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2021 (8) TMI 705 - AT - Income TaxRevision u/s 263 - Deduction u/s 80P(2)(a)(i) - interest income was received by the assessee on deposits with co-operative banks and therefore deduction on the aforesaid sum ought to not have been allowed to the assessee by the AO either under section 80P(2)(a)(i) or 80P(2)(d) - HELD THAT - As seen that the ratio laid down in the case of Totalgars Cooperative Sales Society 2017 (7) TMI 1049 - KARNATAKA HIGH COURT is that in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society 2010 (2) TMI 3 - SUPREME COURT in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in cooperative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act. CIT was therefore justified in exercising his powers of revision u/s.263 of the Act and directing the AO to tax interest income in question as it is neither of the nature specified in Sec.80P(2)(a)(i) or 80P(2)(d) of the Act. The argument that the view taken by the AO was a possible view and hence revision u/s.263 of the Act is bad is again not acceptable because, the view that ought to have been adopted was the later binding decision of the High Court in the case of Totagar co-opeartive sales society 2017 (7) TMI 1049 - KARNATAKA HIGH COURT The argument that co-operative Banks are also co-operative societies is again without any basis in the light of the law explained in the case of Totagar co-opeartive sales society supra - We uphold the order of the CIT and dismiss the appeal of the assessee.
Issues Involved:
1. Whether the interest income earned by a co-operative society from deposits with co-operative banks is eligible for deduction under section 80P(2)(a)(i) or 80P(2)(d) of the Income Tax Act. 2. Whether the order of the Assessing Officer (AO) allowing such deduction was erroneous and prejudicial to the interest of the Revenue. 3. The applicability of the decisions of the Hon’ble Supreme Court and Karnataka High Court in similar cases. Detailed Analysis: 1. Eligibility for Deduction under Section 80P(2)(a)(i) or 80P(2)(d) The assessee, a co-operative society, claimed a deduction for interest income earned from deposits with co-operative banks under section 80P(2)(a)(i) of the Income Tax Act. The Pr.CIT, however, argued that this interest income should not be deductible under either section 80P(2)(a)(i) or 80P(2)(d). The Pr.CIT referred to the Karnataka High Court decision in PR.CIT Vs. Totagars Co-operative Sale Society, which held that interest income from deposits with co-operative banks is taxable under the head "income from other sources" and not eligible for deduction under section 80P(2)(a)(i). 2. Erroneous and Prejudicial Order by AO The Tribunal examined whether the AO's order allowing the deduction was erroneous and prejudicial to the interest of the Revenue. It was noted that an order contrary to a decision of the jurisdictional High Court is prejudicial to the interest of the Revenue. The Supreme Court in Malabar Industrial Co. Ltd. vs. CIT held that an incorrect application of law by the AO would make the assessment order erroneous and prejudicial to the interests of the Revenue. 3. Applicability of Judicial Decisions The Tribunal considered several judicial decisions to determine the correct application of the law: - Totgars Co-operative Sale Society Case (Supreme Court): The Supreme Court held that interest income from surplus funds invested in short-term deposits is taxable under "income from other sources" and not eligible for deduction under section 80P(2)(a)(i). - Tumkur Merchants Souharda Credit Cooperative Ltd. Case (Karnataka High Court): The Karnataka High Court held that interest income from deposits made in a nationalized bank by a society providing credit facilities to its members is attributable to the business of providing credit facilities and eligible for deduction under section 80P(2)(a)(i). - Totgars Co-operative Sale Society Case (Karnataka High Court): The Karnataka High Court later held that interest income earned on deposits with any bank is income from other sources and not eligible for deduction under section 80P(2)(d). The Tribunal noted that the decision in Totgars Co-operative Sale Society by the Karnataka High Court (395 ITR 611) was binding and held that interest income from investments in banks does not fall within the categories mentioned in section 80P(2)(a) and is not deductible under section 80P(2)(d). Conclusion The Tribunal upheld the Pr.CIT's order, agreeing that the AO's decision was contrary to the binding jurisdictional High Court decision and thus erroneous and prejudicial to the interest of the Revenue. The appeal of the assessee was dismissed. The Tribunal emphasized that the view taken by the AO was not a possible view in light of the binding precedent, and co-operative banks are not considered co-operative societies for the purpose of section 80P(2)(d). Final Decision The Tribunal upheld the CIT's order and dismissed the appeal of the assessee, concluding that the interest income in question is neither deductible under section 80P(2)(a)(i) nor section 80P(2)(d) of the Income Tax Act.
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