2019 (1) TMI 1012 - AT - Income Tax

Appeal allowed for statistical purposes, remanded for fresh decision on cooperative bank classification and interest income deduction

M/s. Pavamana Credit Cooperative Society Ltd. Versus The Income Tax Officer, Ward – 5 (2) (4), Bangalore

The appeal was allowed for statistical purposes, and the matter was remanded to the Assessing Officer for a fresh decision on the classification of the ... Eligibility of deduction u/s. 80P for interest income from bank - Held that:- The assessee is directed to obtain certificate from RBI regarding the nature of business of assessee society within reasonable time and if it is certified by RBI that the assessee’s business is not that of a cooperative bank then it cannot be said that the assessee is a co-operative bank. If it is found that assessee is a co-operative bank then assessee cannot be allowed any deduction u/s. 80P but if it is found that the assessee is not a co-operative bank then in respect of deduction u/s. 80P for interest income from bank, the facts of the present case has to be examined in the case of PCIT and Another Vs. Totagars Co-operative Sale Society Ltd. [2017 (7) TMI 1049 - KARNATAKA HIGH COURT] and Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO [2015 (2) TMI 995 - KARNATAKA HIGH COURT] and if it is found that the facts of present case are in line with the facts in the case of PCIT and Another Vs. Totagars Co-operative Sale Society Ltd. (supra), then the issue should be decided against the assessee and if it is found that the facts of present case are in line with the facts in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (supra), then the issue should be decided in favour of the assessee Issues:1. Eligibility for deduction under section 80P of the Income Tax Act.2. Classification of the assessee as a cooperative bank.3. Allowability of deduction for interest income from banks.Analysis:1. The appellant contested the order of the Ld.CIT (A) on various grounds, including the denial of deduction under section 80P of the Income Tax Act. The appellant argued that being a cooperative society without a banking license, it should be eligible for the deduction under section 80P(2). The appellant further contended that the interest income from various banks should be attributable to the business of extending credit facilities to its members. Additionally, the appellant claimed entitlement to deduction under section 80P (2) (d) by asserting that cooperative banks are also cooperative societies under the Karnataka Co-operative Societies Act, 1959.2. The primary issue addressed was the classification of the assessee as a cooperative bank. The appellant argued against this classification, citing a judgment of the Hon'ble Apex Court regarding the necessity of holding a banking license from RBI to be considered a cooperative bank. The bench highlighted the need for the appellant to obtain a certificate from RBI regarding the nature of its business to determine its classification accurately. The matter was directed to be restored to the AO for a fresh decision based on the RBI certificate.3. The second issue revolved around the allowability of deduction for interest income from banks. The appellant relied on conflicting judgments of the Hon'ble Karnataka High Court to support its claim. The bench emphasized the need to assess the facts of the present case in light of these judgments. It was decided that the issue should be reconsidered by the AO after examining the case in accordance with the relevant judgments. The appellant agreed to this proposition, and the order of the CIT (A) was set aside for a fresh decision on both aspects.In conclusion, the appeal was allowed for statistical purposes, and the matter was remanded to the AO for a fresh decision on the classification of the assessee as a cooperative bank and the allowability of deduction for interest income from banks based on the judgments cited.