2014 (4) TMI 1237 - AT - Income Tax

Denial of exemption u/s 80P(2)(a)(i) on interest income earned on investments made with the banks - HELD THAT - In the instant case there is no dispute to the fact that the society is a credit cooperative society authorised by the registrar of cooperative societies for accepting deposits and lending money to its members as per license granted by the registrar of cooperative societies and the main object of the society is to provide credit facility to members who can be any person of the society. We find the Pune Bench of the Tribunal in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. 2000 (2) TMI 234 - ITAT PUNE has held that the credit society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s.80P(2)(a)(i). Case followed M/S. THE TOTGARS COOPERATIVE SALE SOCIETY LIMITED VERSUS INCOME TAX OFFICER. KARNATAKA 2010 (2) TMI 3 - SUPREME COURT - Decided in favour of assessee. Cross-appeal of revenue relates to the decision of the CIT(A) in holding that the interest income earned from the investments made with other co-operative banks is eligible for the exemption u/s 80P(2)(d) - HELD THAT - Provisions of section 80P(2)(d) of the Act which reads as follows - (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society the whole of such income; - Thus Decision of the CIT(A) to allow exemption u/s 80P(2)(d) of the Act is expressly in accordance with the provisions of clause (d) of subsection (2) of section 80P of the Act and no infirmity on the same has been pointed out by the learned Departmental Representative before us. Accordingly we hereby affirm the order of the CIT(A) and the Revenue fails in its cross-appeal.

Summary

Issues Involved:
1. Denial of exemption under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Eligibility for exemption under Section 80P(2)(d) of the Income Tax Act, 1961.

Issue 1: Denial of Exemption under Section 80P(2)(a)(i)

The first issue pertains to the denial of exemption under Section 80P(2)(a)(i) of the Income Tax Act, 1961, concerning an amount of Rs. 22,27,523/-. The assessee, a Co-operative Society registered under the Maharashtra Co-operative Societies Act, 1960, engaged in providing credit facilities to its members, filed a return declaring total income at Rs. Nil, including a claim for exemption under Section 80P(2)(a)(i). The Assessing Officer (AO) noted that the assessee had credited incomes from activities other than providing credit facilities to its members, primarily interest earned from investments in other banks. Citing the Supreme Court's decision in Totgar's Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC), the AO held that such interest income was not attributable to the business of providing credit facilities to members and denied the exemption. The CIT(A) concurred with the AO but upheld the alternative plea that the interest income from investments in other co-operative banks was eligible for exemption under Section 80P(2)(d).

The Tribunal, following the precedent set in ITO vs. Niphad Nagari Sahakari Patsanstha Ltd. (ITA No.1336/PN/2011 dated 31.07.2013), where a similar issue was held in favor of the assessee, upheld the plea of the assessee. The Tribunal noted that the decision in Totgar's case was distinguishable as it dealt with surplus funds from marketing agricultural produce, whereas in the present case, the funds were operational and used for business purposes. Consequently, the Tribunal allowed the assessee's appeal, granting exemption under Section 80P(2)(a)(i).

Issue 2: Eligibility for Exemption under Section 80P(2)(d)

The second issue involves the eligibility for exemption under Section 80P(2)(d) concerning interest income earned from investments in other co-operative banks. The CIT(A) allowed this exemption, noting that the interest income was received from other co-operative banks/societies, and thus fell within the purview of Section 80P(2)(d), which exempts any income by way of interest or dividends derived by a co-operative society from its investments with any other co-operative society. The Tribunal found no infirmity in the CIT(A)'s decision and affirmed the order, dismissing the Revenue's cross-appeal.

Conclusion:

For the assessment year 2008-09, the Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal. The issues for the assessment years 2009-10 and 2010-11 being identical, the Tribunal's decision for 2008-09 applied mutatis mutandis to these years as well, resulting in the assessee's appeals being allowed and the Revenue's appeals being dismissed.