https://www.taxtmi.com/css/info/rss_sitemap/rss_feed.css?v=1746094055 https://www.taxtmi.com Business/Tax/Law/GST/India/Taxation/Policies/Legal/Corporate Tax/Personal Tax/Vat Law/Legal Information/Tax Information/Legal Services/Tax Services Tax Management India. Com / MS Knowledge Processing Pvt. Ltd. All rights reserved. One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=754779 https://www.taxtmi.com/caselaws?id=754779 Deduction u/s 80P(2)(a)(i) - claim denied as that assessee was dealing with nominal / associate members who are not regular members of assessee society and has violated the principles of mutuality - HELD THAT:- In respect of associate / nominal members, the Hon ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd., Ors. [ 2021 (1) TMI 488 - SUPREME COURT] had held that the expression members is not defined under the Income Tax Act, 1961. Hence, it is necessary to construe the expression members in section 80P(2)(a)(i) of the Act light of the definition of the expression as contained in the concerned Co-operative Societies Act under which the assessee is constituted. Both the AO and the CIT(A) has not considered the latest judgment of Mavilayi Service Co-operative Bank Ltd., Ors. Vs. CIT (supra) in correct perspective. Even assuming that assessee is dealing with non-members, only to such extent there shall be a denial of deduction u/s 80P(2)(a)(i) of the Act. We deem it appropriate to restore the matter to the AO. AO is directed to examine whether assessee has been dealing with non-members, and if so, only to that extent there shall be denial of deduction under section 80P(2)(a)(i) of the Act. Assessee would be entitled to proportionate deduction in respect of its dealing with members - ground Nos. 2 and 3 are allowed for statistical purposes. Interest received by the Appellant from co-operative banks is not eligible for deduction u/s 80P(2)(d) - The wording of section 80P(2)(d) of the Act is very clear. If the assessee co-operative society is in receipt of interest from investments with another co-operative society, the same is eligible for deduction under section 80P(2)(d) of the Act. It is a claim of the assessee that the entire interest receipts received from scheduled bank, central co-operative bank and co-operative societies has been aggregated by the AO and has denied the benefit the deduction under section 80P - Section 80P(2)(d) of the Act, the issue raised in ground No. 4 needs to be re-examined by the AO. The assessee is directed to furnish the bifurcation of the interest receipts and necessary details before the AO. The AO shall examine the claim of the assessee and shall grant deduction under section 80P(2)(d) of the Act in respect of interest income received from co-operative societies Disallowance of deduction u/s 80P(2)(d) on interest income earned from other co-operative banks, as the definition co-operative society includes co-operative banks as well - The Hon ble Apex Court in the case of Kerala State Co-Operative Agricultural Rural Development Bank Ltd. [ 2023 (9) TMI 761 - SUPREME COURT] had held that although the assessee society in that case is an apex co-operative society within the meaning of State Act, 1985, it is not a cooperative bank within the meaning of section 5(b) r.w.s. 56 of the RBI Act, 1949. It was concluded by the Hon ble Apex Court that if a co-operative bank does not have a banking licence under the RBI Act, the said co-operative bank would be entitled to deduction under section 80P of the Act - certain categories of co-operative banks which does not have RBI licence to do a banking business would in essence be a co-operative society. Hence, any interest income received from such co-operative banks should also be entitled to deduction under section 80P(2)(d) of the Act. Therefore, with the aforesaid observation, the matter is restored to the files of the AO. Eligibility to claim deduction in respect of interest earned on compulsory deposit with co-operative banks which is a statutory requirement after deduction u/s 80P(2)(d) of the Act is disallowed - As relying on M/S. KACHUR CREDIT CO-OPERATIVE SOCIETY LTD. [ 2023 (9) TMI 1487 - ITAT BANGALORE] we direct the AO to examine whether the interest income received on investments with central co-operative banks is out of compulsion compulsions under the Karnataka Co-operative Societies Act, 1959, and the relevant Rules. If so, the same may be considered as business income and entitled to deduction under section 80P(2)(a)(i) - Therefore, if the investments are out of compulsions under the relevant Rules, necessarily it forms part of assessee s business which would entail the benefit of deduction under section 80P(2)(a)(i) of the Act. For the aforesaid examination of the matter, the issue raised in ground No. 6 is restored to the files of the AO. Even interest earned on deposits with cooperative banks is taxed u/s 56 of the Act under income from other sources , the Appellant must be eligible to claim deduction u/s 57(iii) of the Act in respect of cost of funds and proportionate administrative and other expenses - We find that this contention of the assessee is covered by the Order of M/s. Deepa Credit Co-operative Society Ltd. [ 2023 (12) TMI 1326 - ITAT BANGALORE] as followed the dictum laid down in the case of Totgars Co-operative Sale Society Ltd., [ 2015 (4) TMI 829 - KARNATAKA HIGH COURT] wherein restored the matter to the AO. The AO is directed to calculate the cost of funds for earning the interest income which has to be assessed under section 56 of the Act and allow the same as deduction under section 57 - thus we restore the matter to the AO. The AO is directed to follow the dictum laid down in the judicial pronouncement cited supra and take a decision in accordance with law - ground No. 7 is allowed for statistical purposes. Case-Laws Income Tax Fri, 17 May 2024 00:00:00 +0530