2019 (11) TMI 320 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) in respect of interest income received by the assessee on investments made with Sub-Treasuries, District Co-operative Banks, Other 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 - We noticed that an identical issue was considered by the Cochin Bench of the Tribunal in the case of The Azhikode Service Co-operative Bank Ltd. Others 2017 (7) TMI 1138 - ITAT COCHIN we are of the view that the assessee is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income received on investments made with sub-treasuries and banks. The latest judgment 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 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). In the instant case, the assessee had made investments with sub-treasuries, District Co-operative Banks, other 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) in respect of interest income that was received on such investments in view of the above judicial pronouncements

Issues Involved:
1. Whether the CIT(A) is justified in directing the Assessing Officer to grant deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income received by the assessee on investments made with Sub-Treasuries, District Co-operative Banks, and other Banks.

Issue-wise Detailed Analysis:

1. Deduction under Section 80P(2)(a)(i) for Interest Income from Investments:

The primary issue revolves around whether the interest income received by the assessee, a primary agricultural credit society, on investments made with sub-treasuries, district co-operative banks, and other banks should be assessed under the head "income from other sources" or "income from business." If classified under "income from business," the assessee would be eligible for deduction under Section 80P(2)(a)(i) of the I.T.Act.

The assessee, a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969, engaged in banking and providing credit facilities to its members, claimed deduction under Section 80P(2)(a)(i) for interest income received from investments. The Assessing Officer denied this claim, treating the interest income as "income from other sources."

The CIT(A) reversed the Assessing Officer's decision, following the Cochin Bench of the Tribunal's ruling in the case of Kizhathadiyoor Service Co-operative Bank Ltd., where it was held that such interest income is part of the banking activity and thus eligible for deduction under Section 80P(2)(a)(i).

The Revenue appealed against the CIT(A)'s decision, arguing that the interest income should be assessed as "income from other sources." The assessee, supported by various judicial pronouncements, maintained that the interest income is part of its business income and thus eligible for the deduction.

Tribunal's Analysis and Decision:

The Tribunal reviewed the facts and judicial precedents, including the Cochin Bench's decision in The Azhikode Service Co-operative Bank Ltd. & Others, where it was held that interest income from investments with sub-treasuries and banks is assessable under "income from business," making it eligible for deduction under Section 80P(2)(a)(i).

The Tribunal also considered the Karnataka High Court's ruling in Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamamitha vs ITO, which clarified that a primary agricultural credit society without an RBI banking license is not a cooperative bank under Section 80P(4) and thus remains eligible for the deduction.

The Tribunal distinguished the Supreme Court's judgment in Totgars Cooperative Sales Society Ltd., noting that it dealt with a society involved in marketing agricultural produce, where the interest income was derived from surplus funds and not directly related to its primary activity. In contrast, the assessee's interest income was from investments made in the course of its banking activities.

The Tribunal also referenced the Karnataka High Court's decision in Tumkur Merchants Souharda Credit Cooperative Ltd., which supported the view that interest income from short-term deposits is attributable to the business of banking and eligible for deduction under Section 80P(2)(a)(i).

Further, the Tribunal cited the Telangana & Andhra Pradesh High Court's ruling in Vaveru Co-operative Rural Bank Ltd. v CIT, which held that interest income from investments made by cooperative societies engaged in providing credit facilities to members is eligible for deduction under Section 80P(2)(a)(i).

Based on these judicial pronouncements and the facts of the case, the Tribunal concluded that the interest income received by the assessee on investments with sub-treasuries, district co-operative banks, and other banks is part of its business income and eligible for deduction under Section 80P(2)(a)(i).

Conclusion:

The Tribunal upheld the CIT(A)'s decision, allowing the deduction under Section 80P(2)(a)(i) for the interest income received on such investments. Consequently, the appeals filed by the Revenue were dismissed, and the cross objections filed by the assessee were rendered infructuous.

Order:

The appeals filed by the Revenue and the cross objections filed by the assessee were dismissed. The order was pronounced on August 1, 2019.

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