2019 (11) TMI 1791 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) in respect of interest income earned - AO has denied the claim of the assessee that the interest income earned with investment of surplus funds, hence has to be assessed under income from other sources and not under business - HELD THAT - As decided in case of The Jayanagar Co-operative Society Ltd 2019 (7) TMI 1219 - ITAT BANGALORE claim of the Assessee was that Co-operative Bank is essentially a Co-operative Society and therefore deduction has to be allowed under Clause (d) of Sec.80P(2) of the Act. The Hon'ble Karnataka High Court 2008 (9) TMI 493 - KARNATAKA HIGH COURT followed the decision of the supreme Court in The Totgars Co-operative Sales Society Ltd. 2010 (2) TMI 3 - SUPREME COURT and held that interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d)of the Act was not applicable to such interest income. The source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991- 92 to 1999-2000 decided by the Hon'ble Supreme Court. Therefore whether the source of funds were Assessee's own funds or out of liability was not subject matter of the decision of the Hon'ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd 2015 (2) TMI 995 - KARNATAKA HIGH COURT still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon'ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon'ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra). We follow the judicial precedence and restore the disputed issue to the file of the AO for fresh decision in light of the judicial decisions above. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
Appeal against order of Commissioner of Income Tax (Appeals) under Section 143(3) and 250 of the Income Tax Act, 1961 regarding deduction under Section 80P(2)(ai) and 80P(2)(D) for interest income earned by a co-operative society.

Detailed Analysis:

1. Delay Condonation Petition:
The assessee filed an appeal against the order of Commissioner of Income Tax (Appeals) with a delay of two days, seeking condonation. The delay was condoned after finding a reasonable cause, and the appeal was heard.

2. Background and Facts:
The assessee, a co-operative society providing credit facilities, filed a Return of Income for the Assessment Year 2015-16. The Assessing Officer disallowed deduction under Section 80P(2)(ai) for interest income earned from investments in various banks, treating it as income from other sources.

3. Disputed Issue:
The main issue was the restriction of deduction under Section 80P(2)(ai) for interest income earned by the assessee. The Assessing Officer considered the interest income as not part of the business income, leading to denial of the deduction.

4. Judicial Precedents and Arguments:
The assessee relied on the decision of the Hon'ble Karnataka High Court in a similar case, while the Departmental Representative cited a subsequent decision. The Tribunal examined these judgments and noted the similarity with a previous case, directing a fresh decision by the Assessing Officer.

5. Tribunal's Decision:
The Tribunal allowed the appeal for statistical purposes, following the judicial precedence and instructing a re-examination of the issue by the Assessing Officer in light of relevant judicial decisions. The assessee was granted an opportunity to present their case and submit necessary documents.

6. Conclusion:
The appeal was allowed, and the matter was remanded to the Assessing Officer for a fresh decision based on the judicial precedents discussed. The assessee was directed to cooperate, and the order was pronounced in open court on 28th Nov., 2019.