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2019 (5) TMI 1192 - AT - Income TaxEligibility of deduction u/s 80P - AO denied deduction by treating that its activities are that of a co-operative bank and not a cooperative society - HELD THAT - The assessee is admittedly registered as a primary agricultural society under the Kerala Co-operative Societies Act, 1969 by the Registrar of Societies. The Full Bench of the Hon ble 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. It was held by the Hon ble High Court that the 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. The Hon ble High Court held that each assessment year is separate and eligibility shall be verified by the Assessing Officer for each of the assessment years. 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 assessee and determine whether its activities are in compliance with the activities of a cooperative society functioning under the Kerala Co-operative Societies Act, 1969 and grant deduction u/s 80P(2) in accordance with law. Interest on the investments with Cooperative Banks and other Banks - income from business or income from other sources - HELD THAT - As 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 assessee, and therefore, the said interest income was eligible to be assessed as income from business instead of income from other sources . As regards the grant of deduction u/s 80P(2) on such interest income, the AO 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).
Issues Involved:
1. Entitlement to deduction under section 80P of the Income Tax Act. 2. Classification of interest income as 'income from business' or 'income from other sources' for the purpose of deduction under section 80P(2). Issue-wise Comprehensive Analysis: 1. Entitlement to Deduction under Section 80P: - Facts: The assessee, registered as a primary agricultural credit society under the Kerala State Co-operative Societies Act, 1969, was denied the claim of deduction under section 80P by the Assessing Officer (AO) on the grounds that its activities were akin to those of a co-operative bank. - CIT(A) Decision: The CIT(A) followed the judgment of the Hon’ble jurisdictional High Court in Chirakkal Service Co-operative Bank Ltd. (384 ITR 490), concluding that the assessee, being registered as a primary agricultural credit society, was entitled to deduction under section 80P(2). - Revenue's Argument: The Revenue contended that the assessee was essentially a co-operative bank, not merely a primary agricultural credit society, and thus not eligible for deduction under section 80P. - Tribunal's Decision: The Tribunal referred to the Larger Bench of the Hon’ble jurisdictional High Court in The Mavilayi Service Co-operative Bank Ltd. [ITA No.97/2016], which held that the AO must conduct an inquiry into the factual activities of the assessee society to determine eligibility for deduction under section 80P. The AO cannot rely solely on the registration certificate. The Tribunal restored the issue to the AO to examine the activities of the assessee and determine compliance with the Kerala Co-operative Societies Act, 1969, before granting deduction under section 80P(2). 2. Classification of Interest Income: - Facts: The AO classified the interest income received by the assessee on investments as 'income from other sources' rather than 'income from business', thereby denying deduction under section 80P(2). - CIT(A) Decision: The CIT(A) held that the interest income received on investments should be assessed as 'income from business' as it was part of the banking activities of the assessee, and granted deduction under section 80P(2). - Revenue's Argument: The Revenue argued that the interest income from deposits with banks should be treated as income from other sources and not attributable to the business of providing credit facilities to members. - Tribunal's Decision: The Tribunal referred to the co-ordinate Bench order in Kizhathadiyoor Service Cooperative Bank Limited, which held that interest income earned from investments with treasuries and banks is part of the banking activity of the assessee and should be assessed as 'income from business'. However, the AO must examine whether the assessee’s activities align with those expected of a co-operative society under the Kerala Co-operative Societies Act, 1969, before granting deduction on such interest income under section 80P(2). Conclusion: - The Tribunal allowed the Revenue's appeal for statistical purposes by restoring the issues to the AO for further examination. - The cross-objection filed by the assessee was dismissed as infructuous. Order Pronounced: The appeal filed by the Revenue is allowed for statistical purposes, and the Cross Objection filed by the assessee is dismissed.
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