2021 (4) TMI 1242 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest income received by assessee is not eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. as the same is not related to any banking activity - HELD THAT - The Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT 2021 (1) TMI 488 - SUPREME COURT had held that when the assessee is registered as a Co-operative Society under the respective State Acts, the interest income received for providing credit facilities to its members is entitled to deduction u/s 80P(2)(a)(i) . We remit the issues raised in this appeal to the file of A.O. The A.O. is directed to examine the deduction u/s 80P(2)(a)(i) of the I.T.Act in the light of the dictum laid down in the case of Mavilayi Service Cooperative Bank Ltd. v. CIT (supra) - Appeal filed by the assessee allowed for statistical purposes.

Summary

Issues:
Deduction under section 80P(2)(a)(i) of the Income Tax Act for interest earned from Nationalised banks and Co-operative Banks.

Analysis:
The case involved an appeal by the assessee against the order of CIT(A) for the Assessment Year 2015-16, challenging the disallowance of deduction under section 80P(2)(a)(i) of the Act for interest earned from Nationalised banks and Co-operative Banks. The assessee, a co-operative society, had filed its return of income declaring a total income of Rs. Nil, claiming a deduction under section 80P(2)(a) at Rs. 32,38,7841, which included profits exempt under section 80P(2)(d) of Rs. 16,15,491. The Revenue contended that the interest earned from banks was not eligible for deduction under section 80P(2)(a)(i) as it was not earned from co-operative societies engaged in banking or lending credit to members. The Revenue relied on the Karnataka High Court decision in the case of M/s. Totagars Co-operative Sale Society, Sirsi, to support its position.

The Tribunal considered the Supreme Court's decision reversing the Kerala High Court's special Bench judgment in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT, emphasizing the liberal and reasonable interpretation of section 80P of the IT Act to promote the co-operative sector. The Tribunal noted that the impugned Full Bench judgment was set aside, and all assessees were entitled to the benefit of the deduction under section 80P(2)(a)(i), irrespective of loans given to members not related to agriculture. The Tribunal highlighted the definition of 'member' under the Kerala Act, allowing loans to nominal members for the purpose of deduction under section 80P(2)(a)(i). Additionally, the Tribunal pointed out that loans to non-members by a primary agricultural credit society were permissible under the Kerala Act, distinguishing the facts from the Citizen Cooperative Society Ltd. case.

Consequently, the Tribunal decided to remit the issue back to the Assessing Officer to re-examine the deduction under section 80P(2)(a)(i) in light of the Supreme Court's decision. The appeal of the assessee was allowed for statistical purposes, and the case was disposed of accordingly.