2023 (12) TMI 1341 - AT - Income Tax

Deduction u/s 80P(2)(d) - interest income earned from other co operative banks - HELD THAT - The Hon ble jurisdictional High Court in the case of PCIT Vs. Totagars Co-operative Sale Society Ltd. 2017 (7) TMI 1049 - KARNATAKA HIGH COURT had categorically held that interest income earned out of the surplus fund is to be taxed under the head income from other sources and is not entitled to deduction under section 80P(2)(a)(i) of the Act. The Hon ble jurisdictional High Court held that interest income received from co-operative banks cannot be equated with interest received from co-operative society and therefore is not entitled to deduction under section 80P(2)(d) CIT (A) had relied on the order of Vasavamba Co-operative Society Ltd., 2021 (8) TMI 706 - ITAT BANGALORE considered the judicial pronouncements on the subject and had followed the judgment of the Hon ble jurisdictional High Court in the case of PCIT Vs. Totagars Co-operative Sale Society Ltd.(supra). Since the relevant finding of the Bangalore Bench of the Tribunal has been reproduced in the impugned order of the CIT(A), the same is not reiterated here. Therefore, hold that assessee is not entitled to deduction under sections 80P(2)(a)(i) or 80P(2)(d) of the Act with regard to the interest income that is received from the scheduled banks / co-operative banks - Appeal filed by the assessee is dismissed.

Summary

Issues:
1. Disallowance of deduction under section 80P(2)(d) of the Income Tax Act for interest received from Cooperative Banks.
2. Interpretation of the principle of mutuality in the context of deduction under section 80P(2)(a)(i) of the Act.

Analysis:
1. The appeal was filed against the CIT(A)'s order denying the deduction under section 80P(2)(d) of the Act for interest received from Cooperative Banks. The AO had disallowed the deduction citing non-compliance with the principle of mutuality and referring to relevant case law. The CIT(A) partly allowed the appeal, granting deduction under section 80P(2)(a)(i) but confirming the disallowance for interest income from Cooperative Banks based on judicial precedents. The Tribunal upheld the CIT(A)'s decision, relying on the judgment of the Hon'ble jurisdictional High Court and the Bangalore Bench of the Tribunal. The Tribunal concluded that interest income from Cooperative Banks does not qualify for deduction under sections 80P(2)(a)(i) or 80P(2)(d) of the Act.

2. The issue of mutuality was crucial in determining the eligibility for deduction under section 80P(2)(a)(i) of the Act. The CIT(A) found that there was no violation of the principle of mutuality concerning the associate/nominal members of the assessee, as defined by relevant laws. The CIT(A) referenced a judgment of the Hon'ble Apex Court to support this conclusion. However, the Tribunal's decision focused primarily on the specific treatment of interest income from Cooperative Banks, in line with the precedents set by the Hon'ble jurisdictional High Court and the Bangalore Bench of the Tribunal. The Tribunal's ruling emphasized the distinction between interest received from Cooperative Banks and Cooperative Societies, leading to the denial of the deduction under section 80P(2)(a)(i) or 80P(2)(d) for such interest income.

In summary, the Tribunal dismissed the appeal, affirming the disallowance of deduction under section 80P(2)(d) of the Act for interest income from Cooperative Banks based on established legal interpretations and precedents, despite allowing the deduction under section 80P(2)(a)(i) in a separate context related to the principle of mutuality.