2021 (3) TMI 1210 - AT - Income Tax

Eligibility of Deduction u/s 80P - CIT(A) held that the interest income earned by the appellant from investment of surplus funds with co-operative banks is not eligible for deduction u/s 80P(2)(d) or 80P(2)(a)(i) - assessee is a co-operative credit society and doing banking business ; it collects deposits from members from various schemes ; its major source of income as evident from the profit and loss account is on account of interest on loan given to members and interest on deposits with banks - HELD THAT - In CIT v. Kalpadi Co-operative Township Ltd. 2016 (9) TMI 952 - MADRAS HIGH COURT the Hon ble Madras High Court held that a Cooperative Credit Society providing credit facilities to its members alone and not to general public large nor it did receive moneys by way of deposits on general public, would not be treated as Co-operative Bank ; it would be entitled to deduction u/s 80P. As per Mavilayi Service Co-operative Bank Ltd. v. CIT 2021 (1) TMI 488 - SUPREME COURT limited object of section 80P(4) is to exclude Co-operative Banks that function at par with other commercial banks i.e. which lend money to members of the public . To sum up In Totagars Co-operative Sale Society 2017 (1) TMI 1100 - KARNATAKA HIGH COURT the Hon ble Karnataka High Court has held that for purpose of section 80P(2)(d) a Co-operative Bank should be considered as a Co-operative Society. In Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT the Hon ble Supreme Court has held that Section 80P of the IT Act, being benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be liberally and reasonably, and if there is any ambiguity, in favour of the assessee.

Summary

Issues:
1. Eligibility of interest income from investment of surplus funds with co-operative banks for deduction u/s 80P(2)(d) or 80P(2)(a)(i) of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-44, Mumbai, pertaining to the assessment year 2015-16 under section 143(3) of the Income Tax Act, 1961.
2. The assessee, a co-operative credit society, claimed deduction u/s 80P for interest income earned from investment with co-operative banks. The Assessing Officer disallowed the deduction, considering the society as a co-operative bank under the Banking Regulation Act, 1949.
3. The Ld. CIT(A) upheld the disallowance, citing the Supreme Court's judgment in Totgars Co-operative Sale Society Ltd., holding interest income from surplus funds taxable under section 56, not eligible for deduction u/s 80P(2)(a)(i).
4. The Ld. DR supported the CIT(A)'s decision, arguing that interest income from surplus funds with co-operative banks is not eligible for deduction under section 80P.
5. The Tribunal analyzed precedents like Kalpadi Co-operative Township Ltd. and Nilgiris Co-operative Marketing Societies Ltd. from the Madras High Court, supporting co-operative credit societies' eligibility for deduction u/s 80P.
6. Referring to the Karnataka High Court's judgment in PCIT vs. Totagars Co-operative Sale Society, the Tribunal concluded that a co-operative bank should be considered a co-operative society for section 80P(2)(d) purposes.
7. The Supreme Court's ruling in Mavilayi Service Co-operative Bank Ltd. emphasized the liberal interpretation of section 80P to promote the co-operative sector's credit, excluding co-operative banks functioning like commercial banks from the deduction.
8. Based on the legal principles and factual analysis, the Tribunal set aside the CIT(A)'s order, allowing the appeal and granting the deduction under section 80P(2)(d) for interest income from investment with co-operative banks.

This detailed analysis of the judgment highlights the interpretation of provisions under the Income Tax Act, relevant case laws, and the Tribunal's decision regarding the eligibility of interest income from surplus funds with co-operative banks for deduction under section 80P.