2023 (8) TMI 1110 - AT - Income Tax

Tribunal remits compliance issue under Karnataka Souharda Sahakari Act for Income Tax deductions

The Tribunal partly allowed both appeals for statistical purposes, remitting the issue back to the AO to demonstrate compliance with statutory ... Deduction u/s 80P - Interest on deposits were made under the provisions of Karnataka Souharda Sahakari Act, 1997 - HELD THAT:- The assessee has received interest on deposits from DCCB but not the interest from credit facilities provided to members during the ordinary course of business. However the ld. AR submitted that the assessee is required to maintain certain funds as per the relevant Act/Rules but he has not shown under which Act/rules and how much funds are required to deposited. Since the assessee is registered under the Karnataka Souharda Sahakari Act, 1997 therefore the issue is remitted back to the file of the AO and assessee is directed to demonstrate the mandatory requirement for following the mandatory maintaining of funds as per Karnataka Souharda Sahakari Act, 1997. If it is found in order, then the amount of deposits which are required to be maintained as per statutory requirement and interest earned to such extent will qualify for deduction u/s. 80P(2)(a)(i) of the Act. However, interest earned on deposits exceeding the statutory requirement will not be considered for allowing deduction u/s. 80P(2)(a)(i) - This issue is partly allowed. Further, the assessee has also raised issue in regard to deduction u/s. 80P(2)(d) on such interest received is also not sustainable because the assessee has not received the interest from cooperative society. Accordingly this issue raised by the assessee is also dismissed. Alternative ground that the expenditure should be allowed towards earning of such income - We are in agreement that the necessary expenditure should be allowed towards earning of such income. As relying on M/S THE TOTGARS' CO-OPERATIVE SALE SOCIETY LTD. VERSUS THE INCOME TAX OFFICER, WARD-1, SIRSI [2015 (4) TMI 829 - KARNATAKA HIGH COURT] we hold that the assessee is entitled for cost of funds and only the net interest income is taxable u/s. 56 of the Act. Considering the alternative submissions this issue is remitted to the file of AO for determination of net income after set off of cost of funds/interest expenditure in earning the interest income for the purpose of taxability u/s. 56 of the Act as per law. This issue is allowed for statistical purposes. Issues involved:The judgment involves appeals against the orders of the CIT(Appeals) for the AYs 2017-18 & 2018-19 related to disallowance of deduction u/s. 80P(2)(a)(i) of the Income Tax Act, 1961 and interest income received from investments with a Co-operative Bank.AY 2017-18:The assessee, a Souharda Co-operative Society registered under Karnataka Souharda Sahakari Act, 1997, claimed deduction u/s. 80P(2)(a)(i) for interest income received from investments with a Co-operative Bank. The AO disallowed the deduction due to the absence of registration under Karnataka Co-op. Societies Act, 1959, leading to disallowance of Rs. 63,48,443. The CIT(Appeals) upheld the disallowance of Rs. 9,93,255. The Tribunal remitted the issue back to the AO to demonstrate the mandatory requirement for maintaining funds under the Karnataka Souharda Sahakari Act, 1997. The Tribunal allowed the deduction if the funds were maintained as per statutory requirements, partly allowing the appeal.AY 2018-19:The decision for AY 2017-18 was applied mutatis mutandis for AY 2018-19. The Tribunal partly allowed both appeals for statistical purposes. The Tribunal also directed the AO to determine the net income after set off of cost of funds/interest expenditure for taxability u/s. 56 of the Act, following the judgment of the Hon'ble High Court of Karnataka. This issue was remitted to the AO for further determination. The assessee was instructed to produce relevant documents for substantiating its claim.Conclusion:Both appeals by the assessee were partly allowed for statistical purposes, with the issues for AY 2017-18 and 2018-19 being addressed similarly. The Tribunal emphasized the need for the assessee to comply with statutory requirements under the Karnataka Souharda Sahakari Act, 1997 for claiming deductions under the Income Tax Act, 1961.