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2020 (10) TMI 417 - AT - Income TaxEntitlement to deduction u/s 80P(2)(a)(i) - whether the interest income received on investments can be treated as income from business and granted deduction u/s 80P(2)(d)? - CIT(A) rejected the objections raised by the assessee and passed orders u/s 154 disallowing the claim of the assessee u/s 80P(2) - HELD THAT - CIT(A) had initially allowed the appeals of the assessee and granted deduction u/s 80P(2) of the I.T.Act. Subsequently, the CIT(A) passed orders u/s 154 wherein the claim of deduction u/s 80P was denied, by relying on the judgment of The Mavilayi Service Co-operative Bank Ltd. v. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT CIT(A) ought not to have rejected the claim of deduction u/s 80P(2) of the I.T.Act without examining the activities of the assesseesociety. The Full Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) had held that the A.O. has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P of the I.T.Act. In view of the dictum laid we restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer to examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co-operative society functioning under the Kerala Co-operative Societies Act, 1969 and accordingly grant deduction u/s 80P(2) of the I.T.Act. Interest on the investments with Co-operative Banks and other Banks - Tribunal in the case of Kizhathadiyoor Service Co-operative Bank Limited 2016 (7) TMI 1405 - ITAT COCHIN had held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as income from business instead of income from other sources . However, as regards the grant of deduction u/s 80P of the I.T.Act on such interest income, the Assessing Officer shall follow the law laid down by the Larger Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income. Appeals filed by the assessee are partly.
Issues:
1. Entitlement to deduction u/s 80P(2)(a)(i) of the Income-tax Act 2. Treatment of interest income received on investments as 'income from business' and deduction u/s 80P(2)(d) of the Income-tax Act Detailed Analysis: Issue 1: The appeals were directed against orders of the CIT(A) denying deduction u/s 80P of the Income-tax Act. The Assessing Officer disallowed the deduction stating that the assessee, a co-operative society, was engaged in banking activities, thus ineligible for the deduction post the insertion of section 80P(4) from 01.04.2007. The CIT(A) allowed the appeals, relying on a judgment of the jurisdictional High Court, which held that the assessee, characterized as a primary agricultural credit society, was entitled to the deduction. However, subsequent to a Full Bench judgment, the CIT(A) issued rectification orders disallowing the deduction. The Tribunal, following the Full Bench ruling, remanded the issue to the Assessing Officer to verify the activities of the society for deduction eligibility under section 80P(2) of the Income-tax Act. Issue 2: Regarding interest income received on investments, a co-ordinate Bench order held it as part of banking activities, eligible to be assessed as 'income from business.' However, the Tribunal directed the Assessing Officer to examine the activities of the assessee-societies to determine deduction eligibility under section 80P of the Income-tax Act for such interest income. The Tribunal emphasized following the Full Bench judgment for granting deductions on interest income. The Tribunal allowed the appeals for statistical purposes, dismissing the Stay Applications as infructuous. The decision was based on the need for factual inquiry into the activities of the assessee-societies to ascertain eligibility for deductions under section 80P of the Income-tax Act, as per the rulings of the jurisdictional High Court.
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