2022 (5) TMI 188 - AT - Income Tax

Denying deduction u/s. 80P(2)(c) available to a cooperative society - Whether CIT(A) has erred in affirming with the Ld. AO in considering income earned by the society in normal course of business as income from other sources and denying deduction u/s 80P(2)(a)(i) - HELD THAT - As regard ground for interest from banks the same is covered in favour of the assessee by the ITAT decision in the case of State Bank of India Employees M.S. Patel Co-operative Credit Society Ltd. 2017 (7) TMI 1417 - ITAT MUMBAI - thus we allow the assessee s appeal, qua interest earned. Insurance commission receipt - The society to safeguard the interest of the society has taken life insurance and mediclaim insurance policies for the members and staff, their family members and also general insurance policies for the hypothecated pledged properties, debtors and goods of the borrowers of the society. That the insurance premium paid by the society is charged and recovered from the respective members and staff. That these services are part and parcel of the business of the society. That rendering the above services insurance companies pay the society insurance commission instead of paying to the agents of the insurance company. Hence it has been pleaded that the insurance commission is part of business and hence eligible for deduction under section 80P(2)(a)(i) of the Act. Alternatively it has been pleaded that the proportionate expenses should be allowed. Commission income disallowed by learned CIT(A) on the ground that for the said income there absence of mutuality - The assessee submissions are not with respect to the same. They are with regard to the same being in the nature of business. Hence, there is lack of appropriate appreciation, hence in the interest of justice we remit this issue to the file of learned CIT(A). Learned CIT(A) shall consider the issue in the light of the submissions made by the assessee. Needless to add the assessee should be given adequate opportunity of being heard. As regard the ground of denial of deduction u/s. 80P(2)(c) of Rs. 50,000/- learned CIT(A) has mentioned that this was not arising out of the order of the Assessing Officer. That it is also not clear that this was claimed by the assessee in the beginning. In this regard learned CIT(A) noted that it is not forthcoming whether such a claim for deduction u/s.80P(2)(c) was made in the return of income filed. Hence, in the interest of justice I remit this issue to the file of the learned CIT(A). Learned CIT(A) shall consider the same as ground for adjudication after giving the assessee proper opportunity of being heard. Appeals of the assessee stands partly allowed for statistical purposes.

Summary

Issues Involved:
1. Classification of income as "income from other sources" versus "business income" and eligibility for deduction under Section 80P(2)(a)(i).
2. Denial of deduction under Section 80P(2)(c) amounting to Rs. 50,000/- available to a cooperative society.

Detailed Analysis:

Issue 1: Classification of Income and Deduction under Section 80P(2)(a)(i)
The primary issue revolves around whether the income earned by the cooperative society should be classified as "income from other sources" or "business income," and whether it qualifies for deduction under Section 80P(2)(a)(i).

- Income Sources: The society earned income from commissions from Future General Insurance (Rs. 31,040/-) and ICICI Bank (Rs. 61,559/-), along with interest income from ICICI Bank (Rs. 32,101/-) and Central Bank of India (Rs. 1,56,227/-).

- Arguments: The assessee argued that the commission income is part of its business activities, as it involves providing loans to members and securing insurance policies for them. The interest income, according to the assessee, should also be considered business income as it is derived from statutory investments mandated by the Maharashtra Co-operative Societies Act.

- CIT(A) Findings: The CIT(A) allowed the deduction under Section 80P(2)(d)/80P(2)(a)(i) for interest from cooperative banks but upheld the AO's decision to classify commission income from non-members as "income from other sources," denying the deduction. The CIT(A) also disallowed the deduction for interest income from nationalized banks, stating it does not adhere to the "Principle of Mutuality."

- ITAT Decision: The ITAT referenced previous rulings, including the case of State Bank of India Employees M.S. Patel Co-operative Credit Society Ltd. and the Hon'ble Supreme Court's decision in CIT v/s. Nawanshahar Central Co-operative Bank Ltd., which held that interest income from investments in both cooperative and scheduled banks is attributable to business activities and eligible for deduction under Section 80P(2)(a)(i). Consequently, the ITAT allowed the appeal regarding the interest income.

- Remand for Commission Income: The ITAT noted that the CIT(A) did not appropriately consider the assessee's argument that the commission income is part of its business activities. Therefore, this issue was remanded back to the CIT(A) for reconsideration in light of the assessee's submissions.

Issue 2: Deduction under Section 80P(2)(c)
The second issue concerns the denial of a Rs. 50,000/- deduction under Section 80P(2)(c).

- CIT(A) Findings: The CIT(A) observed that the AO did not disallow any deduction under Section 80P(2)(c) and it was unclear whether the assessee had claimed this deduction in the initial return.

- ITAT Decision: The ITAT remanded this issue back to the CIT(A) for adjudication. The CIT(A) is to verify whether the deduction was claimed in the return of income and decide accordingly, ensuring the assessee is given a proper opportunity to present their case.

Conclusion:
The ITAT allowed the appeal regarding the interest income, remanded the issue of commission income back to the CIT(A) for reconsideration, and also remanded the issue of the Rs. 50,000/- deduction under Section 80P(2)(c) for proper adjudication. The appeals were thus partly allowed for statistical purposes.