2022 (6) TMI 1155 - AT - Income Tax

Deduction u/s 80P - assessee has earned interest income from nationalised banks i.e. other than cooperative banks and claimed deduction under section 80P(2)(d) - HELD THAT - On the issue whether the interest earned on deposits kept with nationalised bank is eligible for deduction under section 80 P of the Act, in our view, the issue is directly covered in favour of the Revenue in view of the Supreme Court decision the case of Totgars, Co-operative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT held that interest earned by assessee would come in category of 'Income from other sources' taxable under section 56 and would not qualify for deduction as business income under section 80P(2)(a)(i). Gujarat High Court in the case of State Bank of India (SBI) 2016 (7) TMI 516 - GUJARAT HIGH COURT held that where assessee, a co-operative society, having accepted deposits from its members, kept idle funds with bank, since there was no nexus between interest earned on said deposits and business of assessee providing credit facilities to its members, it could not claim deduction under section 80P(2) of the Act in respect of interest income in question. In the case of Baroda Citizen Community Co-op. Credit Society Ltd. 2022 (1) TMI 987 - ITAT AHMEDABAD held that in case of a society engaged in providing credit facilities to its members, income from investments made in banks is not deductible under section 80P of the Act. Respectfully following the decisions cited above, we do not find any infirmity in the decision of Ld. CIT(A). Therefore, the appeal of the assessee is dismissed on this issue in respect of Ground Number 1. Disallowance of deduction under section 80P of the Act in respect of rental income and other miscellaneous income - HELD THAT - Bihar High Court in the case of Bihar Rajya Sahkari Bhoomi Vikas Co-operative Bank Ltd. 2008 (9) TMI 310 - PATNA HIGH COURT held that income earned by assessee, a co-operative bank, by way of interest on provident fund amount of employees and rent from house property could not be treated as income attributable to banking business and would not qualify for deduction under section 80P(2) of the Act. In the case of CIT v. Nainital District Co-Operative Bank 2007 (3) TMI 256 - UTTARAKHAND HIGH COURT held that where the assessee-bank derived the income in question from the house property and not from the banking business, the assessee could not be allowed deduction under section 80P of the Act in respect of the income derived by house property. In view of the consistent view taken by the various High Court/Tribunals, we are of the considered view that the Ld. CIT(Appeals) has not erred in facts and law in confirming the addition made by the Ld. Assessing Officer by denying deduction under section 80P of the Act in respect of rental income/miscellaneous income. In the result, Ground number 2 of the assessee s appeal is dismissed.

Summary

Issues:
1. Eligibility of deduction under section 80P(2)(d) for interest income from nationalized banks.
2. Eligibility of deduction under section 80P for rental income and miscellaneous income.

Issue 1:
The appeal involved a dispute regarding the eligibility of the assessee for a deduction under section 80P(2)(d) of the Income Tax Act for interest income earned from nationalized banks. The Assessing Officer disallowed the deduction, adding the interest income to the total income of the assessee. The CIT(A) upheld the disallowance, stating that the interest income earned from nationalized banks did not qualify for deduction under section 80P(2)(d) as there was no nexus between the interest earned and the core activities of providing credit facilities to members. The ITAT, citing relevant case law including the Supreme Court and Gujarat High Court decisions, affirmed the CIT(A)'s decision, stating that interest income from investments in banks, not being cooperative societies, was not deductible under section 80P(2)(d). Consequently, the appeal on this issue was dismissed.

Issue 2:
The second ground of appeal concerned the disallowance of deduction under section 80P for rental income and miscellaneous income. The Assessing Officer disallowed an amount representing rental income and miscellaneous income, stating that these incomes were not incidental to the primary activities of the cooperative society. The CIT(A) upheld the disallowance, emphasizing that the assessee failed to establish how this income was incidental to its activities. The ITAT, relying on various precedents from different High Courts and Tribunals, confirmed the CIT(A)'s decision. It was held that rental income or any income not incidental to the primary activity of the cooperative society was not eligible for deduction under section 80P. The appeal on this issue was also dismissed by the ITAT.

In conclusion, the ITAT dismissed the appeal of the assessee on both issues related to the eligibility of deductions under section 80P(2)(d) for interest income from nationalized banks and for rental income and miscellaneous income. The decision was based on the lack of nexus between the income earned and the core activities of the cooperative society, as established by relevant legal precedents and interpretations of the Income Tax Act.