2024 (2) TMI 579 - AT - Income Tax

Cooperative society's interest income from unlicensed cooperative banks qualifies for section 80P(2)(d) deduction

M/s. Ubaradka Mithur Primary Agricultural Credit Co-operative Society Ltd. Versus The Income Tax Officer, Ward – 1, Puttur

ITAT Bangalore held that cooperative society's interest income from investments with cooperative banks lacking license under section 22 of Banking ... Deduction claimed u/s. 80P(2)(d) - interest / dividend income earned from Co-operative Bank - HELD THAT:- As considered the judgment passed in the matter of Kedambady Keyur Primary Agricultural Co- operative Society Ltd. [2023 (11) TMI 1221 - ITAT BANGALORE] following the view taken in the case of PCIT & Anr. Vs. Totagars Cooperative Sale Society [2017 (1) TMI 1100 - KARNATAKA HIGH COURT] and State Bank Of India Vs. CIT [2016 (7) TMI 516 - GUJARAT HIGH COURT] we hold that, the interest income earned by a cooperative society on its investments held with a cooperative bank that do not have license under section 22 of the Banking Regulation Act 1949, falls outside the definition the term, ‘Banking Company” as per section 2(c) of the Banking Regulations Act, 1949, would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. AO is thus directed to carry out necessary verification in respect of the that same to consider the claim of deduction u/s.80 P(2)(d) of the Act. Further, we make it clear that the assessee is not entitled for deduction u/s 80P(2)(a)(i) of the Act in view of judgement of Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd [2010 (2) TMI 3 - SUPREME COURT] wherein as directed that in the event it is found that the interest is earned by the assessee from such commercial/cooperative banks that fall within the definition of “banking company’ as per section 2(c), Section 5(b) and holds license under section 22 of the Banking Regulation Act 1949, such interest are to be considered under the head ‘income from other sources’ however, relief may be granted as available to the assessee u/s 57 of the Act in accordance with law. Thus we remit the issue to the file of AO to pass orders in the light of the ratio laid down in the said order. Appeal filed by the assessee stands allowed for statistical purposes. Issues Involved:1. Deduction claimed u/s. 80P(2)(d) on interest/dividend income from Co-operative Bank.2. Jurisdiction of AO to frame the assessment.3. Levy of interest u/s 234A, 234B & 234C of the Act.Summary:Issue 1: Deduction claimed u/s. 80P(2)(d) on interest/dividend income from Co-operative Bank:The appeal concerns the disallowance of a deduction claimed under Section 80P(2)(d) of the Income Tax Act, 1961, for interest/dividend income earned from investments with Scheduled Banks and Co-operative Banks other than co-operative societies. The assessee, a primary agricultural credit co-operative society, argued that such income is eligible for deduction under Section 80P(1) based on precedents set by the Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO and the Coordinate Bench in Kedambady Keyur Primary Agricultural Co-operative Society Ltd. The Tribunal considered various judgments, including those of the Supreme Court in Citizen Cooperative Society Ltd. and Totgars Co-operative Sale Society Ltd., and held that the interest income earned by a cooperative society on its investments with a cooperative bank that does not have a license under Section 22 of the Banking Regulation Act, 1949, is eligible for deduction under Section 80P(2)(d). The case was remitted to the AO for verification and consideration of the claim.Issue 2: Jurisdiction of AO to frame the assessment:The Tribunal dismissed the additional ground challenging the jurisdiction of the AO to frame the assessment, stating that no specific material was provided to suggest that the AO lacked jurisdiction.Issue 3: Levy of interest u/s 234A, 234B & 234C of the Act:The Tribunal dismissed the additional ground regarding the levy of interest under Sections 234A, 234B, and 234C, considering it infructuous at this stage due to the remittance of the primary issue regarding the deduction under Section 80P(2)(d).Conclusion:The appeal filed by the assessee was partly allowed for statistical purposes, with directions for the AO to verify and consider the deduction claim under Section 80P(2)(d) in light of the relevant judgments. The order was pronounced in the open court on 19th January 2024.