2019 (12) TMI 371 - AT - Income Tax

Tribunal remands 80P deduction issue for cooperative society, cites conflicting High Court judgments

The Tribunal remanded the issue of deduction u/s 80P of the Income Tax Act for a cooperative society to the Assessing Officer for further examination, ... Deduction u/s 80P on interest income - HELD THAT:- CIT(A) had initially allowed the appeal of the assessee and granted deduction u/s 80P(2) of the I.T.Act. Subsequently, CIT(A) passed order u/s 154 wherein the claim of deduction u/s 80P was denied, by relying on the judgment of The Mavilayi Service Co-operative Bank Ltd. v. CIT [2019 (3) TMI 1580 - KERALA HIGH COURT] The CIT(A) ought not to have rejected the claim of deduction u/s 80P(2) of the I.T.Act without examining the activities of the assessee-society. The Full Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) had held that the A.O. has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P - In view of the dictum laid down by the Full Bench of the Hon’ble jurisdictional High Court (supra), we restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer who shall examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co-operative society functioning under the Kerala Co-operative Societies Act, 1969 and accordingly grant deduction u/s 80P(2) of the I.T.Act. Interest on the investments with Cooperative Banks and other Banks, the co-ordinate Bench order of the Tribunal in the case of Kizhathadiyoor Service CoITA operative Bank Limited [2016 (7) TMI 1405 - ITAT COCHIN] had held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as `income from business’ instead of `income from other sources’. However, as regards the grant of deduction u/s 80P of the I.T.Act on such interest income, the Assessing Officer shall follow the law laid down by the Larger Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income Issues Involved:Deduction u/s 80P of the Income Tax Act - Eligibility and disallowanceAnalysis:1. The case involves a cooperative society registered under the Kerala Co-operative Societies Act, 1969, disputing the disallowance of deduction u/s 80P of the Income Tax Act for the assessment year 2015-2016.2. The Assessing Officer disallowed the deduction claiming that the society was engaged in banking activities, making it ineligible for the deduction under section 80P(2) due to the insertion of section 80P(4) of the Income Tax Act.3. The CIT(A) allowed the appeal, granting the deduction u/s 80P and also allowed interest income received from other banks and treasury as deduction u/s 80P(2)(a)(i) based on a judgment of the jurisdictional High Court.4. Subsequently, the CIT(A) issued a notice u/s 154 proposing to rectify the order based on a Full Bench judgment of the High Court, leading to the disallowance of the deduction u/s 80P(2) for the society.5. The society appealed to the Tribunal, challenging the orders of the assessing officer and the appellate authority on various grounds related to the disallowance of deduction u/s 80P, the classification certificate issued by the statutory authority, and the interpretation of relevant provisions.6. The Tribunal considered the conflicting judgments of the High Court, where one held that the registration certificate alone does not determine eligibility for deduction u/s 80P, and each assessment year requires verification, and another judgment allowed the deduction based on the classification as a primary agricultural credit society.7. The Tribunal restored the issue of deduction u/s 80P(2) to the Assessing Officer for examination of the society's activities to determine eligibility. It also directed the Assessing Officer to follow the law laid down by the Full Bench of the High Court regarding interest income from investments for granting deduction u/s 80P.8. The Tribunal dismissed the Stay Application as the appeal was allowed, and the society's appeal was allowed for statistical purposes.This detailed analysis highlights the legal dispute surrounding the deduction u/s 80P of the Income Tax Act for a cooperative society and the Tribunal's decision to remand the issue to the Assessing Officer for further examination based on relevant High Court judgments.