Agricultural credit cooperative societies accepting member deposits entitled to section 80P deductions after Supreme Court ruling

The ITAT Bangalore remanded the case to the AO for fresh consideration regarding deductions under section 80P. Following the SC decision in Mavilayi Service Co-operative Bank Ltd., the court held that agricultural credit cooperative societies accepting deposits from and lending to members are entitled to deduction under section 80P(2)(a)(i). For deduction under section 80P(2)(d), the AO must verify if interest/dividend was received from investments in cooperative societies. If interest from banks is treated as income from other sources, relief under section 57 should be granted accordingly.

---

---

Issues:
- Disallowance of deduction under Section 80P of the Act for interest income earned from deposits with Cooperative bank
- Violation of the principle of mutuality by the assessee society
- Claim of deduction under Section 80P(2)(a)(i) of the Act
- Claim of deduction under Section 80P(2)(d) of the Act

Analysis:

Issue 1: Disallowance of deduction under Section 80P of the Act for interest income earned from deposits with Cooperative bank
- The assessee, an agricultural credit Cooperative Society, filed its return of income for AY 2017-18 declaring total income after claiming deduction under Section 80P of the Act. The AO disallowed the deduction claimed by the assessee on the grounds that the assessee was not following the principle of mutuality. The AO relied on various decisions of the Supreme Court and High Court to disallow the deduction.
- The CIT(A) upheld the AO's decision, stating that the activities of the assessee were in violation of the provisions of Section 80P due to catering to two distinct categories of members. The CIT(A) observed that the AO correctly disallowed the deduction as there was a lack of mutuality between the members of the society.
- The ITAT restored the issue of claim of deduction under Section 80P(2)(a)(i) of the Act to the AO for de novo consideration based on the principles laid down by the Supreme Court in similar cases.

Issue 2: Violation of the principle of mutuality by the assessee society
- The AO found that the assessee society was not following the principle of mutuality as it catered to two distinct categories of members with different rights and work culture. This violation led to the disallowance of the deduction claimed under Section 80P of the Act.
- The CIT(A) upheld the AO's decision, stating that the activities of the assessee were in violation of the Cooperative Societies Act, leading to the denial of the benefit of the deduction under Section 80P of the Act.

Issue 3: Claim of deduction under Section 80P(2)(a)(i) of the Act
- The ITAT remanded the issue of claim of deduction under Section 80P(2)(a)(i) of the Act to the AO for de novo consideration based on the principles laid down by the Supreme Court in similar cases.

Issue 4: Claim of deduction under Section 80P(2)(d) of the Act
- The assessee earned interest income from funds invested in Cooperative banks, which the AO held as non-operational income. The CIT(A) upheld the AO's decision, stating that the interest income earned from surplus funds invested in Cooperative banks did not qualify for deduction under Section 80P of the Act.
- The ITAT directed the AO to verify whether the interest/dividend income received by the assessee was from investments made with Cooperative Societies, and if so, the assessee would be entitled to deduction under Section 80P(2)(d) of the Act.

In conclusion, the ITAT partly allowed the appeal of the assessee for statistical purposes, remanding certain issues back to the AO for de novo consideration based on the legal principles outlined in relevant judgments.

---