2024 (4) TMI 935 - AT - Income Tax

Exemption u/s 80P(2)(a)(i) or u/s 80P(2)(d) - appellant is a cooperative society engaged in the business of providing credit facilities - HELD THAT - It is an admitted fact that the appellant is a cooperative society engaged in the business of providing credit facilities. 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. Reliance in this regard can also be placed on the decision of Quepem Urban Co-operative Credit Society Ltd 2021 (5) TMI 406 - BOMBAY HIGH COURT . Allowability of exemption under the provisions of section 80P(2)(a)(i) in respect of interest income earned by a cooperative society from the scheduled banks - The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit 2018 (12) TMI 1926 - ITAT PUNE taken view in favour of the assessee following the judgment of Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. 2015 (2) TMI 995 - KARNATAKA HIGH COURT 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, direct the Assessing Officer to allow the exemption u/s. 80P(2)(a)(i) of the Act. Thus, the grounds of appeal filed by the assessee stand allowed.

Summary

Issues involved: Appeal against orders of National Faceless Appeal Centre for assessment years 2014-15 & 2017-18 regarding eligibility of exemption u/s 80P(2)(a)(i) or u/s 80P(2)(d) of the Income Tax Act, 1961.

Issue 1: Eligibility of exemption u/s 80P(2)(a)(i)
The appellant, a Co-operative credit society, filed a return of income for A.Y. 2014-15 claiming exemption of interest income earned from Fixed Deposits with Bank of Maharashtra u/s. 80P(2)(a)(i) of the Act. The Assessing Officer initially determined total income at Rs. 70,503/-, later revised to Rs. 22,20,829/-, bringing the interest earned on Fixed Deposits to tax. The NFAC confirmed this action, leading to the appeal. The Tribunal held that the appellant qualifies for deduction u/s 80P(2)(a)(i) as it is engaged in providing credit facilities without a banking license, citing relevant case laws. Consequently, the interest income on fixed deposits with cooperative/scheduled banks is considered business income eligible for deduction u/s 80P(2)(a)(i) of the Act.

Issue 2: Judicial opinion on exemption under section 80P(2)(a)(i)
There is a divergence of judicial opinion on whether interest income earned by a cooperative society from scheduled banks is eligible for exemption u/s 80P(2)(a)(i) of the Act. Various High Courts have taken conflicting views on this matter. However, the Tribunal followed decisions favoring the eligibility of such interest income for exemption u/s 80P(2)(a)(i), emphasizing that it is attributable to the activities of the society. This stance is supported by judgments from different High Courts and the Coordinate Bench of Pune Benches, ensuring that interest income from fixed deposits with cooperative/scheduled banks qualifies for deduction u/s 80P(2)(a)(i) of the Act.

Conclusion:
The Tribunal partly allowed both appeals, setting aside the orders of the lower authorities and granting exemption u/s 80P(2)(a)(i) of the Act to the appellant. The decision was based on the nature of the appellant's business activities and the character of interest income earned on fixed deposits with cooperative/scheduled banks.