2016 (9) TMI 1253 - AT - Income Tax

Eligibility to deduction u/s 80P(2)(a)(i) - whether the interest and dividend earned on deposits kept with other banks is deductible uls.80P(2)(d)? - Held that - As per Section 2(19) of the Act a co-operative society means a co-operative society registered under the Co-operative Societies Act 1912 or under any law for the time being in force in any State for the registration of co-operative societies. The provisions of the IT Act 1961 either in Section 2(19) or u/s.80P do not make any discrimination between co-operative societies carrying on banking business and other co-operative societies. Co-operative banks are primarily co-operative societies by constitution and banks by the nature of business. The interest income and dividend earned on deposits and investments made with other cooperative banks/society are fully deductible under section 80P(2)(d) from the income liable to tax. See Quepem Urban Co-operative Credit Society Ltd. Versus Assistant Commissioner of Income-tax Circle-1 Margoa 2015 (6) TMI 573 - BOMBAY HIGH COURT - Decided in favour of assessee

Summary

Issues:
- Appeal against order of Commissioner of Income Tax (Appeals) regarding deduction under sec. 80P(2)(a)(i) of the Income Tax Act, 1961.

Analysis:
1. Issue of Deduction under sec. 80P(2)(a)(i):
- The appeal focused on whether the assessee, a primary agricultural credit society engaged in trading activities and providing credit facilities to members, was entitled to deduction under sec. 80P of the Act.
- The Assessing Officer initially rejected the claim, citing that the assessee being a cooperative bank was not eligible for the deduction under sec. 80P(4).
- The Commissioner of Income Tax (Appeals) allowed the deduction, emphasizing that the nature of the society's activities aligned with the provisions of sec. 80P(2)(a)(i) and that there was no distinction between cooperative societies carrying out banking business and others under the Act.
- The Commissioner referred to relevant case laws, including the decision of the Hon'ble High Court of Karnataka and the ITAT, Bangalore Bench, to support the allowance of the deduction.
- The Departmental Representative failed to identify any errors in the Commissioner's order and could not present contrary decisions to challenge the allowance of the deduction.
- Ultimately, the Tribunal upheld the Commissioner's order, dismissing the Revenue's appeal and confirming the deduction under sec. 80P(2)(a)(i) for the assessee.

2. Interpretation of Sec. 80P(2)(d) and Relevant Case Laws:
- The Tribunal also addressed the issue of whether the interest and dividend income earned by the assessee from deposits with other cooperative banks was deductible under sec. 80P(2)(d).
- Section 80P(2)(d) allows deduction for income from deposits with cooperative societies, and the Tribunal analyzed the definition of a cooperative society under the Act to support the assessee's eligibility for the deduction.
- Referring to the decision of the ITAT, Bangalore Bench in a similar case, the Tribunal emphasized that a restrictive interpretation of cooperative society under sec. 80P(2)(d) was unwarranted.
- By considering the nature of the society's investments and activities, the Tribunal concluded that the interest and dividend income from cooperative banks/societies were fully deductible under sec. 80P(2)(d) from the income liable to tax.
- The Tribunal's decision was based on a detailed reasoning and alignment with previous judicial interpretations, reinforcing the allowance of the deduction under sec. 80P(2)(d) for the assessee.

This comprehensive analysis highlights the key arguments, case laws, and interpretations considered by the Tribunal in addressing the issues related to the deduction under sec. 80P for the assessee, providing a detailed insight into the reasoning behind the final decision.