2024 (4) TMI 1141 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest received on investment with banks and co-operative banks - HELD THAT - Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. 2021 (1) TMI 488 - SUPREME COURT had held that the co-operative societies providing credit facilities to its members is entitled to deduction u/s 80P(2)(a)(i) of the Act. The Hon ble Apex Court held that if nominal / associate member is not prohibited under the said Act, for being taken as a member, the income earned on account of providing credit facilities to such member also qualify for deduction u/s 80P(2)(a)(i) - section 80P(4) of the I.T. Act is to be read as a proviso. Section 80P(4) of the Act now specifically excludes only co-operative banks which are co-operative societies engaged in the business of banking i.e. engaged in lending money to members of the public, which have a license in this behalf from the RBI. On identical factual situation, Tribunal in the case of M/s. Ravindra Multipurpose Cooperative Society Ltd. 2021 (9) TMI 342 - ITAT BANGALORE had remanded the issue to the files of the A.O. for de novo consideration. The Tribunal directed the A.O. to follow the dictum laid down by the Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. v. CIT Anr. (supra). In view of the order of the ITAT, which is identical to the facts of the case, we restore the issue of claim of deduction u/s 80P of the Act to the files of the A.O. to re-decide it. Claim of deduction u/s 57(iii) - We make it clear that if the interest earned by assessee from the banks is considered under the head Income from other sources , relief to be granted to the assessee u/s 57 of the Act in accordance with law. Accordingly, the issue is restored to the file of ld. AO for de-novo consideration with the above observations. Appeals of the assessee are partly allowed for statistical purposes.

Summary

Issues Involved:
- Interpretation of section 80P(2)(a)(i) of the Income Tax Act
- Claiming deduction for interest income from investment with banks and cooperative banks under section 80P(2)(a)(i) of the Act
- Assessment of interest income from deposits with scheduled banks and cooperative banks as "income from other sources" instead of "business income"
- Entitlement to deduction under section 80P(2)(d) of the Act for interest/dividend income from investments made with cooperative societies
- Eligibility for deduction under section 57(iii) of the Act for cost of funds incurred if income is assessed as "income from other sources" under section 56 of the Act

Analysis:
1. Interpretation of section 80P(2)(a)(i) of the Income Tax Act:
The case involved an appeal by the assessee against orders of the NFAC for different assessment years. The primary issue revolved around the interpretation of section 80P(2)(a)(i) of the Income Tax Act concerning the deduction claimed on interest income from investments with banks and cooperative banks. The Hon'ble Apex Court's ruling in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT & Anr. was cited, emphasizing that co-operative societies providing credit facilities to their members are entitled to deduction under this section. The term "member" was to be construed based on the respective State Co-operative Societies Acts. The Tribunal, in a similar case, remanded the issue for de novo consideration by the Assessing Officer (AO) in line with the Apex Court's judgment.

2. Claiming deduction for interest income from investment with banks and cooperative banks:
The assessee's claim for deduction under section 80P(2)(a)(i) for interest income from investments with banks and cooperative banks was denied. The issue was restored to the AO for fresh consideration following the Tribunal's order in a similar case. The Tribunal directed the AO to examine the facts in light of the principles laid down by the Apex Court, indicating the possibility of the assessee qualifying for the deduction.

3. Assessment of interest income from deposits with scheduled banks and cooperative banks:
The contention arose regarding the assessment of interest income from deposits with scheduled banks and cooperative banks as "income from other sources" instead of "business income." The assessee argued for the income to be assessed as business income and claimed deduction under section 80P(2)(d) of the Act. The issue was remitted to the AO for verification, with directions to consider granting relief under section 57 of the Act if the interest earned from banks is categorized as "income from other sources."

4. Entitlement to deduction under section 80P(2)(d) of the Act:
Regarding the deduction under section 80P(2)(d) of the Act for interest/dividend income from investments with cooperative societies, the Tribunal directed the AO to verify if such income was earned from cooperative societies, as per the Supreme Court's ruling. The issue was remitted to the AO for fresh consideration with specific observations.

5. Eligibility for deduction under section 57(iii) of the Act:
The assessee also claimed entitlement to deduction under section 57(iii) of the Act for the cost of funds incurred if the income is assessed as "income from other sources" under section 56 of the Act. The Tribunal's decision partly allowed the appeals for statistical purposes, remitting the issues to the AO for fresh consideration.

In conclusion, the judgment addressed various issues related to the interpretation of relevant sections of the Income Tax Act, specifically focusing on deductions for interest income from investments with banks and cooperative banks and the assessment of such income under different categories. The Tribunal's decision emphasized the need for a thorough review by the AO based on legal principles and previous judgments.