2021 (9) TMI 137 - AT - Income Tax

Co-op Society Appeals Allowed for Stat Stats. Fresh Exam on Sec 80P(2)(a)(i) Denial. Interest Income Deduction Clarified.

The appeals filed by the co-operative society were allowed for statistical purposes. The issue of denial of deduction under section 80P(2)(a)(i) was ... Deduction u/s.80P - profits earned by the appellant from the business of providing credit facilities to its members - HELD THAT:- Associate/nominal members, Hon’ble Supreme Court in the case of Mavilayi Service Cooperative Bank Ltd. [2021 (1) TMI 488 - SUPREME COURT] has held that the expression “Members” is not defined in the Income-tax Act. Hence, it is necessary to construe the expression “Members” in section 80P(2)(a)(i) of the Act in the light of definition of that expression as contained in the concerned co-operative societies Act - Accordingly, we remit this issue of deduction u/s. 80P(2)(a)(i) of the Act to the file of Assessing Officer to examine the same afresh in the light of the above judgment. Deduction u/s 80P(2)(a)(i) - interest from investments made in commercial banks, South Canara district cooperative banks, co-operative societies - HELD THAT:- In the case of the Totgars Co-operative Sale Society Ltd. Vs. ITO [2010 (2) TMI 3 - SUPREME COURT] held that, Income from utilisation of surplus funds was taxable under the head income from other sources, and therefore not eligible for deduction u/s 80P - we remand this issue back to the Ld.AO to verify the interest earned from investments made in co-operative societies that is eligible for deduction under section 80P(2)(d). Issues Involved:1. Denial of deduction claimed under section 80P(2)(a)(i) of the Income Tax Act.2. Treatment of interest income earned from investments for deduction under section 80P(2)(d) of the Income Tax Act.Detailed Analysis:Issue 1: Denial of Deduction under Section 80P(2)(a)(i)- The assessee, a co-operative society, claimed deductions under section 80P(2)(a)(i) for profits earned from providing credit facilities to its members. The Ld. AO denied this deduction, citing that the society earned income not only from regular members but also from nominal/associate members, thus violating the principle of mutuality.- The Ld. AO referenced the Hon'ble Supreme Court's decision in Citizen Co-op Society Ltd., which held that the principle of mutuality is violated when substantial business is conducted with non-members.- The Ld. CIT(A) upheld this view, noting that the society admitted more nominal/associate members than allowed under the Karnataka Co-operative Society Act, 1959, thus making it ineligible for the deduction.- The Tribunal, however, cited the Hon'ble Supreme Court's decision in Mavilayi Service Cooperative Bank Ltd., which emphasized that the term 'members' should be interpreted based on the respective co-operative societies Act. Consequently, the issue was remitted back to the Assessing Officer for fresh examination in light of this judgment.Issue 2: Treatment of Interest Income for Deduction under Section 80P(2)(d)- The Ld. AO denied the deduction under section 80P(2)(d) for interest income from investments in commercial banks and co-operative banks, classifying it under 'income from other sources.'- The Tribunal reviewed various judgments, including the Hon'ble Karnataka High Court's decision in Totgars Co-operative Sale Society Ltd., which held that income from surplus funds invested in banks is taxable under 'income from other sources' and not eligible for deduction under section 80P.- The Tribunal also examined conflicting views from different High Courts regarding whether interest income from co-operative banks qualifies for deduction under section 80P(2)(d).- The Tribunal concluded that interest earned from investments in co-operative societies is eligible for deduction under section 80P(2)(d), but interest from other banks is not. The issue was remanded back to the Ld. AO to verify the interest earned from co-operative societies and grant the appropriate deduction.Other Grounds:- Grounds 1 and 10 were deemed general and did not require adjudication.- Ground 8 was considered academic and did not require adjudication.- Ground 9 was consequential and did not require adjudication.Conclusion:- The appeals filed by the assessee for the assessment years under consideration were allowed for statistical purposes, with specific issues remanded back to the Ld. AO for fresh examination and verification.- The order was pronounced in the open court on 30th August, 2021.