Tribunal orders re-examination on Section 80P(2) deductions & interest income classification

The Tribunal restored the disputed issues to the Assessing Officer for fresh adjudication regarding the denial of deduction under Section 80P(2) of the Income Tax Act, the classification of interest income from deposits with banks, and the eligibility of nominal members for benefits under Section 80P(2). The appeals were allowed for statistical purposes, with directions for a re-examination of the facts and providing the assessee with a fair hearing opportunity. The final order was pronounced on 26th Aug., 2019, treating the appeals as allowed for statistical purposes.

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Issues Involved:
1. Denial of deduction under Section 80P(2) of the Income Tax Act.
2. Classification of interest income from deposits with banks.
3. Definition and eligibility of nominal members for benefits under Section 80P(2).

Detailed Analysis:

Issue 1: Denial of Deduction under Section 80P(2)
The primary issue in the appeals was the denial of the deduction under Section 80P(2)(a)(i) of the Income Tax Act. The assessee, a Primary Agriculture Credit Co-operative Society, claimed this deduction for income earned from providing credit facilities to its members. The Assessing Officer (AO) denied the claim, arguing that the interest income should be assessed under "income from other sources" rather than "business income." The CIT (Appeals) upheld this decision, leading to the appeal to the Tribunal.

Issue 2: Classification of Interest Income
The AO contended that the interest income earned from fixed deposits with Karnataka DCC Bank should be classified as "income from other sources," not "business income." This classification was critical because it determined the applicability of the deduction under Section 80P(2). The Tribunal referred to the decision in the case of The Jayanagar Co-operative Society Vs. ITO, where it was held that interest income from surplus funds invested in short-term deposits should be assessed as "income from other sources." The Tribunal decided to restore this issue to the AO for a fresh decision, considering the judgments of the Hon'ble Supreme Court in The Totgar’s Co-operative Sales Society Ltd. Vs. ITO and the Hon'ble Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd.

Issue 3: Definition and Eligibility of Nominal Members
The Tribunal also addressed whether nominal members of the co-operative society are eligible for benefits under Section 80P(2). The AO had questioned the eligibility of nominal members, suggesting that the society's dealings with them violated the principle of mutuality. The Tribunal referred to the Ahmedabad Bench of ITAT in the case of Trapaj Vibhageeya Khet Udyog Mal Rupantar Food Processing Sahakari Mandali Ltd. Vs. DCIT, which held that nominal members are indeed considered members under the co-operative society's bye-laws. The Tribunal also cited the Hon'ble Madras High Court's decision in The Prin. Commissioner of Income Tax Vs. S-1308 Ammapet Primary Agricultural Cooperative Bank Ltd., which supported the inclusion of nominal members for benefits under Section 80P(2).

Conclusion:
The Tribunal restored the entire disputed issue to the AO for fresh adjudication, considering the judicial precedents on the classification of interest income and the eligibility of nominal members. The appeals were allowed for statistical purposes, directing the AO to re-examine the facts and provide the assessee with an opportunity for a fair hearing.

Separate Judgments:
No separate judgments were delivered by different judges; the decision was consolidated and jointly delivered.

Final Order:
The appeals in ITA Nos. 707, 762, 765, 942, 1190 & 1191/Bang/2019 were treated as allowed for statistical purposes. The order was pronounced in the open court on 26th Aug., 2019.

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