2024 (2) TMI 1378 - AT - Income Tax

Deduction u/s 80P - interest income earned from Scheduled Banks and Co-operative Banks - HELD THAT - On identical facts, the Bangalore Bench of the Tribunal in the case of Canara Bank Staff Credit Co-operative Societies Ltd 2023 (10) TMI 1350 - ITAT BANGALORE had restored the matter to the AO to examine whether the amounts invested with the Co-operative Banks are out of compulsion under the Karnataka Co-operative Societies Act and the relevant Rules. It was further held by the Tribunal that if the investments are out of compulsion under the Act and the relevant Rules, the interest income received out of the investment made under such compulsion would be liable to be taxed as income from business which would entail the benefit of deduction under section 80P(2)(a)(i) of the Act. In the event it is found that assessee is not entitled to get the benefit under section 80P(2)(a)(i) of the Act, the AO shall also examine whether it is entitled to deduction u/s 80P(2)(d) of the Act in light of the recent judgment of Kerala State Co-operative Agricultural Rural Development 2023 (9) TMI 761 - SUPREME COURT - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
The judgment involves the interpretation of whether interest income earned from investments with Scheduled Banks and Co-operative Banks by a primary agricultural co-operative society is eligible for deduction under section 80P of the Income Tax Act, 1961.

Assessment Year 2017-18:
The appellant contested the denial of deduction under section 80P of the Act for interest income earned from investments with banks. The CIT(A) upheld the addition for interest on investments and denied the benefit of exemption under section 80P to the appellant. The CIT(A) relied on the judgment of the jurisdictional High Court and held that interest income is taxable under the head 'Income from Other Sources'. The appellant's case was compared to previous judgments, and it was concluded that the interest income is not eligible for deduction under section 80P.

Legal Arguments:
The appellant argued that investments with Co-operative Banks are integral to its business activity of providing credit facilities to members. The appellant relied on judgments supporting deduction under section 80P. The Tribunal considered the compliance of investments with the Karnataka Co-operative Societies Act and relevant Rules. Previous decisions emphasized that investments made under statutory requirements are eligible for deduction under section 80P.

Tribunal's Decision:
The Tribunal referred to relevant judgments and directed the Assessing Officer to examine whether investments with Co-operative Banks were made out of compulsion under the Act and Rules. If investments were made under compulsion, the interest income would be taxed as 'business income' and qualify for deduction under section 80P. The Tribunal allowed the appeal for statistical purposes and restored the matter to the AO for further examination.

Conclusion:
The Tribunal's decision focused on the compliance of investments with statutory requirements and the eligibility for deduction under section 80P of the Act. The case highlights the importance of assessing whether investments with Co-operative Banks are made under compulsion to determine the tax treatment of interest income.