2021 (7) TMI 1189 - AT - Income Tax

Denial of exemption u/s. 80P(2)(d) in respect of 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 in respect of commission income earned on sale of e-stamps - HELD THAT - Tax authorities have rejected the claim only on the ground that the Commission income has been earned mainly from outsiders and not mainly from members - HELD THAT - A 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. Both the appeals are treated as allowed for statistical purposes.

Summary

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

Analysis:
1. Denial of exemption u/s. 80P(2)(d) for interest income:
The AO rejected the claim for deduction u/s. 80P of the Act, citing the principle of mutuality due to dealings with nominal members. The AO relied on a Supreme Court decision. However, the Ld. CIT(A) distinguished the case, holding the assessee eligible for deduction u/s. 80P(2)(a)(i) for business income but disallowed u/s. 80P(2)(d) for interest income. The Tribunal referred to a Karnataka High Court decision allowing deduction of expenses against interest income. Following this, the Tribunal directed the AO to allow proportionate expenses against interest income.

2. Denial of deduction u/s. 80P for commission income:
The AO disallowed the deduction u/s. 80P for commission income earned on e-stamps. The Ld. CIT(A) upheld this disallowance. However, the Tribunal noted that sec. 80P(2)(c) does not restrict deductions based on income sources. It allows deductions for activities not covered in clauses (a) or (b). The Tribunal directed a fresh examination by the AO to determine the profits attributable to the commission income on e-stamps for claiming the deduction u/s. 80P(2)(c). Consequently, both appeals were treated as allowed for statistical purposes.

In conclusion, the Tribunal allowed the assessee's claim for deduction u/s. 80P(2)(d) for interest income by directing the AO to allow proportionate expenses against the interest income. Additionally, the Tribunal directed a fresh examination by the AO for the deduction claim u/s. 80P(2)(c) for commission income on e-stamps, emphasizing the need to determine profits attributable to the specific activity.