2019 (12) TMI 1102 - AT - Income Tax

Deduction u/s 80P(2) - CIT(A) passed order u/s 154 wherein the claim of deduction u/s 80P was denied - HELD THAT - In the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT 2016 (4) TMI 826 - KERALA HIGH COURT had held that when a certificate has been issued to an assessee by the Registrar of Co-operative Societies characterizing it as primary agricultural credit society necessarily the deduction u/s 80P(2) has to be granted to the assessee. Full Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT 2016 (4) TMI 826 - KERALA HIGH COURT had held that the A.O. 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. In view of the dictum laid down by the Full Bench of the Hon ble jurisdictional High Court (supra) we restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer. AO shall examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co-operative society functioning under the Kerala Co-operative Societies Act 1969 and accordingly grant deduction u/s 80P(2) of the I.T.Act. Interest on the investments with Cooperative Banks and other Banks the co-ordinate Bench order of the Tribunal in the case of Kizhathadiyoor Service Cooperative Bank Limited 2016 (7) TMI 1405 - ITAT COCHIN had 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 . However as regards the grant of deduction u/s 80P on such interest income the Assessing Officer shall follow the law laid down in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income. It is ordered accordingly.

Issues:
1. Disallowance of deduction u/s 80P of the I.T.Act
2. Rectification of order u/s 154 of the I.T.Act
3. Eligibility for deduction u/s 80P of the I.T.Act based on activities of the assessee society
4. Treatment of interest income from investments with Cooperative Banks and other Banks
5. Grant of deduction u/s 80P of the I.T.Act on interest income

Issue 1: Disallowance of deduction u/s 80P of the I.T.Act
The Assessing Officer disallowed the claim of deduction u/s 80P(2) of the I.T.Act for the assessee, a co-operative society, on the grounds of engaging in banking activities. The CIT(A) allowed the appeal, stating the eligibility for deduction u/s 80P of the I.T.Act, following a judgment of the jurisdictional High Court. However, the CIT(A) later issued an order u/s 154 of the I.T.Act, disallowing the deduction based on a subsequent judgment. The Tribunal restored the issue to the Assessing Officer to examine the activities of the assessee society and determine the eligibility for deduction u/s 80P(2) of the I.T.Act.

Issue 2: Rectification of order u/s 154 of the I.T.Act
The CIT(A) issued a notice u/s 154 of the I.T.Act to rectify the order passed, disallowing the deduction u/s 80P of the I.T.Act based on a subsequent judgment. Despite objections raised by the assessee, the CIT(A) passed an order disallowing the claim of the assessee u/s 80P(2) of the I.T.Act. The Tribunal intervened and restored the issue to the Assessing Officer for further examination.

Issue 3: Eligibility for deduction u/s 80P of the I.T.Act based on activities of the assessee society
The Full Bench of the Hon'ble Kerala High Court emphasized that the Assessing Officer must conduct an inquiry into the activities of the assessee society to determine the eligibility for deduction u/s 80P of the I.T.Act. Each assessment year is considered separate, and the eligibility for deduction must be verified annually. The Tribunal directed the Assessing Officer to examine the activities of the assessee society to determine the eligibility for deduction u/s 80P(2) of the I.T.Act.

Issue 4: Treatment of interest income from investments with Cooperative Banks and other Banks
The Tribunal cited a previous order regarding interest income earned from investments with treasuries and banks, stating it should be assessed as 'income from business' instead of 'income from other sources.' However, the grant of deduction u/s 80P of the I.T.Act on such interest income should be determined by examining the activities of the assessee-society, as per the judgment of the Larger Bench of the Hon'ble jurisdictional High Court.

Issue 5: Grant of deduction u/s 80P of the I.T.Act on interest income
The Tribunal directed the Assessing Officer to follow the law laid down by the Larger Bench of the Hon'ble jurisdictional High Court in determining the grant of deduction u/s 80P of the I.T.Act on interest income from investments with Cooperative Banks and other Banks. The activities of the assessee-society should be examined before granting such deductions.

This detailed analysis of the judgment addresses the issues related to the disallowance of deduction u/s 80P of the I.T.Act, rectification of orders, eligibility for deduction based on activities, treatment of interest income, and the grant of deductions on interest income. The Tribunal emphasized the need for a thorough examination of the activities of the assessee society to determine the eligibility for deductions under the relevant provisions of the Income Tax Act.

← Previous Next →