2021 (7) TMI 930 - AT - Income Tax

Denial of exemption u/s 80P(2)(d) - interest income earned from Co-operative banks - HELD THAT - In the case of Karkala Co-op. S. Bank Ltd. Vs. ITO 2021 (2) TMI 854 - ITAT BANGALORE the Bangalore bench of Tribunal has considered issue of eligibility of the assessee to claim deduction u/s 80P(2)(d) and it was held that the assessee is eligible for deduction of expenses incurred for earning the interest income. We set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to allow deduction of proportionate cost administrative and other expenses if the A.O. proposes to assess the interest income earned from bank deposits as income under the head -other sources. Denial of deduction u/s 80P of the Act in respect of commission income earned on sale of e-stamps - HELD THAT - Perusal of provisions of sec.80P(2)(c) would show that there is no such restriction prescribed in it. Section 80P(2)(c) prescribes deduction in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b). It further states that the deduction u/s 80P(2)(c) is allowable to so much of its Profits and gains attributable to such activities as does not exceed the amount prescribed. Thus the quantum of deduction is the amount of profits and gains attributable to the activities subject to the maximum amount prescribed therein. Hence we are of the view that the assessee would be eligible for deduction u/s 80P(2)(c) of the Act in respect of commission income on sale of e-stamps since it is not one of the activities mentioned in clause (a) or (b). We notice that it is necessary to first determine the profits and gains attributable to the activities of earning commission income on sale of e-stamps and then compute deduction u/s 80P(2)(c) subject to the limits prescribed in the said provision. Accordingly this issue requires fresh examination at the end of AO. Appeal allowed for statistical purposes.

Summary

Issues:
1. Denial of exemption u/s 80P(2)(d) of the Act for interest income from Co-operative banks.
2. Denial of deduction u/s 80P of the Act for commission income from sale of e-stamps.

Analysis:

Issue 1: Denial of exemption u/s 80P(2)(d) for interest income:
The Assessing Officer (AO) rejected the assessee's claim for deduction u/s 80P of the Act, citing the principle of mutuality due to dealing with nominal members, relying on a Supreme Court decision. The AO also disallowed the deduction for interest income from deposits with co-operative banks, following a Karnataka High Court decision. However, the CIT(A) held that the assessee is eligible for deduction u/s 80P(2)(a)(i) for business income but confirmed the disallowance for interest income under u/s 80P(2)(d). The Tribunal considered the High Court's decision allowing proportionate expenses against interest income and directed the AO to allow such deductions, setting aside the CIT(A)'s order.

Issue 2: Denial of deduction u/s 80P for commission income:
The AO disallowed the deduction for commission income earned on sale of e-stamps, but the CIT(A) upheld this decision. However, the Tribunal noted that there was no restriction in sec.80P(2)(c) regarding earning commission mainly from outsiders. It emphasized that deduction under sec.80P(2)(c) is based on profits and gains attributable to specific activities, not limited to dealings with members. The Tribunal directed a fresh examination by the AO to determine the profits and gains attributable to the commission income on e-stamps for granting the deduction under sec.80P(2)(c).

In conclusion, the Tribunal allowed both appeals for statistical purposes, directing the AO to reconsider the deductions for interest income and commission income based on the legal interpretations provided in the judgments cited during the proceedings.