2019 (8) TMI 1193 - AT - Income Tax

Deduction u/s.80P(2)(a)(i) - assessees are Co-operative Society registered under Karnataka State Co-operative Societies Act - HELD THAT - Identical issue was considered by a co-ordinate Bench of ITAT Bangalore in the case of M/S.Hemmadi Fishermen s Primary Co-operative Society Ltd. Vs. The ITO, Ward-2, Udupi 2019 (8) TMI 1086 - ITAT BANGALORE and it was held therein that the decision of the Hon ble Supreme Court in the case of Citizen s Co-operative Society Ltd. 2018 (1) TMI 290 - SC ORDER was rendered in the context of Co-operative Societies Act as prevalent in a different state and not the State of Karnataka and the issue needs to be adjudicated having regard to the provisions of the Karnataka State Co-operative Societies Act. The issue was remanded for fresh consideration in the light of the law applicable to Co-operative Societies in the State of Karnataka. Since the facts and circumstances are identical, we deem it fit and proper to restore the issue to the AO for fresh consideration in the light of the observations made in the case of M/S.Hemmadi Fishermen s Primary Co-operative Society Ltd. (supra). Examination of claim for deduction in respect of interest income received on deposits with Co-operative banks and deduction on interest income being interest on deposits other than co-operative banks, will be made only u/s.80P(2)(a)(i) and in so far as deduction u/s.80P(2)(d) of the Act is concerned, the same becomes not allowable in view of the decision of Karnataka High Court in the case of PCIT Vs. Totgars Co-operative Sale Society Ltd. 2017 (7) TMI 1049 - KARNATAKA HIGH COURT

Summary

Issues involved:
1. Deduction u/s.80P(2)(a)(i) of the Income Tax Act for three co-operative societies.
2. Denial of deduction u/s.80P(2)(d) for interest income of the Assessee.

Issue 1: Deduction u/s.80P(2)(a)(i) of the Income Tax Act for three co-operative societies:

The appeals by the three co-operative societies revolve around the denial of deduction u/s.80P(2)(a)(i) of the Income Tax Act by the revenue authorities. The Assessing Officer (AO) rejected the deduction claim citing the principle of mutuality, emphasizing the need for identity between contributors and recipients of profit. The AO contended that the Assessees did not meet this principle as they provided credit facilities to nominal members without voting rights. The CIT(A) upheld the AO's decision. However, a similar issue was previously considered by ITAT Bangalore in another case, leading to a remand for fresh consideration based on the Karnataka State Co-operative Societies Act. Consequently, the Tribunal decided to restore the issue to the AO for reevaluation in alignment with the observations made in the earlier case.

Issue 2: Denial of deduction u/s.80P(2)(d) for interest income of the Assessee:

In the case of one co-operative society, the AO denied the deduction u/s.80P(2)(d) for interest income earned on deposits, categorizing it as 'income from other sources.' This decision was based on a Supreme Court ruling regarding interest income treatment. The CIT(A) supported the AO's stance. During the appeal, the Assessee referenced a Karnataka High Court judgment allowing deduction for interest income from temporary surplus funds. The Departmental Representative cited a subsequent High Court decision contradicting the earlier ruling. The Tribunal analyzed the cases and emphasized that the source of funds for investments remained consistent across assessment years, leading to the need for a fresh evaluation by the AO. The Tribunal directed the AO to reexamine the interest income claims under the appropriate sections of the Act, considering the judgments cited, and allowed the Assessee to present evidence for their case.

This detailed analysis of the judgment highlights the critical issues of deduction claims under different sections of the Income Tax Act for the co-operative societies involved, providing insights into the legal reasoning and decisions made by the authorities and the Tribunal.