2024 (7) TMI 34 - AT - Income Tax

Credit cooperative society gets section 80P deduction on interest from surplus fund investments

ITAT Pune allowed the appeal of a credit co-operative society registered under Maharashtra Co-operative Societies Act regarding deduction under section ... Deduction u/s 80P - Deduction on Interest Income earned from Co-operative Banks/Banks -assessee is a Credit Co-operative Society registered under Maharashtra Co-operative Societies Act. The prime function of the society is accepting deposits and advancing loans to the members - HELD THAT:- As clear from the submission of the assessee that the assessee had claimed deduction u/sec. 80P(2)(a)(i) of the Act. However, the assessee without prejudice had also claimed deduction u/sec. 80P(2)(d) of the Act. In these facts, we have to understand the case of the assessee. Thus, the issue before us is whether the impugned interest earned by the Assessee is eligible for deduction u/sec. 80P(2)(a)(i) of the Act or u/s 80P(2)(d) of the Act. In this case, admittedly assessee is a Co-operative Society registered under the Co-operative Societies Act, and it is engaged in providing credit facility to its members. Assessee had earned interest by depositing surplus funds which were not immediately required. Hon’ble High Court in the case of Vavveru Co-operative Rural Bank Ltd [2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT] succinctly distinguished the decision of the Hon’ble Supreme Court in the case of Totagar Cooperative Sale Society [2010 (2) TMI 3 - SUPREME COURT] held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/s.80P(2)(a) of the Act. Thus, as held that the Interest earned by the assessee is eligible for deduction u/sec. 80P(2)(a) of the Act. Accordingly, Grounds of appeal raised by the assessee are allowed. Issues:1. Disallowance of deduction on interest income earned from fixed deposits with Cooperative/Nationalised Bank under sections 80P(2)(d) or 80P(2)(a)(i) of the IT Act.2. Non-following of jurisdictional ITAT Pune decision by the Commissioner of Income Tax (Appeal).3. Eligibility of the interest income earned by the Assessee for deduction under sections 80P(2)(a)(i) or 80P(2)(d) of the IT Act.Issue 1: Disallowance of Deduction on Interest Income:The Assessee, a Co-operative Credit Society, claimed deduction under section 80P(2)(a)(i) for interest income earned from fixed deposits with various banks. However, the Assessing Officer disallowed the deduction citing the Supreme Court decision in Totagars Co-operative Sales Society case. The Assessee's appeal to the CIT(A) was also unsuccessful. The main issue was whether the interest income was eligible for deduction under section 80P(2)(a)(i) or 80P(2)(d) of the IT Act.Issue 2: Non-Following of Jurisdictional ITAT Pune Decision:The Assessee contended that the CIT(A) erred in not following the jurisdictional ITAT Pune decision on a similar issue, which was considered binding as per the law laid down by the Bombay High Court. The ITAT Pune had previously held that interest income earned by a cooperative society on deposits with cooperative banks qualifies for deduction under both sections 80P(2)(a)(i) and 80P(2)(d) of the Act. This non-compliance with the ITAT Pune decision was a significant contention raised by the Assessee.Issue 3: Eligibility of Interest Income for Deduction:The ITAT Pune analyzed the case based on the Assessee being a Co-operative Society registered under the Co-operative Societies Act, engaged in providing credit facilities to its members. The Hon'ble High Court of Andhra Pradesh and Telangana had previously held that interest income earned by investing income derived from business activities by a Co-operative Society was eligible for deduction under section 80P(2)(a) of the Act. The ITAT Pune, following the High Court's decision and its own previous rulings, held that the interest income earned by the Assessee was indeed eligible for deduction under section 80P(2)(a) of the IT Act. Consequently, the Assessee's appeal was allowed.In conclusion, the ITAT Pune allowed the Assessee's appeal, holding that the interest income earned from fixed deposits with Cooperative/Nationalised Banks was eligible for deduction under section 80P(2)(a) of the IT Act. The judgment emphasized the importance of considering the nature of the Assessee's business activities and the source of the income in determining the eligibility for deductions under the relevant sections of the IT Act.