2018 (9) TMI 287 - AT - Income Tax

Exemption u/s 80P - assessee-society has received interest from Saraswat Cooperative Bank Ltd., on making investment in FDR - Held that - Saraswat Cooperative Bank Ltd., is a Cooperative Society. Therefore, the interest earned on by the assessee-society from its investment with the other Cooperative Society would be entitled for deduction under section 80P(2)(d) of the I.T. Act. The issue is covered in favour of the assessee-society by the Judgment of M/s. Totagars Cooperative Sale Society 2017 (1) TMI 1100 - KARNATAKA HIGH COURT and other decisions of various Benches of the Tribunal referred to above. In this view of the matter, we set aside the Orders of the authorities below and delete the addition. Further claim of deduction under section 80P(2)(c)(ii) - Held that - There is no prohibition on the powers of the appellate authority to consider the claim of assessee, if assessee is entitled for such relief in accordance with law. The assessee-society relied upon decision of Hon ble Supreme Court in the case of CIT Mahalaxmi Sugar Mills Co. Ltd. 1986 (7) TMI 83 - SUPREME COURT and CBDT Circular No.14(XL-35) Dated 11.04.1995 above, which provides that it is the duty of the A.O. to apply relevant provision of the Act for the purpose of determining the true figure of assessee s total income and consequently, tax liability. CIT(A) should not have refuse to exercise his discretionary power in the matter. The assessee-society is entitled for deduction of ₹ 50,000/-. Set aside the orders of the authorities below and direct the A.O. to allow deduction of ₹ 50,000/- out of interest income in favour of the assessee-society. This ground of appeal of assessee is allowed.

Issues Involved:
1. Taxability of interest income received from a Cooperative Bank under Section 80P(2)(d) of the Income Tax Act.
2. Entitlement to a deduction of ?50,000 under Section 80P(2)(c)(ii) of the Income Tax Act.

Detailed Analysis:

Issue 1: Taxability of Interest Income from a Cooperative Bank

Facts:
The assessee, a Cooperative Group Housing Society, declared NIL income and claimed exemption on the ground of mutuality. The society received interest income from Fixed Deposit Receipts (FDRs) with Canara Bank and Saraswat Cooperative Bank Ltd., amounting to ?7,47,298/-. The Assessing Officer (A.O.) taxed this interest income under the head "Income from other sources," citing the Supreme Court judgment in Bangalore Club vs. CIT, which held that interest income earned from banks has a taint of commerciality and is not covered by the principle of mutuality.

Assessee's Argument:
The assessee contended that the interest income from Saraswat Cooperative Bank Ltd. should be exempt under Section 80P(2)(d) of the Income Tax Act, which provides for a deduction in respect of any income by way of interest or dividend derived by a Cooperative Society from its investments with any other Cooperative Society. The assessee argued that Cooperative Banks are essentially Cooperative Societies and thus should be covered under this provision.

CIT(A)'s Decision:
The CIT(A) rejected the assessee's claim, stating that Saraswat Cooperative Bank Ltd. is a bank and not a Cooperative Society, thus not eligible for deduction under Section 80P(2)(d).

Tribunal's Analysis:
The Tribunal referred to various judgments, including the Karnataka High Court's decision in Pr. CIT vs. Totagars Cooperative Sale Society, which held that Cooperative Banks are a species of the genus Cooperative Societies and thus eligible for deduction under Section 80P(2)(d). The Tribunal also cited multiple ITAT decisions supporting this view.

Conclusion:
The Tribunal concluded that the interest earned from Saraswat Cooperative Bank Ltd. qualifies for deduction under Section 80P(2)(d) and set aside the CIT(A)'s order, deleting the addition of ?6,63,611/-.

Issue 2: Entitlement to Deduction of ?50,000 under Section 80P(2)(c)(ii)

Facts:
The assessee claimed a deduction of ?50,000 under Section 80P(2)(c)(ii), which provides for a deduction in respect of income of Cooperative Societies engaged in activities other than those specified in clause (a) or (b).

Assessee's Argument:
The assessee argued that it is entitled to this deduction and cited the Supreme Court's judgment in CIT vs. Mahalakshmi Sugar Mills Co., Ltd., which held that it is the duty of the A.O. to apply relevant provisions of the Act for determining the true figure of the assessee's total income.

CIT(A)'s Decision:
The CIT(A) acknowledged that the assessee is a Cooperative Society and thus eligible for the deduction but rejected the claim because it was not made in the return of income or through a revised return, relying on the Supreme Court's decision in Goetze (India) Ltd. vs. CIT.

Tribunal's Analysis:
The Tribunal referred to the Delhi High Court's decision in CIT vs. Jai Parabolic Springs Ltd., which held that there is no prohibition on the Tribunal's power to entertain an additional ground for the just decision of the case. The Tribunal also cited the CBDT Circular No.14(XL-35), which directs the A.O. to apply relevant provisions for determining the true figure of the assessee's total income.

Conclusion:
The Tribunal allowed the assessee's claim for a deduction of ?50,000 under Section 80P(2)(c)(ii), directing the A.O. to allow this deduction.

Summary:
The Tribunal allowed both appeals of the assessee. It held that the interest income from Saraswat Cooperative Bank Ltd. is eligible for deduction under Section 80P(2)(d) and directed the A.O. to allow the deduction of ?50,000 under Section 80P(2)(c)(ii). The Tribunal's decision was based on various judicial precedents and the interpretation of relevant provisions of the Income Tax Act.

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