2018 (9) TMI 1462 - AT - Income Tax

Tribunal grants deductions for interest income, denies deduction for rental income under section 80P(2)

The Tribunal dismissed the Revenue's appeals and the assessee's cross objections. It partly allowed the assessee's appeals by granting deductions for ... Benefit of deduction u/s 80P(2)denied - interest received on investments with sub-treasury - denial of claim as the assessee was primarily engaged in the business of banking and by virtue insertion of section 80P(4) with effect from 01.04.2007, the assessee was not entitled to deduction claimed u/s 80P(2) - Held that:- Identical issue was considered in the case of ITO v. The Chengala Service Co-operative Bank Limited [2018 (4) TMI 339 - ITAT COCHIN] as held The undisputed facts are that the assessee in these cases are primary agricultural credit societies, registered as such under the Kerala Co-operative Societies Act. In the case of Chirakkal Service Co-operative Bank Limited & Ors. (2016 (4) TMI 826 - KERALA HIGH COURT) had categorically held that when a primary agricultural credit Society is registered as such under the Kerala Co-operative Societies Act, 1969, such society is entitled to the benefit of deduction u/s 80P(2) of the Income-tax Act. Assessing Officer was not competent and did not possess the jurisdiction to resolve / decide the issue as to whether the assessee was a 'Primary Agricultural Credit Society' or a 'Co-operative bank', within the meaning assigned to it under the provisions of the Banking Regulation Act and to take a contrary view especially in view of the Explanation provided after the clause (ccvi) of section 5 r.w.s Section 56 of the Banking Regulation Act. Interest received on investments with sub-treasury is part of banking activities of the assessee and the same is entitled to deduction u/s 80P(2)(a)(i)- Decided in favour of assessee. Trade income entitled to deduction u/s 80P(2)(a)(iii) / 80P(2)(a)(iv)- Held that:- There is no specific reasons given by the A.O. nor CIT(A) for denying the deduction claimed u/s 80P(2) for trade income derived by the assessee. Therefore, we restore the issue of trade income whether it is entitled to deduction u/s 80P(2) of the I.T.Act, to the file of the A.O. It is ordered according Income from house property is not entitled to deduction under any of the clauses of Sec.80P(2)(a) of the I.T.Act. Issues Involved:1. Entitlement to deduction under section 80P(2) of the Income Tax Act.2. Eligibility of interest received on sub-treasury for deduction under section 80P.3. Eligibility of trade income for deduction under section 80P.4. Eligibility of rental income for deduction under section 80P.Issue-wise Detailed Analysis:1. Entitlement to Deduction Under Section 80P(2) of the Income Tax Act:The assessee, a primary agricultural credit society, claimed deductions under section 80P(2) for various assessment years. The Assessing Officer denied these claims, asserting that the assessee was primarily engaged in banking and thus ineligible for deductions under section 80P(2) due to the insertion of section 80P(4). The CIT(A) reversed this decision, relying on the Kerala High Court's judgment in The Chirakkal Service Co-operative Bank Ltd., which held that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to such deductions. The Revenue appealed, citing the Supreme Court's decision in The Citizens Co-Operative Society Ltd., which emphasized the need to examine the actual activities of the society rather than just its registration status. However, the Tribunal upheld the CIT(A)'s decision, noting that the Kerala High Court's ruling was directly applicable and that the Supreme Court's decision in Citizens Co-operative Society Ltd. did not apply to primary agricultural credit societies.2. Eligibility of Interest Received on Sub-Treasury for Deduction Under Section 80P:The CIT(A) denied the deduction for interest earned on sub-treasury deposits, referencing the Supreme Court's decision in M/s. Totgars’ Co-operative Sale Society Ltd. The assessee argued that the issue was covered in its favor by the Tribunal's decision in The Padne Service Co-operative Bank Ltd., which held that such interest income is part of the banking activities of a cooperative society and thus eligible for deduction under section 80P(2)(a)(i). The Tribunal agreed with the assessee, distinguishing the Totgars’ case and emphasizing that the interest income from sub-treasury deposits is attributable to the banking business of the society, thus qualifying for the deduction.3. Eligibility of Trade Income for Deduction Under Section 80P:The CIT(A) had denied the deduction for trade income, stating it was not eligible under section 80P(2)(a). The assessee contended that this income was derived from activities such as the purchase and sale of agricultural implements and marketing of agricultural produce, which should qualify for deductions under section 80P(2)(a)(iii) and (iv). The Tribunal noted that neither the AO nor the CIT(A) had provided specific reasons for the denial and remanded the issue back to the AO for fresh consideration, instructing the assessee to provide necessary evidence to support its claim.4. Eligibility of Rental Income for Deduction Under Section 80P:The CIT(A) ruled that rental income received by the assessee was not entitled to deduction under section 80P(2). The assessee argued that this income had already been included in its returns, and taxing it again would be incorrect. The Tribunal found no merit in the assessee's argument, confirming that income from house property does not qualify for deductions under section 80P(2)(a) and upheld the CIT(A)'s decision.Conclusion:The Tribunal dismissed the Revenue's appeals and the assessee's cross objections, while partly allowing the assessee's appeals by granting deductions for interest received on sub-treasury deposits and remanding the issue of trade income for fresh consideration. The rental income was confirmed as not eligible for deduction under section 80P.