/ s. 80P(2)(d) as stated above. - Decided in favour of assessee Issues:Interpretation of provisions under section 80P of the Income Tax Act for cooperative societies providing credit facilities to members.Analysis:The main issue in this case revolved around the interpretation of section 80P of the Income Tax Act concerning cooperative societies providing credit facilities to their members. The Revenue challenged the order of the CIT(Appeals) on the grounds that the cooperative society in question was not entitled to deduction under section 80P(2)(a)(i) as it was considered akin to cooperative banks due to amendments in the Banking Regulation Act. The Assessing Officer (AO) disallowed the deduction under section 80P, adding the entire income as income from other sources. The CIT(Appeals), however, allowed the deduction and deleted the addition after considering various judgments and distinguishing between cooperative societies and cooperative banks.The key argument put forth by the Revenue was that the cooperative society should not be eligible for deduction under section 80P as it was akin to cooperative banks due to the amendments in the Banking Regulation Act. The AO held that the provisions of section 80P(4) did not allow cooperative societies engaged in banking activities to claim deduction under section 80P. However, the CIT(Appeals) disagreed with this interpretation and held that cooperative societies were distinct from cooperative banks, allowing for the deduction under section 80P(2)(a)(i) for the income earned by the cooperative society providing credit facilities to its members.The CIT(Appeals) based their decision on the judgment of the jurisdictional High Court and previous tribunal orders, emphasizing that cooperative societies were entitled to the deduction under section 80P(2)(a)(i) as the income was attributable to the activities mentioned in the provision. They highlighted that the interest income earned by the cooperative society from deposits made with other cooperative banks/societies was fully deductible under section 80P(2)(a)(i). The CIT(Appeals) also noted that the interest earned on deposits with cooperative banks would be eligible for deduction under section 80P(2)(d) of the Act.Ultimately, the ITAT Bangalore Bench dismissed the appeals of the Revenue, upholding the decision of the CIT(Appeals) based on the judgments of the jurisdictional High Court and previous tribunal orders. The ITAT emphasized that the filing of an SLP did not amount to a stay of the High Court's order, and therefore, they were bound to follow the judgments of the jurisdictional High Court. Consequently, the appeals of the Revenue were dismissed, affirming the eligibility of the cooperative society for deduction under section 80P(2)(a)(i) for the income earned from providing credit facilities to its members.