2019 (1) TMI 997 - AT - Income Tax

Tribunal allows appeal on interest income tax deduction for cooperative societies under section 80P(2)

The Agriculture Development Co-op. Credit Society Ltd. Versus ITO, Patan Ward-4 Unjha.

The Tribunal partly allowed the appeal, confirming the addition made by the AO under section 80P(2)(a)(i) of the Income Tax Act for interest income earned ... Deduction u/s 80P(2)(a)(i) - interest income earned from deposits held with nationalized bank - Assessee is a cooperative society registered under Gujarat Cooperative Societies Act, 1961 and engaged in providing credit facilities to its members - Allowance of prorata expenses in respect of interest income earned from deposits - Held that:- We find that Hon’ble jurisdictional High Court in the case of STATE BANK OF INDIA (SBI) VERSUS COMMISSIONER OF INCOME TAX [2016 (7) TMI 516 - GUJARAT HIGH COURT] has held that interest earned from investment made in scheduled bank by a cooperative society engaged in providing credit facilities to its members, is not eligible for deduction under section 80P(2). The Tribunal in earlier occasions on similar issue has taken a consistent view by following above judgment of the Hon’ble jurisdictional High Court. Since orders of the Revenue authorities are in accordance with judgment of the Hon’ble jurisdictional High Court cited supra, no interfere is called for in the impugned orders, which we confirm. However, any expenditure incurred by the assessee for earning such income could be allowed to it, if not already allowed. In other words, the AO has to allow prorata expenses in respect of interest income earned from deposits held with nationalized bank for computing deduction under section 80P(2) of the Act. -Appeal of the assessee is partly allowed for statistical purpose. Issues:1. Deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for a cooperative society providing credit facilities.Detailed Analysis:Issue 1: Deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for a cooperative society providing credit facilitiesThe case involved an appeal by the assessee against the ld.CIT(A)'s order confirming an addition made by the AO of Rs. 10,04,064, claimed as deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for the assessment year 2014-15. The assessee, a cooperative society, earned interest income from various sources, including non-cooperative/nationalized banks. The AO proposed an addition under section 56 of the Act for the interest earned from non-cooperative banks. The assessee argued that the funds invested with banks were not surplus but working capital for immediate requirements. The ld.AO, however, did not accept these submissions and made the addition. The ld.CIT(A) upheld the addition, leading to the appeal before the Tribunal.The Tribunal observed that the Hon'ble jurisdictional High Court had previously held that interest earned from investments in scheduled banks by a cooperative society providing credit facilities to its members is not eligible for deduction under section 80P(2). The Tribunal noted that its previous decisions were consistent with the High Court's judgment. Consequently, the Tribunal confirmed the orders of the Revenue authorities. However, the Tribunal directed that any expenditure incurred by the assessee for earning such income should be allowed, if not already done so. The AO was instructed to allow prorata expenses for interest income earned from deposits held with nationalized banks for computing deduction under section 80P(2) of the Act.In conclusion, the Tribunal partly allowed the appeal for statistical purposes, confirming the orders of the Revenue authorities but directing the allowance of prorata expenses for computing the deduction under section 80P(2) of the Act.This judgment clarifies the eligibility of cooperative societies providing credit facilities for deductions under section 80P(2)(a)(i) of the Income Tax Act, emphasizing the treatment of interest income earned from investments in banks and the allowance of related expenses for such income.