2023 (9) TMI 211 - AT - Income Tax

Deduction u/s. 80(P)(2)(A)(i) - allowance of interest on deposits earned by the Cooperative Society from the fixed deposits in various bank accounts - contention of the Ld. AO is that as per section 80P(2)(d), the assessee is eligible to claim deduction U/s. 80P(2)(a)(i) only when it is invested with any other cooperative society - HELD THAT - From the plain reading of section 80P(2)(a)(i) of the Act, the whole of amount of profits and gains of the business attributable to one or more of such activities shall be allowed as a deduction. Further, section 80P(2)(d) and 80P(2)(e) of the Act also allows similar deductions. In simple terms, the benefit under clause (a) will be limited only to the profits gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such activities listed in sub-clauses (i) to (vii) of clause-(a), the same may go out of the purview of clause (a) but still the cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression attributable to and not any one of the expressions viz., derived from or directly attributable to . As in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT held that the cooperative society is eligible for deduction U/s. 80P(2)(a)(i) of the Act on the interest income received from investment in banks. In the instant case also, the assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore are of the view that interest income should be allowed as deduction U/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A)-NFAC has rightly held by deleting the addition made by the Ld. AO and hence we find no infirmity in the order of the Ld. CIT(A)-NFAC. Decided in favour of assessee.

Summary

Issues Involved:
1. Allowance of interest on deposits earned by the Cooperative Society from fixed deposits in various bank accounts as deduction under Section 80P(2)(a)(i) of the Income Tax Act.
2. Addition of Rs. 1,60,825/- towards locker rent as not eligible for deduction under Section 80P(2)(A)(i) of the Act.
3. Non-adjudication of the claim for allowing the expenditure of Rs. 2,39,53,821/- against interest receipts and exemption of income under the Doctrine of Mutuality.

Summary:

Issue 1: Allowance of Interest on Deposits as Deduction under Section 80P(2)(a)(i):
The Revenue contested the CIT(A)-NFAC's order allowing the Cooperative Society's claim for deduction under Section 80P(2)(a)(i) for interest income earned from fixed deposits in banks. The AO had relied on the Supreme Court's decision in the case of Totgars Cooperative Sale Society Ltd., asserting that such interest income should be taxed as "income from other sources" and not be eligible for deduction under Section 80P. The Tribunal, however, distinguished the facts of the present case from Totgars, noting that the interest income in question was derived from the Society's own funds and not from amounts payable to its members. The Tribunal referred to the Andhra Pradesh High Court's decision in Vavveru Cooperative Rural Bank Ltd., which allowed similar deductions, and concluded that the interest income should be allowed as a deduction under Section 80P(2)(a)(i). The Tribunal upheld the CIT(A)-NFAC's order, finding no infirmity in it.

Issue 2: Addition of Rs. 1,60,825/- Towards Locker Rent:
The CIT(A)-NFAC's order did not specifically address the addition of Rs. 1,60,825/- towards locker rent. However, since the main appeal was decided in favor of the assessee, this issue was rendered moot and did not require separate adjudication.

Issue 3: Non-adjudication of Claims for Expenditure and Doctrine of Mutuality:
The assessee's cross-objections included claims for allowing the expenditure of Rs. 2,39,53,821/- against interest receipts and exemption of income under the Doctrine of Mutuality. As the main appeal was resolved in favor of the assessee, these grounds were considered infructuous and did not necessitate separate adjudication.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)-NFAC's order allowing the deduction of interest income under Section 80P(2)(a)(i). Consequently, the assessee's cross-objections were also dismissed as infructuous. The judgment was pronounced in the open Court on 30th August, 2023.