2024 (10) TMI 1621 - AT - Income Tax

Deduction u/s 80P(2)(d) - interest income earned - assessee is a cooperative credit society accepting deposits and lending money to the members of the society - HELD THAT - Undisputed fact shows that assessee is earning business income from business of providing credit facilities to its members. Therefore whole of the business income is deductible u/s 80P(2)(a)(i) of the Act . Further with respect to the interest income earned by the cooperative society from another cooperative banks which are necessarily cooperative societies in terms of the provisions of section 2(19) of the act. Therefore interest earned by the assessee on its deposits with other cooperative banks the assessee is eligible for deduction under section 80P(2)(d) of the Act. Assessee is also eligible for deduction to the extent of Rs. 50, 000 in terms of provisions of section 80P(2)(C)(ii) of the act. Income from profits and gains from the specified activity deduction is granted under section 80P(2)(a)(i) Deduction under section 80P(2)(d) only the deduction with respect to the interest received by the assessee from another cooperative bank which are cooperative society are granted. The learned CIT A has directed the learned assessing officer to examine the above fact and decide the issue. On careful consideration we find that all income of the assessee other than interest received from non-cooperative societies i.e. schedule banks or other banks which are not cooperative banks is eligible for deduction under section 80P(2)(a)(i) or (d) of the act.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions presented and considered in this judgment are:

• Whether the assessee, a cooperative credit society, is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act for income arising from the business of providing credit facilities to its members.
• Whether the interest income earned by the assessee from cooperative banks qualifies for deduction under Section 80P(2)(d) of the Income Tax Act.
• Whether the interest income from scheduled banks should be excluded from the deduction under Section 80P(2)(d).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility for Deduction under Section 80P(2)(a)(i)

• Relevant Legal Framework and Precedents: Section 80P(2)(a)(i) of the Income Tax Act provides for the deduction of income arising from the business of providing credit facilities to its members by a cooperative society.
• Court's Interpretation and Reasoning: The court acknowledged that the assessee is a cooperative credit society and not a cooperative bank, thus making it eligible for the deduction under Section 80P(2)(a)(i).
• Key Evidence and Findings: The assessee's activities were confined to providing credit facilities to its members, aligning with the provisions of Section 80P(2)(a)(i).
• Application of Law to Facts: The court applied the legal provision to the facts, affirming that the entire business income of the assessee from providing credit facilities is deductible.
• Treatment of Competing Arguments: The Revenue's argument that the assessee should be treated as a cooperative bank was dismissed based on the factual nature of the assessee's operations.
• Conclusions: The assessee is entitled to the deduction under Section 80P(2)(a)(i) for its business income.

Issue 2: Deduction under Section 80P(2)(d) for Interest Income from Cooperative Banks

• Relevant Legal Framework and Precedents: Section 80P(2)(d) allows a deduction for income earned by a cooperative society by way of interest or dividend from investments with other cooperative societies.
• Court's Interpretation and Reasoning: The court found that interest income from cooperative banks, which are cooperative societies, qualifies for deduction under Section 80P(2)(d).
• Key Evidence and Findings: The interest income was derived from investments with cooperative banks, fitting the criteria set by the provision.
• Application of Law to Facts: The court applied the provision to the facts, confirming eligibility for deduction on interest income from cooperative banks.
• Treatment of Competing Arguments: The court did not find any substantial argument against the eligibility of this deduction.
• Conclusions: The assessee is eligible for deduction under Section 80P(2)(d) for interest income from cooperative banks.

Issue 3: Exclusion of Interest Income from Scheduled Banks

• Relevant Legal Framework and Precedents: Section 80P(2)(d) does not extend to interest income from scheduled banks, which are not cooperative societies.
• Court's Interpretation and Reasoning: The court upheld the exclusion of interest income from scheduled banks from the deduction under Section 80P(2)(d).
• Key Evidence and Findings: The interest income from scheduled banks was identified and distinguished from that of cooperative banks.
• Application of Law to Facts: The court applied the legal provision, excluding interest income from scheduled banks from the deduction.
• Treatment of Competing Arguments: The court's decision was consistent with the statutory language, leaving no room for competing interpretations.
• Conclusions: Interest income from scheduled banks is not eligible for deduction under Section 80P(2)(d).

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The whole of the business income is deductible u/s 80P(2)(a)(i) of the Act."
• Core Principles Established: The judgment reinforces the distinction between cooperative societies and cooperative banks for the purpose of deductions under the Income Tax Act.
• Final Determinations on Each Issue:
  
  • The assessee is entitled to deductions under Section 80P(2)(a)(i) for business income from providing credit facilities to members.
  • The assessee is eligible for deductions under Section 80P(2)(d) for interest income from cooperative banks.
  • Interest income from scheduled banks is excluded from deductions under Section 80P(2)(d).