2017 (3) TMI 1746 - AT - Income Tax

Deduction u/s. 80P - assessee carries on banking and other business in the name of a credit co-operative society - HELD THAT - The assessee is a registered Cooperative Credit society and is providing facility to its members to deposit, therefore sufficient interest is paid. In addition to that the assessee has also guaranteeing loans/advances in which interest is charged from its members and apart from that the assessee is also getting interest from FDs. The assessee is not guaranteeing any credit facility to any other persons except the members and this is eligible for deduction u/s 80P of the Act. Interest income received by the appellant - Income From Other Sources OR Business Income - HELD THAT - CIT(A) has rightly conclude that the interest has been received either from a Scheduled bank or Co-operative Bank and no interest income has been received by the assessee from its investment in a co-operative society. The Ld. CIT(A) has rightly followed the mandate given by Hon ble Supreme Court in case of The Totgars Co-operative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT wherein it was held that the interest received by a co-operative society from investment of its surplus funds is assessable under the head income from other sources and deduction u/s 80P is not available in respect of such interest and dividend income. Therefore in the present case the disallowance of deduction u/s 80P was rightly upheld to that extent. Commission Income - assessment as Business Income - HELD THAT - We find that the revenue has not carried out the required verification and the CIT(A) has only mentioned that these income are credited to the profit and loss account of the assessee and it is not connected with the banking/credit giving facilities business, therefore in these circumstances we set aside these grounds to the file of the AO for carrying out detail verification of these grounds. It is needless to mention that Assessing Officer would provide reasonable opportunity of being heard to the assessee. Therefore, these grounds are allowed for statistical purposes.

Summary

Issues Involved:
1. Deduction under Section 80P of the Income Tax Act.
2. Classification of the assessee as a cooperative bank.
3. Interest income classification as 'Income from Other Sources' vs. 'Business Income'.
4. Applicability of Section 80P(2)(d) for interest income from cooperative banks.
5. Classification of commission income and interest income from deposits with MSEB.
6. Verification of income earned from MSEB as per 26AS.

Issue-wise Detailed Analysis:

1. Deduction under Section 80P of the Income Tax Act:
The Revenue appealed against the CIT(A)'s decision allowing the assessee's deduction under Section 80P. The Revenue argued that the assessee, being a cooperative bank, was not eligible for this deduction under Section 80P(4). The Tribunal upheld the CIT(A)'s decision, noting that the assessee was a cooperative credit society, not a cooperative bank. The Tribunal emphasized that the assessee's activities were confined to its members, and thus, it was eligible for the deduction under Section 80P.

2. Classification of the Assessee as a Cooperative Bank:
The Revenue contended that the assessee met the criteria of a cooperative bank under the Banking Regulation Act, 1949, and thus should be classified as such. The Tribunal, however, found that the assessee's operations were limited to its members and did not include banking activities. The Tribunal referenced the CIT(A)'s detailed analysis, which concluded that the assessee was a cooperative society, not a cooperative bank, and therefore eligible for Section 80P benefits.

3. Interest Income Classification as 'Income from Other Sources' vs. 'Business Income':
The assessee argued that the interest income from fixed deposits should be classified as 'Business Income' and not 'Income from Other Sources'. The CIT(A) and the Tribunal, relying on the Supreme Court's decision in The Totgars Co-operative Sale Society Ltd., held that the interest from surplus funds invested in fixed deposits should be classified as 'Income from Other Sources'. Consequently, the deduction under Section 80P was not applicable to this interest income.

4. Applicability of Section 80P(2)(d) for Interest Income from Cooperative Banks:
The CIT(A) found that the interest income was received from scheduled and cooperative banks, not from investments in cooperative societies. Therefore, the provisions of Section 80P(2)(d) were not applicable. The Tribunal upheld this finding, noting that the interest income was correctly classified and the deduction under Section 80P was not applicable.

5. Classification of Commission Income and Interest Income from Deposits with MSEB:
The assessee contended that commission income and interest income from deposits with MSEB should be classified as 'Business Income'. The Tribunal noted that the CIT(A) had not conducted a detailed verification of these incomes. Consequently, the Tribunal remanded the issue back to the Assessing Officer for detailed verification and appropriate classification.

6. Verification of Income Earned from MSEB as per 26AS:
The Tribunal found that the CIT(A) had not adequately verified the income earned from MSEB as reflected in Form 26AS. The Tribunal remanded this issue back to the Assessing Officer for detailed verification, instructing that the assessee be given a reasonable opportunity to present their case.

Conclusion:
The Tribunal upheld the CIT(A)'s decision regarding the classification of the assessee as a cooperative society and the non-applicability of Section 80P(4). It also upheld the classification of interest income from fixed deposits as 'Income from Other Sources'. However, it remanded the issues concerning the classification of commission income, interest income from MSEB deposits, and verification of income as per Form 26AS back to the Assessing Officer for further verification. The Revenue's appeal was dismissed, and the assessee's appeal was allowed for statistical purposes.