2018 (9) TMI 1465 - AT - Income Tax

Grant of deduction u/s 80P(2)(a)(i) - interest income received by the assessee on investments made with Sub-Treasuries, Banks etc. - whether interest income received by the assessee on investments with sub-treasuries and banks was liable to be assessed under the head income from other sources or income from business ? - Held that - In the instant case the assessee had made investments with sub-treasuries and banks in the course of its business of banking / providing credit facilities to its members. Therefore, it was entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income that was received on such investments. As in the case of Vaveru Co-operative Rural Bank Ltd. v CIT (2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT) had also decided on identical issue in favour of the assessee as held that co-operative societies engaged in providing credit facilities to its members had in course of business made investments with treasury, bank etc. and earned interest income, such income was eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Entitlement to deduction under section 80P(2) of the Income Tax Act.
2. Entitlement to deduction under section 80P(2)(a)(i) for interest income received from investments with co-operative banks.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80P(2) of the Income Tax Act:

The primary issue was whether the assessees, being primary agricultural credit societies, were entitled to deductions under section 80P(2) of the Income Tax Act. The Assessing Officer had denied these deductions, arguing that the assessees were primarily engaged in banking activities and thus fell under section 80P(4), which excludes co-operative banks from such deductions.

Upon appeal, the CIT(A) referenced the judgment of the Hon'ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. & Ors. vs. CIT, which established that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to the benefits of section 80P(2). The CIT(A) directed the Assessing Officer to grant the deduction under section 80P(2), as the assessees were registered as primary agricultural credit societies.

The Tribunal upheld the CIT(A)’s decision, reiterating that the Hon'ble jurisdictional High Court’s judgment in The Chirakkal Service Co-operative Bank Ltd. case was applicable. The Tribunal noted that the assessees were primary agricultural credit societies registered under the Kerala Co-operative Societies Act, and thus, per the High Court’s ruling, were entitled to the deduction under section 80P(2). The Tribunal dismissed the Revenue’s appeals on this issue.

2. Entitlement to Deduction under Section 80P(2)(a)(i) for Interest Income Received from Investments with Co-operative Banks:

The second issue was whether the interest income received from investments with co-operative banks qualified for deduction under section 80P(2)(a)(i). The Assessing Officer had categorized this interest income as 'income from other sources' and denied the deduction.

The CIT(A) followed the judgment of the Hon'ble jurisdictional High Court in the case of The Ottoor Service Co-operative Bank Ltd. v. ITO, which held that interest income received from co-operative banks is entitled to deduction under section 80P(2)(d). The Tribunal noted that the investments were made in the course of the assessees' banking business, and therefore, such income formed part of the banking activities and was entitled to deduction under section 80P(2)(a)(i).

The Tribunal referenced several judicial pronouncements, including the Cochin Bench of the Tribunal’s decision in the case of The Azhikode Service Cooperative Bank Ltd., which supported the view that interest income from investments made in the course of banking activities is deductible under section 80P(2)(a)(i). The Tribunal concluded that the interest income received from investments with co-operative banks was indeed part of the banking activities and thus entitled to the deduction under section 80P(2)(a)(i).

Conclusion:

The Tribunal dismissed the Revenue’s appeals, affirming that the assessees, being primary agricultural credit societies, were entitled to deductions under section 80P(2) of the Income Tax Act. Additionally, the interest income received from investments with co-operative banks was part of the assessees' banking activities and thus qualified for deduction under section 80P(2)(a)(i). The Tribunal’s decision was consistent with the judgments of the Hon'ble jurisdictional High Court and other relevant judicial pronouncements.