2018 (8) TMI 2098 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - Assessee is a cooperative society registered under Gujarat Cooperative Societies Act, 1961 and engaged in providing credit facilities to its members - assessee has claimed deduction for the interest income earned on FDRs. with the financial institutions and this claim was denied by the AO on the ground that provisions of section 80P(2)(a)(i) does not cover assessee-society - HELD THAT - We find that in the case of State Bank of India Co-operative Society 2016 (7) TMI 516 - GUJARAT HIGH COURT has held that interest earned from investment made in nationalized bank by a cooperative society engaged in providing credit facilities to its members, is not eligible for deduction under section 80P. Tribunal in earlier occasions on similar issue has taken a consistent view by following above judgment of the Hon ble jurisdictional High Court. Since orders of the Revenue authorities are in accordance with the judgment of the Hon ble jurisdictional High Court cited supra, no interfere is called for in the impugned orders, which we confirm. However, any expenditure incurred by the assessee for earning such income could be allowed to it, if not already allowed. AO has to determine the net interest income as well as misc. income earned by the assessee, and only thereafter that income has to be excluded from the admissibility of deduction under section 80P - AO is also directed to examine whether the assessee is entitled for statutory deduction under section 80P. - Decided is partly allowed for statistical purpose.

Summary

Issues Involved:
- Non-allowance of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for a cooperative society providing credit facilities to its members.

Analysis:

Issue 1: Deduction under section 80P(2)(a)(i)
The appeal was filed by the assessee against the order of the ld.CIT(A)-4, Vadodara, challenging the non-allowance of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for the assessment year 2012-13. The ld.DR contended that the issue is settled in favor of the Revenue by a judgment of the Hon'ble jurisdictional High Court in the case of State Bank of India Co-operative Society Vs. CIT, wherein it was held that a cooperative society engaged in providing credit facilities and earning interest income on surplus funds parked with nationalized banks is not eligible for deduction under section 80P(2)(a)(i). The assessee did not contest this judgment but requested that proportionate administrative and financial expenses incurred be allowed if the claim is not admissible.

Issue 2: Interpretation of Section 80P(2)(a)(i)
The Assessee, a cooperative society registered under Gujarat Cooperative Societies Act, 1961, claimed deduction under section 80P(2)(a)(i) for interest income earned on Fixed Deposit Receipts with financial institutions. The AO denied the claim stating that the provisions of section 80P(2)(a)(i) do not cover the assessee-society. The ld.CIT(A) upheld this decision, relying on the judgment of the Hon'ble jurisdictional High Court in the State Bank of India Co-operative Society case. The Tribunal noted that the High Court held interest earned from investments in nationalized banks by a cooperative society providing credit facilities to members is not eligible for deduction under section 80P. The Tribunal confirmed the orders of the Revenue authorities in line with the High Court's judgment. However, it directed the AO to allow any expenditure incurred by the assessee for earning such income, after determining the net interest income and miscellaneous income earned.

Issue 3: Statutory Deduction under Section 80P(2)(c)
The Tribunal directed the AO to examine whether the assessee is entitled to statutory deduction under section 80P(2)(c) of the Act. If entitled, such deduction should be given to the assessee while calculating its taxable income. The appeal of the assessee was partly allowed for statistical purposes, and the decision was pronounced in open court on 28th August 2018.

This judgment clarifies the eligibility of a cooperative society providing credit facilities for deduction under section 80P(2)(a)(i) and emphasizes the need to consider expenses incurred for earning income. It also highlights the importance of examining statutory deductions under the Income Tax Act for such entities.