2019 (5) TMI 1189 - AT - Income Tax

Entitlement to deduction u/s 80P - need for inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P - HELD THAT - The Larger Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. 2019 (3) TMI 1580 - KERALA HIGH COURT held that the Assessing Officer has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P. Assessing Officer is not bound by the registration certificate issued by the Registrar of Kerala Co-operative Society classifying the assessee-society as a cooperative society. Each assessment year is separate and eligibility shall be verified by the Assessing Officer for each of the assessment years. Thus the issue of deduction u/s 80P(2)(a)(i) is restored to the Assessing Officer. The Assessing Officer shall examine the activities of the respective assessee and determine whether their activities are in compliance with the activities of a co-operative society functioning under the Kerala Co-operative Societies Act, 1969 and grant deduction u/s 80P(2) in accordance with law. Whether the interest income received on investments can be treated as income from business and granted deduction u/s 80P- HELD THAT - In the case of Kizhathadiyoor Service Cooperative Bank Limited 2016 (7) TMI 1405 - ITAT COCHIN held that interest income earned from investments with treasuries and banks is part of banking activity of the assessees, and therefore, the said interest income was eligible to be assessed as income from business instead of income from other sources . However, as regards the grant of deduction u/s 80P(2) on such interest income, the Assessing Officer shall examine the assessee s activities whether it is in tune with the activities expected of a co-operative society registered under the Kerala Co-operative Societies Act, 1969 and grant deduction on such interest income u/s 80P(2)

Summary

Issues:
1. Entitlement to deduction u/s 80P of the Income Tax Act.
2. Treatment of interest income received on investments as 'income from business' and eligibility for deduction u/s 80P.

Analysis:

1. The appeals by the Revenue were against orders of the CIT(A) regarding deduction u/s 80P. The primary issues were whether the assessee, registered as cooperative societies, could claim deduction u/s 80P. The Assessing Officer had denied the deduction, treating the assessees as cooperative banks, not societies. The CIT(A) allowed the deduction based on the judgment of the jurisdictional High Court in a similar case. The Tribunal held that each assessment year required a separate inquiry into the activities of the society to determine eligibility for deduction u/s 80P. The Assessing Officer was directed to conduct an inquiry into the factual situation to decide on the eligibility for deduction.

2. The second issue was the treatment of interest income on investments. The CIT(A) considered these as 'income from business' as the investments were made in the course of the assessees' business activities. The Tribunal, following a previous order, also held that interest income from investments could be assessed as 'income from business.' However, the Assessing Officer was instructed to examine whether the assessees' activities aligned with those of a cooperative society under the Kerala Co-operative Societies Act, 1969, before granting deduction u/s 80P on such interest income.

3. The Tribunal emphasized the need for a detailed assessment of the activities of the assessees to determine their eligibility for deduction u/s 80P. It was clarified that the Assessing Officer should not solely rely on the registration certificate but should conduct a thorough inquiry into the factual situation. The Tribunal also directed the Assessing Officer to verify if the assessees' activities were in compliance with the requirements of a cooperative society under the Kerala Co-operative Societies Act, 1969, before granting deductions on interest income from investments.

4. The judgment highlighted the importance of conducting separate inquiries for each assessment year to ascertain eligibility for deductions under the Income Tax Act. The Tribunal's decision was based on legal precedents and the specific circumstances of the case, ensuring a detailed examination of the assessees' activities before granting any tax deductions.