2023 (6) TMI 391 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - claim of deduction denied for the reason that assessee was primarily dealing with non-members - HELD THAT - In the light of the judgment in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT it is clear that only profits attributable to non-members alone would not be entitled to deduction under section 80P(2)(a)(i) of the Act. Thereby meaning proportionate deduction is to be allowed in respect of the income arising out of business with the members of the assessee society. In the light of the above said judgment restore the issue to the AO to determine the proportionate deduction under section 80P(2)(a)(i) of the Act with regard to the income earned from the assessee s dealings with its regular members. Interest income received from Cooperative Banks / Scheduled Banks - whether it is income from business or income from other sources? - HELD THAT - Assessee is not entitled to the claim of deduction either under section 80P(2)(a)(i) or 80P(2)(d) of the Act.Judgment of the Hon ble jurisdictional High Court in the case of Totagars Co-operative Sale Society 2017 (7) TMI 1049 - KARNATAKA HIGH COURT relied upon. Appeal filed by the assessee is partly allowed for statistical purposes.

Summary

Issues involved:
1. Whether the denial of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 by the CIT(A) is justified.
2. Whether interest income received from Cooperative Banks / Scheduled Banks is classified as income from business or income from other sources.

Issue 1: Denial of Deduction under section 80P(2)(a)(i):
The appellant, a credit co-operative society, filed a return of income for Assessment Year 2016-17, claiming deduction under section 80P(2)(a)(i) of the Act. The Assessing Officer (AO) denied the deduction citing that the appellant primarily dealt with non-members, based on the judgment in the case of Citizen Co-operative Society Ltd. The First Appellate Authority (CIT(A)) upheld the AO's decision, stating that the appellant failed to demonstrate how the judgment in the case of Mavilayi Service Co-operative Bank Ltd. applied. The appellant argued before the Tribunal that while they may not be entitled to deduction for income from non-members, they should receive a proportionate deduction for income earned from regular members, as per the judgment in Mavilayi Service Co-operative Bank Ltd. The Tribunal agreed, citing the need for a liberal interpretation of section 80P(2)(a)(i) and ordered the issue to be reconsidered by the AO for proportionate deduction.

Issue 2: Classification of Interest Income:
The AO also disallowed the deduction for interest income received from scheduled banks under sections 80P(2)(a)(i) and 80P(2)(d) of the Act. The appellant contended that they were not entitled to deduction under these sections and referred to the judgment in Totagars Co-operative Sale Society case. The Tribunal concurred with the AO, holding that the appellant was not eligible for deduction on interest income from scheduled banks under the mentioned sections.

Conclusion:
The Tribunal partially allowed the appeal, directing the AO to determine the proportionate deduction under section 80P(2)(a)(i) for income earned from regular members. However, the deduction for interest income from scheduled banks was denied. The judgment emphasized the importance of a liberal interpretation of tax provisions and highlighted the distinction between income from members and non-members for the purpose of deductions under section 80P(2)(a)(i) of the Act.