2020 (2) TMI 154 - AT - Income Tax

Tribunal upholds decision on deduction issue under section 80P, emphasizes activity assessment for tax deductions.

M/s. Uliyacoil Service Cooperative Bank Limited Versus The Income Tax Officer Ward 4, Kollam.

The Tribunal upheld the decision to restore the issue of deduction u/s 80P to the Assessing Officer for examination of the society's activities. It ... Deduction u/s 80P(2) - CIT(A) passed order u/s 154 wherein the claim of deduction u/s 80P was denied - HELD THAT:- In the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT [2016 (4) TMI 826 - KERALA HIGH COURT] had held that when a certificate has been issued to an assessee by the Registrar of Co-operative Societies characterizing it as primary agricultural credit society, necessarily, the deduction u/s 80P(2) has to be granted to the assessee. Full Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT [2016 (4) TMI 826 - KERALA HIGH COURT] 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. AO 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 Cooperative 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 on such interest income, the Assessing Officer shall follow the law laid down 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. It is ordered accordingly. Issues:- Claim of deduction u/s 80P of the I.T. Act disallowed by Assessing Officer- Appeals filed by assessee against CIT(A) orders- CIT(A) issuing notices u/s 154 proposing to rectify orders- Grounds raised by assessee challenging CIT(A) orders u/s 154- Judgment of Hon’ble Kerala High Court regarding eligibility for deduction u/s 80P- Activities of assessee society to determine eligibility for deduction u/s 80P- Treatment of interest income earned from investments with Co-operative Banks and other BanksAnalysis:1. The assessee, a co-operative society, filed returns of income for assessment years 2010-11 to 2012-13 and 2014-15, claiming deduction u/s 80P of the I.T. Act. The Assessing Officer disallowed the deduction, citing the business of banking and insertion of section 80P(4) from 01.04.2007. Additionally, interest income received on investments with District Co-operative Banks was also disallowed.2. The CIT(A) allowed the appeals, granting deduction u/s 80P of the I.T. Act and allowing interest income under specific provisions. However, subsequent to a Full Bench judgment, the CIT(A) issued notices u/s 154 to rectify the orders, leading to disallowance of the deduction.3. The assessee challenged the CIT(A) orders u/s 154, arguing that the subsequent judgment was not applicable at the time of the original order. The Tribunal referred to the Larger Bench judgment of the Hon’ble Kerala High Court, which emphasized the need for an inquiry into the activities of the assessee society to determine eligibility for deduction u/s 80P.4. The Tribunal upheld the decision to restore the issue of deduction u/s 80P to the Assessing Officer for examination of the society's activities. It also directed the Assessing Officer to follow the law laid down by the Full Bench judgment regarding interest income earned from investments with Co-operative Banks and other Banks before granting deduction u/s 80P.5. In conclusion, the appeals filed by the assessee were partly allowed for statistical purposes, emphasizing the importance of assessing the activities of the assessee society to determine eligibility for deductions under the relevant provisions of the I.T. Act.