2023 (11) TMI 1221 - AT - Income Tax

Deduction u/s 80P - claim denied on the basis of assessee having nominal members and associated members - assessee's contention that being a primary agricultural co-op. society, they are eligible for the said deduction - HELD THAT - We find that the decision of Mavilayi Service Cooperative Bank Ltd. Ors. 2021 (1) TMI 488 - SUPREME COURT wherein held that claim of assessee cannot be denied on the basis of assessee having nominal members and associated members. As respectfully following the view taken in the case of PCIT Anr. Vs. Totagars Cooperative Sale Society 2017 (1) TMI 1100 - KARNATAKA HIGH COURT and Hon ble Gujarat High Court in the case of State Bank Of India 2016 (7) TMI 516 - GUJARAT HIGH COURT we hold that, the interest income earned by a cooperative society on its investments held with a cooperative bank that do not have license under section 22 of the Banking Regulation Act 1949, falls outside the definition the term, Banking Company as per section 2(c ) of the Banking Regulations Act, 1949, would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. The Ld.AO is thus directed to carry out necessary verification in respect of the that same to consider the claim of deduction u/s.80 P(2)(d) of the Act. Further, we make it clear that the assessee is not entitled for deduction u/s 80P(2)(a)(i) of the Act in view of judgement of Hon ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT It is directed that in the event it is found that the interest is earned by the assessee from such commercial/cooperative banks that fall within the definition of banking company as per section 2(c), Section 5(b) and holds license under section 22 of the Banking Regulation Act 1949, such interest are to be considered under the head income from other sources however, relief may be granted as available to the assessee u/s 57 of the Act in accordance with law. With the above directions, we remit this issue to the Ld.AO.

Summary

Issues Involved:
1. Validity of the assessment order.
2. Entitlement to deduction under Section 80P of the Income-tax Act.
3. Classification of interest income for tax purposes.
4. Levy of interest under Sections 234A, 234B, and 234C of the Income-tax Act.

Summary:

Issue 1: Validity of the Assessment Order
The appellant argued that the assessment order was bad in law for want of requisite jurisdiction. However, the tribunal found this ground to be very general in nature and lacking specific material to suggest that the assessing officer had no jurisdiction. Therefore, this ground was dismissed.

Issue 2: Entitlement to Deduction under Section 80P
The primary issue was whether the appellant, a Primary Agricultural Credit Co-operative Society, was entitled to deductions under Section 80P of the Income-tax Act. The tribunal noted that the appellant's claim was initially denied because the society had nominal and associated members. The tribunal referred to the Supreme Court's decision in Mavilayi Service Cooperative Bank Ltd. vs. CIT, which held that Section 80P is a benevolent provision and must be read liberally in favor of the assessee. The tribunal concluded that the claim could not be denied on the basis of having nominal members and associated members.

Issue 3: Classification of Interest Income
The tribunal examined whether the interest income earned from investments in cooperative banks should be classified as "Business income" or "Other sources." The tribunal referred to multiple judicial precedents, including the Supreme Court's decision in Totgars Co-operative Sale Society Ltd. vs. ITO and Kerala State Co-operative Agricultural and Rural Development Bank Ltd. vs. AO. It was held that interest income from investments in cooperative banks that do not hold a license under Section 22 of the Banking Regulation Act, 1949, would be eligible for deduction under Section 80P(2)(d). The matter was remitted to the assessing officer for necessary verification.

Issue 4: Levy of Interest under Sections 234A, 234B, and 234C
The appellant contested the levy of interest under Sections 234A, 234B, and 234C. Since the tribunal remitted the issue of deduction under Section 80P(2)(d) back to the assessing officer, this ground was deemed infructuous at this stage and was dismissed.

Conclusion:
The appeals filed by the assessee were partly allowed for statistical purposes, with specific directions to the assessing officer for further verification regarding the eligibility for deductions under Section 80P(2)(d). The additional grounds raised by the assessee were dismissed.