2022 (12) TMI 755 - AT - Income Tax

Allowability/allowable of deduction u/s. 80P(2)(d) - interest income earned on the investments held with other co-operative society - whether the assessee is eligible for deduction u/s. 80P for the interest earned on fixed deposits and recurring deposits held with Burdwan Central Co-operative Bank Ltd? - HELD THAT - As far as section 80P(4) of the Act, it only provides that provisions of section 80P shall not be applied in relation to any cooperative bank other than agricultural credit society or any agricultural rural bank. In simple words such cooperative Bank cannot claim deduction u/s.80P(2) 80P(3) of the Act. Since the assessee is not a cooperative bank, but a Primary Agricultural Credit Society therefore, provisions of section 80P(4) of the Act is not applicable and thus, it is entitled to deduction u/s. 80P of the Act to the extent allowable as per relevant provisions. Now the alleged interest income is earned from idle funds invested in the bank and as far as deduction u/s. 80P(2)(i) is concerned, which refers to income earned from carrying on banking business or providing credit facilities to its members, thus find that the alleged interest income is not earned by the assessee from its members and therefore, not eligible for deduction u/s. 80P(2)(i) of the Act. On going through the provisions of section 80P(2)(d) of the Act the co-operative society is eligible for deduction of income in respect of any income by way of interest or dividends derived from its investments with any other co-operative society, Now the assessee has earned interest income from Burdwan Central Cooperative Bank Ltd. Though the Burdwan Central Co-operative Bank Ltd is having license under the Banking Regulation Act, 1949 to carry on Banking Business, but basically it is a cooperative society, which has been allowed to do banking business under the said Banking Regulation Act, 1949. Section 80P(2)(d) only refers to word co-operative society and it has not been specifically mentioned under the said provisions of the Act that investments made in cooperative banks are to be excluded. In my humble understanding since the cooperative banks are basically co-operative societies only therefore, the words cooperative society mentioned in Sec. 80P(2)(d) includes these cooperative societies also which are carrying on banking business as cooperative banks. Therefore, since the assessee has earned interest from other cooperative society, which in this case is a cooperative bank, is eligible for deduction u/s. 80P(2)(d), therefore, reverse the findings of the ld. CIT(A) and allow the sole issue raised by the assessee. Thus, the effective grounds on merits raised by the assessee are allowed.

Summary

Issues:
Allowability of deduction under section 80P(2)(d) of the Income Tax Act for interest income earned on investments held with other cooperative society.

Analysis:
1. The assessee, a Primary Agricultural Credit Co-operative Society, challenged the assessment order treating interest income from investments as income from other sources.
2. The AO added the interest income to the total income, which was partially rectified under section 154 of the Act.
3. The assessee appealed to the CIT(A) but was unsuccessful in claiming deduction under section 80P(2)(a)(i) for the interest income.
4. The main issue revolves around the eligibility of the assessee for deduction under section 80P(2)(d) for interest income earned on investments with a cooperative bank.
5. The Tribunal admitted the legal ground based on the judgment of the Apex Court.
6. Section 80P of the Act outlines deductions for co-operative societies engaged in various activities, including banking.
7. The Tribunal analyzed the provisions of section 80P(2)(d) and concluded that the assessee, being a cooperative society, is eligible for deduction for interest income from investments in a cooperative bank.
8. The Tribunal differentiated between income earned from members and income derived from investments with other cooperative societies.
9. Since the cooperative bank in question is essentially a cooperative society carrying on banking business, the Tribunal held that the interest income is eligible for deduction under section 80P(2)(d).
10. The Tribunal reversed the CIT(A)'s decision and allowed the deduction under section 80P(2)(d) for the interest income.
11. Consequently, the Tribunal allowed the appeal of the assessee, granting the deduction for the interest income earned from investments with the cooperative bank.