2014 (10) TMI 1007 - AT - Income Tax

Revision u/s 263 - deduction u/s. 80P(2)(a)(i) - HELD THAT - In a recent judgment in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot 2015 (1) TMI 821 - KARNATAKA HIGH COURT took the view that when the status of the assessee is a co-operative society and not a co-operative bank, the order passed by the AO extending the benefit of exemption from payment of tax 80P(2)(a)(i) of the Act is correct and such an order is not erroneous and therefore, jurisdiction u/s. 263 of the Act cannot be invoked. We set aside the order of the ld. CIT and uphold the order of the AO allowing deduction u/s. 80P(2)(a)(i) of the Act to the assessee. Interest earned on deposits with Davangere Urban Co-op. Bank - HELD THAT - In the present case, the interest in question is from the deposits maintained with Davangere Urban Co-op. Bank, which is a co-operative Bank and the making of such deposit has no nexus with the business of the assessee. The interest earned on such deposit can therefore be not considered as income derived from the business of providing credit facilities U/s.80P(2)(a)(i) of the Act or interest derived by a co-op. society from its investments with any other co-op. society, as contemplated by the provisions of s. 80P(2)(a)(d) of the Act. Therefore, following the decision of the Tribunal in the case of Sri Basaveshwara Credit Co-operative Society Ltd., Hirekerur 2013 (5) TMI 1010 - ITAT BANGALORE we hold that the order of the ld. CIT u/s. 263 of the Act on this issue calls for no interference.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Deduction under Section 80P(2)(a)(i) of the Income Tax Act.
3. Interest earned on deposits with other organizations and banks.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The appeals were delayed by 195 days for the assessment year (A.Y.) 2008-09 and 138 days for A.Y. 2009-10. The delay was attributed to the advice received from the auditors, initially suggesting no need to file an appeal since the CIT had remanded the issue back to the Assessing Officer (AO). Later, another firm of auditors advised filing the appeals, leading to the delay. The Tribunal accepted the explanation and condoned the delay, considering it reasonable and not willful or deliberate.

2. Deduction under Section 80P(2)(a)(i) of the Income Tax Act:
The assessee, a co-operative society, claimed deductions under Section 80P(2)(a)(i) for income derived from providing credit facilities to its members. The CIT contended that the assessee was a co-operative bank and thus ineligible for the deduction under Section 80P(4). However, the Tribunal referenced previous rulings, including the case of ACIT v. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd., which clarified that Section 80P(4) applies only to co-operative banks and not to credit co-operative societies. The Tribunal also cited the Hon'ble Gujarat High Court's decision in CIT Vs. Jafari Momin Vikas Co-op Credit Society Ltd., which supported the view that Section 80P(4) does not apply to co-operative societies. Consequently, the Tribunal upheld the AO's decision to allow the deduction under Section 80P(2)(a)(i) for the assessee.

3. Interest Earned on Deposits with Other Organizations and Banks:
The CIT argued that the interest earned on deposits with Davangere Urban Co-op. Bank should be considered as income from other sources and not eligible for deduction under Section 80P(2)(a)(i) or Section 80P(2)(a)(d). The Tribunal agreed, referencing the Supreme Court's decision in Totgars Co-operative Sales Society Ltd. v. ITO, which held that interest income from investments not immediately required for business purposes falls under "income from other sources." The Tribunal concluded that the interest earned on deposits with Davangere Urban Co-op. Bank did not have a direct nexus with the business of providing credit facilities to members and thus could not be exempt under Sections 80P(2)(a)(i) or 80P(2)(a)(d).

Separate Judgment for A.Y. 2009-10:
For A.Y. 2009-10, the only issue was the applicability of Section 80P(4). The Tribunal reiterated its previous stance that the assessee was a co-operative society and not a co-operative bank, thus entitled to the deduction under Section 80P(2)(a)(i). The order of the CIT was quashed, and the appeal was allowed.

Conclusion:
- A.Y. 2008-09: The appeal was partly allowed, with the Tribunal upholding the deduction under Section 80P(2)(a)(i) but agreeing with the CIT on the treatment of interest income from deposits.
- A.Y. 2009-10: The appeal was fully allowed, quashing the CIT's order and affirming the deduction under Section 80P(2)(a)(i).

Pronouncement: The judgment was pronounced on October 31, 2014.