TaxTMI 
TaxTMI 
TaxTMI 
2024 (5) TMI 1600
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....3. The only interconnected issue raised by the assessee is that the ld. CIT(A) erred in confirming the disallowance made by the AO for Rs. 50,76,706/- under the provisions of section 80P(2)(d) of the Act. 4. The assessee in the year under consideration has claimed a deduction of Rs. 1,05,37,861/- under the provisions of sec. 80P(2)(d) of the Act. However, the AO found that the provisions of sub sec. (4) of sec. 80P of the Act are applicable to the assessee, which denies the benefit of deduction u/s 80P(2)(a)(i)/(d) of the Act. Therefore, the AO disallowed the same and added to the total income of the assessee. 5. Aggrieved, the assessee preferred an appeal before the ld.CIT(A), who deleted the addition in part amounting to Rs. 54,61,101/- by observing as under:- "5.3.1 Grounds of appeal pertaining to 80P(2)(a)(i) in AY 2017-18 Addition was made by the Ld.JAO, which was challenged before undersigned on various grounds. However, as it can be seen from the assessment order passed for AY 2018-19 and AY 2020-21, that the revenue has acquiesced qua allowability of the deduction claim under section 80P(2)(a)(i). Relevant extract from the assessment order of AY 2018-19 on page 3 is r....
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.... No. 366/Bang/2023 for the AY 2017-18 vide order dated 19/07/2023. As such, the ld. Counsel for the assessee prayed before us to give the identical findings as observed in the case cited above. 9. On the other hand, the ld. DR vehemently supported the order of the authorities below. 10. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the deduction claimed by the assessee u/s 80P(2)(d) of the Act with respect to the interest earned on the investment made in the nationalized/cooperative bank of Rs. 50,76,760/- was denied by the AO, which was subsequently confirmed by the ld. CIT(A) as discussed above. 11. As far as the interest income earned by the assessee on the investment made with the nationalized bank is concerned, there is no dispute that the same is not eligible for deduction u/s 80P(2)(d) of the Act as held by the Hon'ble Karnataka High Court in the case of Totagars Co-operative Sale Society cited above but in our considered view, the corresponding interest cost incurred by the assessee against such interest income should be allowed as deduction. Accordingly, we direct so. 12. Regarding the intere....
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.... deduction under Section 80P could not be denied to the assessee by invoking Section 80P(4) of the Act. 13. In view of the above, we hold that if the Co-operative Bank is not functioning the business of banking as defined u/s 5(b) of Banking Regulation Act, then such Co-operative Bank shall be considered as Cooperative Society for the purpose of the deduction claimed u/s 80P(2)(d) of the Act. Therefore, in our considered view, such interest income will be eligible for deduction u/s 80P(2)(d) of the Act. 14. However, if the Co-operative Bank is carrying out banking activities as defined u/s 5(b) of the Bank Regulation Act, then the assessee shall not be entitled for the deduction with respect to the interest earned on the investments made with such bank under the provisions of sec. 80P(2)(d) of the Act. However, corresponding interest cost incurred by the assessee shall be eligible to be adjusted against such interest income at par with nationalized bank. 15. We also note that this Tribunal in the case of Bee Co-op Credit Society Ltd., cited above involving identical facts and circumstances has set aside the issue to the file of the AO for fresh adjudication as per the provision ....
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....le under the head "Income from Business". Interest earned on investment of surplus funds not immediately required in short term deposits and securities by a Co-operative Society providing credit facilities to members or marketing agricultural produce to members is not business income but income from other sources and the society is not entitled to special deduction. 2.7. While Ld.AR relied on the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Credit Co-operative Ltd., reported in 230 taxman 309. We have carefully gone through the said judgment. 2.8. We have also considered, whether the co-operative bank wherein the assessee made deposits out of its surplus fund be considered as a cooperative society, for if a co-operative bank is considered to be a cooperative society than only the interest earned by the assessee on the deposits would be eligible for deduction u/s 80P(2)(d). We find that cooperative society is a broad and larger umbrella under which the cooperative banks do perform. We also note that all co-operative societies may not be banks, but all co-operative banks are deemed to be cooperative societies. According to banking Reg....
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....ts, contentions and the findings of the Tribunal in the case of M/s.The Jayanagar Co-operative Society Ltd. (supra) reads as follow:- "4. The issues that arise for consideration in this appeal by the assessee are as to whether the Revenue authorities were justified in holding that the assessee was not entitled to the benefit of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 (in short 'the Act') on interest income earned and under section 80P(2)(d) of the Act in respect of interest received from Co-operative institutions. The Assessing Officer (AO) denied the claim of the assessee on the ground that interest income earned by making investment of surplus funds has to be assessed under the head "Income from Other Sources" and not income from business and since interest income is not assessed as business income, the claim for deduction under section 57 of the Act cannot be allowed. In upholding the above conclusions, the CIT(A), inter alia, relied on the decision of the Hon'ble Supreme Court in the case of The Totgar's Co-operative Sales Society Ltd., Vs. ITO 322 ITR 283 (SC) wherein the Hon'ble Supreme Court held that the benefit of deduction un....
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....es Society Ltd. (supra) and held that interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec. 80P(2)(d) of the Act was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011- 12 and in AY 1991-92 to 1999-2000 decided by the Hon'ble Supreme Court. Therefore whether the source of funds were Assessee's own funds or out of liability was not subject matter of the decision of the Hon'ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon'ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon'ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra)." 9.2 In the light of the....
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....eing in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income; [(iv) in the case of income of the nature referred to in clause (viii) of subsection (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section.]" 2.14. We have heard the submissions advanced by both sides on this aspect. We direct the Ld.AO to allow the expenditure incurred while computing income under the head, 'Income from Other Sources', in relation to earning of interest from the commercial banks. Accordingly the grounds raised by the assessee for assessment year 2015-16 stands allowed for statistical purposes." 5.1 We note that the facts and circumstances are identical in the present assessee's case, with that in the case of M/s. Bhavasar Kshtriya Cooperative Credit Society Ltd. vs. ITO/ADIT (supra)." 6.2 From the above discussion, we hold that the assessee is eligible for 80P(2)(d) deduction in respect of interest earned from co-operative banks based on the view taken in the above decision. It is directed that any interest earned by the assess....