2024 (8) TMI 1073 - AT - Income Tax

Assessee's appeal allowed for statistical purposes, matter remanded to examine section 80P(2)(a)(i) deduction eligibility for co-operative bank investments

M/s. Primary Agricultural Credit Co-operative Society Ltd. Versus ITO, Ward –1, Puttur

The ITAT Bangalore allowed the assessee's appeal for statistical purposes, remanding the matter to the AO for examination. Following the precedent in ... Deduction u/s 80P/80P(2)(d) - Interest income received from Co-operative Banks - alternative claim of the assessee that it is entitled to deduction of proportionate expenditure for earning interest income - HELD THAT:- On identical facts, the Bangalore Bench of the Tribunal in the case of Canara Bank Staff Credit Co-operative Societies Ltd. [2023 (10) TMI 1350 - ITAT BANGALORE] had restored the matter to the AO to examine whether the amounts invested with the Co-operative Banks are out of compulsion under the Karnataka Co-operative Societies Act and the relevant Rules. It was further held by the Tribunal that if the investments are out of compulsion under the Act and the relevant Rules, the interest income received out of the investment made under such compulsion would be liable to be taxed as ‘income from business’ which would entail the benefit of deduction u/s 80P(2)(a)(i) of the Act. In the event it is found that assessee is not entitled to get the benefit under section 80P(2)(a)(i) of the Act, the AO shall also examine whether it is entitled to deduction under section 80P(2)(d) of the Act in light of the recent judgment of the Hon’ble Apex Court in the case of Kerala State Co-operative Agricultural Rural Development [2023 (9) TMI 761 - SUPREME COURT] Appeal filed by the assessee is allowed for statistical purposes. Issues:Whether the CIT(A) was justified in confirming the disallowance of claim of deduction under section 80P of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Deduction under Section 80P of the ActThe appeal was against the CIT(A)'s order confirming the disallowance of a deduction under section 80P of the Act amounting to Rs. 50,93,751/-. The assessee, a primary agricultural co-operative society, filed its return of income for the Assessment Year 2020-21 claiming the deduction under section 80P. The AO disallowed the deduction, treating the interest income received from Co-operative Banks as 'income from other sources,' relying on relevant judgments. The CIT(A) partly allowed the appeal, confirming the disallowance under sections 80P(2)(a)(i) and 80P(2)(d) but restored the matter to the AO regarding the claim of proportionate expenditure for earning interest income.Issue 2: Arguments and SubmissionsThe assessee contended that the investments with Co-operative Banks were made in compliance with the Karnataka Co-operative Societies Act, 1959, and therefore, the interest income should be eligible for deduction under section 80P(2)(a)(i) of the Act. The assessee also relied on a judgment of the Hon'ble Apex Court to support its claim for deduction under section 80P(2)(d) of the Act. The DR supported the orders of the AO and CIT(A).Issue 3: Tribunal's DecisionThe Tribunal considered the contention that investments with Co-operative Banks were made out of compulsion as per the Karnataka Co-operative Societies Act, 1959, and relevant Rules. Referring to similar cases, the Tribunal emphasized that if investments were made under compulsion, the interest income received would be considered 'business income' eligible for deduction under section 80P(2)(a)(i) of the Act. The Tribunal cited judicial pronouncements to support its decision and directed the AO to examine whether the investments were made under compulsion. If so, the interest income would be liable to be taxed as business income, entitling the assessee to the benefit of deduction under section 80P(2)(a)(i) of the Act.ConclusionThe Tribunal allowed the appeal for statistical purposes and directed the AO to re-examine the issue of deduction under section 80P(2)(a)(i) of the Act in light of the compulsion under the Karnataka Co-operative Societies Act, 1959. If the assessee is not entitled to this deduction, the AO was instructed to consider the eligibility for deduction under section 80P(2)(d) of the Act based on a recent judgment of the Hon'ble Apex Court.