2023 (10) TMI 272 - AT - Income Tax

Deduction u/s 80P - eligibility of the assessee for exemption u/s 80P(2)(a)(i) or u/s 80P(2)(d) - interest earned on FDs with the co-operative banks and interest earned from SB Accounts with the co-operative banks - HELD THAT - It is an admitted fact that the appellant is a cooperative society engaged in the business of providing credit facilities to its members and accepting deposits from its members. It does not enjoy any license to carry on the business of banking from Reserve Bank of India. Therefore, as held in the case of PCIT vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. 2023 (5) TMI 372 - SC ORDER that the assessee is eligible for deduction u/s 80P(2)(a)(i) of the Act. For allowability of exemption under the provisions of section 80P(2)(d) in respect of interest income earned by a cooperative society from the cooperative bank, there is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption u/s. 80P(2)(a)(i) - As relying on M/S. RATNATRAY GRAMIN BIGAR SHETI SAH. PAT SANSTHA MARYADIT case 2018 (12) TMI 1926 - ITAT PUNE the interest income earned on fixed deposits with cooperative bank/scheduled bank partakes character of the business income, which is eligible for deduction u/s 80P(2)(a)(i) of the Act. Therefore, we direct the Assessing Officer to delete the addition by allowing the exemption u/s 80P(2)(a)(i) and section 80P(2)(d) of the Act. Thus, the grounds of appeal filed by the assessee stand allowed.

Summary

Issues involved:
The eligibility of the assessee for exemption under sections 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961 regarding interest income earned by a cooperative society from cooperative banks.

Issue 1: Eligibility for exemption u/s 80P(2)(a)(i) of the Act
The appellant, a Cooperative Society providing credit facilities, filed an appeal against the assessment order bringing interest earned on FDs and SB Accounts with co-operative banks to tax. The NFAC confirmed the Assessing Officer's action. The appellant relied on tribunal decisions and the Co-ordinate Bench's judgment in a similar case. The issue was whether the appellant qualifies for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal held that since the appellant is not a licensed bank, it is eligible for the deduction, citing relevant Supreme Court and Bombay High Court decisions.

Issue 2: Allowability of exemption under section 80P(2)(d) for interest income
Regarding the eligibility of interest income earned by a cooperative society from cooperative banks for exemption under section 80P(2)(d), there was a divergence in judicial opinions among various High Courts. While some courts held such income ineligible for exemption, others considered it attributable to the society's activities and thus eligible. The Tribunal followed the decisions favoring the assessee, including judgments from the Karnataka, Telangana, Andhra Pradesh, Calcutta, and Madras High Courts, as well as a Coordinate Bench decision. It concluded that interest income on fixed deposits with cooperative banks qualifies as business income eligible for deduction under sections 80P(2)(a)(i) and 80P(2)(d) of the Act. Consequently, the addition made by the Assessing Officer was directed to be deleted, and the grounds of appeal by the assessee were allowed.

Separate Judgment:
No separate judgment was delivered by the judges in this case.