2021 (12) TMI 810 - AT - Income Tax

Disallowing the deduction claimed u/s 80P(2)(a)(i) - income earned by the assessee on the money deposited with the bank - HELD THAT - The provisions of section 80P(2)(a)(i) of the Act provides the deduction to a co-operative society engaged in the business of banking or providing credit facilities to its members. The provisions of the section are without any ambiguity - the income from the activity of financing from the members is only eligible for deduction under section 80P(2)(a)(i) - If there is any income arising to the co-operative society from the non-members that will not be subject to deduction under section 80P(2)(a)(i). It is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the Banks other than cooperative bank is not being attributable to the business as envisaged under the provisions of the Act. Thus the same cannot be deducted under section 80P(2)(a)(i). No ambiguity that income earned by the assessee on the money deposited with the bank is not eligible for deduction under section 80P(2)(a)(i). As in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT 2021 (1) TMI 488 - SUPREME COURT by the Hon'ble Supreme Court of India wherein, the primary agricultural credit societies were held to be entitled to the benefit of the deduction contained in Section 80P(2)(a)(i) of the Act, notwithstanding the fact that the society may also be giving loans to its members which are not related to agriculture. However, if it is found that there are instances of loans being given to the non-members, profits attributable to such loans obviously were not liable to be deducted. The essence of this decision is that absolute denial of deduction under Section 80P(2)(a)(i) of the Act to the assessee's (cooperative societies) engaged in the providing credit facilities to the non-members along with its members is not warranted under the Act and only that part of profit and gains that is attributable and/or pertains to the non-members shall not be allowed as deduction under Section 80P(2)(a)(i). The profits and gains attributable to non-members arising as a result of advancement of loans was held to be not an allowable deduction under Section 80P(2)(a)(i) of the Act. In view of the above, we do not find any merits in the argument advanced by the learned counsel for the assessee. Thus, we hold that there is no infirmity in the order of the learned CIT (A), requiring any interference. Hence, we uphold the same. Hence, the ground of appeal of the assessee is dismissed.

Summary

Issues:
1. Disallowance of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Interpretation of provisions of section 80P(2)(a)(i) regarding deduction eligibility for co-operative societies.
3. Application of judicial precedents in determining deduction eligibility for interest income.

Analysis:

Issue 1: Disallowance of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961:
The appeals were filed by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals) confirming the disallowance of deduction under section 80P(2)(a)(i) of the Act. The disallowed amount was related to interest income earned by the Assessee from deposits with banks other than cooperative banks. The Assessing Officer calculated the disallowed amount based on the interest income not arising from the activities of financing to members. The Assessee contended that the interest income from such deposits should be eligible for deduction under section 80P(2)(a)(i) citing a Supreme Court judgment. However, the Tribunal held that only interest derived from credit provided to members is deductible under section 80P(2)(a)(i) and interest from deposits with non-cooperative banks is not attributable to the business as per the Act.

Issue 2: Interpretation of provisions of section 80P(2)(a)(i) regarding deduction eligibility for co-operative societies:
The Tribunal analyzed the provisions of section 80P(2)(a)(i) which provide deductions to co-operative societies engaged in banking or providing credit facilities to members. It was emphasized that income from activities of financing members is eligible for deduction, while income from non-members does not qualify for deduction under section 80P(2)(a)(i). Referring to a judgment of the Hon'ble Gujarat High Court, it was established that only interest derived from credit to members is deductible under this section, not interest from deposits with non-cooperative banks.

Issue 3: Application of judicial precedents in determining deduction eligibility for interest income:
The Tribunal considered the case law cited by the Assessee regarding the entitlement of co-operative societies to deduction under section 80P(2)(a)(i). While the Supreme Court judgment highlighted that societies providing credit facilities to non-members may still be eligible for deduction, profits attributable to non-members' loans are not deductible. The Tribunal concluded that the interest income earned by the Assessee from deposits with banks other than cooperative banks is not eligible for deduction under section 80P(2)(a)(i) of the Act, based on the interpretation of relevant legal provisions and judicial precedents.

In conclusion, the Tribunal dismissed the appeals filed by the Assessee, upholding the disallowance of deductions under section 80P(2)(a)(i) for the interest income earned from deposits with non-cooperative banks, in accordance with the provisions of the Income Tax Act and relevant judicial precedents.