2009 (5) TMI 62 - HC - Income Tax

Interest on investment of unutilized funds co-operative societies ITAT hold that the interest earned by the assessee-co-operative society (engaged in agricultural credit facility), from unutilized funds invested in the banks other than the co-operative bank, as fixed deposit receipts, and Kisan Vikas Patra with post offices, is liable to be deducted under section 80P of the Income-tax Act, 1961 Held that deduction is allowed u/s 80P order of ITAT upheld decided in favor of assessee.

Summary

Issues:
Interpretation of Section 80P of the Income-tax Act, 1961 regarding deductions for co-operative societies earning interest from investments in banks other than co-operative banks.

Analysis:
The case involved two appeals against the ITAT's judgment allowing deductions for a co-operative society's interest earned from investments in banks other than co-operative banks under Section 80P of the Income-tax Act, 1961. The primary issue was whether such interest income is liable for deduction under Section 80P. The respondent, a co-operative society engaged in providing credit facilities to members, faced disallowance of the deduction by the AO. The CIT(A) upheld the AO's decision, relying on a previous case law. The ITAT, however, allowed the appeals, leading to the Revenue's appeals before the High Court.

The High Court analyzed the relevant provisions of Section 80P, emphasizing that deductions are allowed for profits and gains attributable to specific activities of co-operative societies. The Court noted that Clause (d) of Section 80P covers income derived by co-operative societies from investments with other co-operative societies. The judgment clarified that Clause (d) is independent of other clauses, and each clause covers different types of co-operative societies engaged in various activities. The Court concluded that the interest earned by the respondent co-operative society is part of its business activities, making it eligible for the deduction under Section 80P.

The appellants argued citing previous case laws that the ITAT wrongly allowed the deductions. However, the Court distinguished those cases, highlighting that they involved co-operative societies engaged in activities not covered under Clause (a) of Section 80P. The Court reasoned that the respondent co-operative society's activities aligned with those specified in Clause (a), making it eligible for the deduction. Consequently, the Court ruled in favor of the respondent, upholding the ITAT's decision to allow the deductions for the interest income earned from investments in banks other than co-operative banks.

In conclusion, the High Court dismissed the appeals, affirming the ITAT's judgment in favor of the respondent co-operative society. The detailed analysis of Section 80P and the differentiation of relevant case laws supported the decision to allow the deductions for the interest income, considering the nature of the co-operative society's business activities and compliance with the provisions of the Income-tax Act, 1961.