2022 (5) TMI 188 - AT - Income Tax

ITAT decision: Interest income appeal allowed, commission income remanded, deduction under Section 80P(2)(c) to be reconsidered.

Hindustan Co-operative Credit Society Limited Versus ITO, Ward-26 (1) (5), Mumbai

Hindustan Co-operative Credit Society Limited Versus ITO, Ward-26 (1) (5), Mumbai - TMI Issues Involved:1. Classification of income as 'income from other sources' versus 'business income' and eligibility for deduction under Section 80P(2)(a)(i).2. Denial of deduction under Section 80P(2)(c) amounting to Rs. 50,000/- available to a cooperative society.Detailed Analysis:Issue 1: Classification of Income and Deduction under Section 80P(2)(a)(i)The primary issue revolves around whether the income earned by the cooperative society should be classified as 'income from other sources' or 'business income,' and whether it qualifies for deduction under Section 80P(2)(a)(i).- Income Sources: The society earned income from commissions from Future General Insurance (Rs. 31,040/-) and ICICI Bank (Rs. 61,559/-), along with interest income from ICICI Bank (Rs. 32,101/-) and Central Bank of India (Rs. 1,56,227/-).- Arguments: The assessee argued that the commission income is part of its business activities, as it involves providing loans to members and securing insurance policies for them. The interest income, according to the assessee, should also be considered business income as it is derived from statutory investments mandated by the Maharashtra Co-operative Societies Act.- CIT(A) Findings: The CIT(A) allowed the deduction under Section 80P(2)(d)/80P(2)(a)(i) for interest from cooperative banks but upheld the AO's decision to classify commission income from non-members as 'income from other sources,' denying the deduction. The CIT(A) also disallowed the deduction for interest income from nationalized banks, stating it does not adhere to the 'Principle of Mutuality.'- ITAT Decision: The ITAT referenced previous rulings, including the case of State Bank of India Employees M.S. Patel Co-operative Credit Society Ltd. and the Hon'ble Supreme Court's decision in CIT v/s. Nawanshahar Central Co-operative Bank Ltd., which held that interest income from investments in both cooperative and scheduled banks is attributable to business activities and eligible for deduction under Section 80P(2)(a)(i). Consequently, the ITAT allowed the appeal regarding the interest income.- Remand for Commission Income: The ITAT noted that the CIT(A) did not appropriately consider the assessee's argument that the commission income is part of its business activities. Therefore, this issue was remanded back to the CIT(A) for reconsideration in light of the assessee's submissions.Issue 2: Deduction under Section 80P(2)(c)The second issue concerns the denial of a Rs. 50,000/- deduction under Section 80P(2)(c).- CIT(A) Findings: The CIT(A) observed that the AO did not disallow any deduction under Section 80P(2)(c) and it was unclear whether the assessee had claimed this deduction in the initial return.- ITAT Decision: The ITAT remanded this issue back to the CIT(A) for adjudication. The CIT(A) is to verify whether the deduction was claimed in the return of income and decide accordingly, ensuring the assessee is given a proper opportunity to present their case.Conclusion:The ITAT allowed the appeal regarding the interest income, remanded the issue of commission income back to the CIT(A) for reconsideration, and also remanded the issue of the Rs. 50,000/- deduction under Section 80P(2)(c) for proper adjudication. The appeals were thus partly allowed for statistical purposes.