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2020 (12) TMI 725 - AT - Income TaxDeduction u/s 80P(2)(d) - interest earned from Schedule bank or co-operative bank - HELD THAT - The claim of the Assessee was that Co-operative Bank is essentially a Co-operative Society and therefore deduction has to be allowed under Clause (d) of Sec.80P(2) - TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LIMITED 2015 (2) TMI 995 - KARNATAKA HIGH COURT followed the decision of the supreme Court in The Totgars Co-operative Sales Society Ltd. 2017 (7) TMI 1049 - KARNATAKA HIGH COURT and held that interest earned from Schedule bank or co-operative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d) was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007- 08 to 2011-12 and in AY 1991-92 to 1999-2000 decided by the Hon ble Supreme Court. Therefore whether the source of funds were Assessee s own funds or out of liability was not subject matter of the decision of the Hon ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgmentof The Totgars Co-operative Sale Society Ltd and Tumukur Merchnts Souharda Co-operative Ltd. (supra). AO will afford opportunity of being heard to the Assessee and filing appropriate evidence, if desired, by the Assessee to substantiate its case, before deciding the issue of deduction which was interest received by the Assessee from Apex Co-operative Bank and which was claimed as deduction u/s.80P(2)(a)(i) or (d).
Issues Involved:
1. Eligibility of Souharda Co-operative for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. 2. Treatment of interest income received from Apex Co-operative Bank under section 80P(2)(a)(i) or (d) of the Act. Issue-wise Detailed Analysis: 1. Eligibility of Souharda Co-operative for Deduction under Section 80P(2)(a)(i): The primary issue in this appeal was whether a co-operative registered under the Karnataka Souharda Sahakari Act, 1997, qualifies as a "co-operative society" eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The Assessing Officer (AO) denied the deduction, arguing that the benefit under section 80P(2)(a)(i) is available only to co-operative societies registered under the Karnataka Co-operative Societies Act, 1959, and not to entities registered under the Souharda Act. The AO relied on a previous ITAT Bangalore decision in the case of Udaya Souharda Credit Co-operative Society Ltd., which remanded the issue for fresh consideration without making a definitive ruling on the eligibility of Souharda entities. The Tribunal noted that the Karnataka High Court, in the case of Swabhimani Souharda Credit Co-operative Ltd., had addressed this issue. The High Court ruled that entities registered under the Karnataka Souharda Sahakari Act, 1997, fit within the definition of "co-operative society" as per section 2(19) of the Income Tax Act, 1961. This interpretation was based on the premise that both the Karnataka Co-operative Societies Act, 1959, and the Karnataka Souharda Sahakari Act, 1997, are cognate statutes dealing with co-operative societies, despite differences in nomenclature and functionality. The Tribunal concluded that, in light of the Karnataka High Court's decision, the assessee should be allowed the deduction under section 80P(2)(a)(i) of the Act, except for the interest income component. 2. Treatment of Interest Income Received from Apex Co-operative Bank: The second issue was the treatment of interest income amounting to ?9,47,434 received from Apex Co-operative Bank. The AO disallowed the deduction for this interest income, citing the Supreme Court's decision in PCIT vs. Totgars Co-operative Sale Society Ltd., which held that such interest income should be classified as "income from other sources" and not as income derived from the business of a co-operative society. The Tribunal considered the assessee's reliance on the Karnataka High Court's decision in Tumkur Merchants Souharda Credit Co-operative Society Ltd. vs. ITO, which allowed deduction under section 80P(2)(a)(i) for interest income from temporary parking of surplus funds. However, the Tribunal also noted a subsequent Karnataka High Court decision in PCIT vs. Totgars Co-operative Sale Society Ltd. that followed the Supreme Court's ruling, emphasizing that interest earned from co-operative banks is assessable under "income from other sources" and not eligible for deduction under section 80P(2)(d). Given these conflicting judgments, the Tribunal decided to remand the issue back to the AO for fresh consideration. The AO was directed to re-examine the facts in light of the Supreme Court and Karnataka High Court decisions, providing the assessee an opportunity to present evidence to substantiate its claim. Conclusion: The Tribunal partly allowed the appeal, granting the deduction under section 80P(2)(a)(i) for the income other than the interest income of ?9,47,434. The matter regarding the interest income was remanded to the AO for a fresh decision, considering the relevant judicial precedents.
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