2021 (3) TMI 933 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - credit facilities to associate or nominal members - HELD THAT - Hon ble Apex Court in the case of The Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT had held that the expression members is not defined under the Income-tax Act. Hence it is necessary to construe the expression members in section 80P(2)(a)(i) of the I.T.Act as it is contained in the respective State Co-operative Act. Hon ble Apex Court had held that providing credit facilities to associate or nominal members would be entitled to deduction u/s 80P(2)(a)(i) unless they are not considered as members of co-operative under the respective State Act. Hon ble Apex Court has also considered the judgment in case of Citizen Co-operative Society Ltd. 2017 (8) TMI 536 - SUPREME COURT . A.O. has merely denied the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act for the reason that the assessee was also dealing with associate / nominal members which is against the dictum laid down by the Hon ble Apex Court in case of Mavilayi Service Co-operative Bank Ltd. Ors. (supra). The Hon ble Apex Court has settled many issues. In the instant case needs to be examined by the A.O. in light of the principles enunciated by the Hon ble Apex Court in case of Mavilayi Service Co-operative Bank Ltd. Ors. (supra). Accordingly the CIT(A) order on this issue is set aside and the same is restored to the files of the A.O. for examination of the case in the light of the principles laid down by the Hon ble Apex Court in the case of The Mavilayi Service Co-operative Bank Ltd. Ors. v. CIT (supra). Claim of deduction u/s 80P(2)(a)(i) of the I.T.Act with regard to interest income earned from fixed deposit kept with Co-operative Banks - In view of the above co-ordinate Bench order in the case of M/s.Raithara Seva Sahakara Sangh 2019 (1) TMI 282 - ITAT BANGALORE restore the issue of claim of interest income received from other cooperative banks to the files of the A.O. for de novo consideration. The A.O. shall follow the directions of the Tribunal contained (supra). It is ordered accordingly.

Summary

Issues:
1. Disallowance of claim of deduction u/s 80P(2)(a)(i) of the I.T.Act.
2. Taxability of interest earned from deposits with Co-operative Banks u/s 56 of the I.T.Act.

Analysis:
1. Issue 1 - Disallowance of deduction u/s 80P(2)(a)(i):
The assessee, a Co-operative Society, filed a return for AY 2016-2017 claiming deduction u/s 80P of the I.T.Act. The Assessing Officer disallowed the deduction stating that the principles of mutuality did not exist between regular, associate, and nominal members, relying on legal precedents. The CIT(A) upheld this decision. However, the Tribunal referred to the judgment of The Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT, where it was held that providing credit facilities to associate or nominal members would be entitled to deduction u/s 80P(2)(a)(i) unless they are not considered as members under the respective State Act. The Tribunal set aside the CIT(A) order, instructing the A.O. to reexamine the case in line with the principles laid down by the Apex Court.

2. Issue 2 - Taxability of interest from Co-operative Banks:
Regarding interest income earned from deposits with Co-operative Banks, the Tribunal considered conflicting judgments. The AR cited a Karnataka High Court decision allowing deduction under section 80P(2)(a)(i) for interest income from temporary parking of surplus funds. The DR referenced another High Court decision, leading to a contradictory interpretation. The Tribunal, in line with a previous case, directed the A.O. to reconsider the issue, allowing the Assessee to provide additional evidence regarding membership. The Tribunal ordered a fresh examination based on the judgments of the Apex Court and the Karnataka High Court, emphasizing the source of funds for investments.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s decision on both issues and instructing a fresh examination by the Assessing Officer in light of the relevant legal precedents.