2021 (11) TMI 1198 - AT - Income Tax

Benefit of deduction u/s 80P(2)(d) - interest income received by a cooperative society from other cooperative societies - HELD THAT - On perusal of provisions of section 80P(2)(d), it is clear that the income derived by a cooperative society from its investment held with other cooperative societies shall be exempt from the total income of a cooperative society. Therefore, what is relevant for claiming of deduction u/s 80P(2)(d) is that interest income should have been derived from the investment made by the assessee cooperative society with any other cooperative society. In the present case, the reasoning given by the lower authorities for denial of exemption u/s 80P(2)(d) is that interest was received from cooperative bank has no legs to stand as a cooperative bank is also a cooperative society. This issue was considered in the case of CIT vs. Totagars Cooperative Sale Society, 2017 (7) TMI 1049 - KARNATAKA HIGH COURT wherein referring to case of Totgars Co-operative Sales Society Ltd. 2010 (2) TMI 3 - SUPREME COURT held that the ratio of decision of the Hon ble Supreme Court in the aforesaid case (supra) not to be applicable in respect of interest income on investment as same falls under the provisions of section 80P(2)(d) and not u/s 80P(2)(a)(i) of the Act. From material on record it is not clear that whether the entire interest income was received from cooperative bank or other bank? - In the circumstances, we remit the matter to the file of the AO for the purpose of verifying whether entire interest income was received from other cooperative bank, if so, allow the same or otherwise restricted the exemption to the extent of income received from other cooperative banks. Grounds raised by the assessee are partly allowed for statistical purposes.

Summary

Issues:
Allowability of deduction under section 80P(2)(d) of the Income Tax Act for interest income received by a cooperative society from other cooperative societies.

Analysis:
The case involved an appeal by a cooperative society against the denial of deduction under section 80P(2)(d) of the Income Tax Act for interest income earned on Reserve Funds and Shares for the assessment year 2012-13. The Assessing Officer had disallowed the deduction, stating that the provisions of section 80P(2)(d) were not applicable to the assessee. The ld. CIT(A) upheld this decision, relying on a Supreme Court judgment. The main contention was whether the interest income received from a cooperative bank qualified for the deduction under section 80P(2)(d) of the Act.

The Appellate Tribunal analyzed the provisions of section 80P(2)(d) and emphasized that income derived by a cooperative society from its investment held with other cooperative societies is exempt. The Tribunal noted that the denial of exemption based on the interest being received from a cooperative bank was unfounded, as a cooperative bank is also a cooperative society. It referred to a Karnataka High Court judgment which clarified that interest income on investments falls under section 80P(2)(d) and not under a different provision. Additionally, the Tribunal cited a Pune Bench decision which preferred the view of the Karnataka High Court over conflicting judgments.

The Tribunal dismissed the reliance on another Karnataka High Court judgment concerning interest income earned by a cooperative society engaged in various activities, as it was not directly relevant to the present case. It concluded that the Assessing Officer's reasoning for denying the deduction was not valid. However, due to ambiguity regarding whether the entire interest income was received from a cooperative bank, the matter was remitted to the Assessing Officer for verification. The Tribunal partially allowed the grounds raised by the assessee for statistical purposes, ultimately partly allowing the appeal.

In conclusion, the Tribunal's decision clarified the eligibility of a cooperative society to claim a deduction under section 80P(2)(d) of the Income Tax Act for interest income derived from investments made with other cooperative societies. The judgment highlighted the importance of correctly interpreting the provisions of the Act and considering relevant legal precedents to determine the applicability of deductions in such cases.