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2024 (6) TMI 1017 - AT - Income TaxEligibility of deduction u/s 80P(2)(d) - interest income from co-operative banks - Assessment of interest income from co-operative banks u/s 56 of the Income Tax Act - HELD THAT - In the instant case we notice that assessee has raised a contention before the CIT(A) that these investments with the Central District Co-operative Bank is in compliance with the requirement under the Karnataka Co-operative Societies Act 1959 and the relevant Rules. Therefore it was submitted that such interest income received on investments made under compulsion under the relevant Act and the Rules is entitled to deduction under section 80P(2)(a)(i) of the Act. We find that the CIT(A) has not adjudicated the contentions raised by the assessee. As per the directions of Registrar of Karnataka Co-operative Societies filed by the assessee we find that all primary co-operative societies are to be mandatorily made to invest 25% of total deposits as liquid fund (SLR) and 3% of the total deposits as cash reserve (CRR) with the concerned Central District Co-operative Banks to run credit facilities by a primary agricultural credit co-operative society in the State of Karnataka. The CBDT Circular No.18/2015 dated 02.11.2015 has clarified that interest income from SLR/non-SLR investment by banking company and a cooperative society shall be chargeable under the head profit and gains of business or profession . On identical factual situation we find the Bangalore bench of the Tribunal in the case of M/s. Kachur Credit Co-operative Society Ltd 2023 (9) TMI 1487 - ITAT BANGALORE wherein restore the issue to the files of the AO to examine whether interest income received from South Canara District Central Co-operative Bank Ltd. is out of compulsions and in compliance with the Karnataka State Cooperative Societies Act 1959 and the relevant Rules. If it is so the same interest income is to be assessed as income from business which would entail the benefit of deduction under section 80P(2)(a)(i) We direct the AO to examine whether the interest income received on investment with Central Co-operative Bank is out of compulsions under the Karnataka Co-operative Societies Act 1959 and the relevant Rules. If it is so the same may be considered as business income and entitled to deduction under section 80P(2)(a)(i) of the Act. In other words if assessee society does not comply with the relevant provisions of the Act and the Rules of Karnataka Co-operative Societies Act 1959 it cannot carry on its cooperative activities namely carry on the business of banking or providing credit facilities to its members. Therefore if the investments are out of compulsion under the Act and relevant Rules necessarily it is part of assessee s business activity entailing the benefit of section 80P(2)(a)(i) of the Act - Appeals filed by the assessee are allowed for statistical purposes.
Issues:
- Delay in filing appeals - Eligibility of deduction under section 80P of the Income Tax Act, 1961 - Treatment of interest income from cooperative banks - Compliance with Karnataka Co-operative Societies Act, 1959 Delay in filing appeals: The judgment addresses a 20-day delay in filing the appeals by the assessee. The President of the assessee society submitted an affidavit explaining the reasons for the delay. The tribunal found reasonable cause for the delay and decided to condone it, proceeding to hear the appeals on their merits. Eligibility of deduction under section 80P: The appeals revolve around the eligibility of the assessee for deduction under section 80P of the Income Tax Act, 1961. The assessee, a co-operative society, claimed deductions for the Assessment Years 2016-17, 2017-18, and 2018-19. The dispute arose from the disallowance of the deduction by the Assessing Officer and the CIT(A) under section 80P(2)(a)(i) and 80P(2)(d) of the Act. Treatment of interest income from cooperative banks: The CIT(A) assessed the interest income earned from investments with the Central District Cooperative Bank as "Income from Other Sources" under section 56 of the Act. The CIT(A) denied the deduction under section 80P(2)(a)(i) and 80P(2)(d) for the Assessment Years 2016-17 and 2017-18. For the Assessment Year 2018-19, the entire claim for deduction was disallowed. The tribunal upheld the CIT(A)'s decision based on the precedent set by the jurisdictional High Court. Compliance with Karnataka Co-operative Societies Act, 1959: The assessee argued that investments with the Central District Co-operative Bank were made in compliance with the Karnataka Co-operative Societies Act, 1959, and relevant rules. Citing a CBDT Circular and a Tribunal order, the tribunal directed the Assessing Officer to examine whether the interest income received on investments was out of compulsion under the Act and Rules. If so, the income should be considered as business income and entitled to deduction under section 80P(2)(a)(i) of the Act. In conclusion, the tribunal allowed the appeals for statistical purposes, directing the Assessing Officer to determine the eligibility of the interest income for deduction under section 80P based on compliance with the Karnataka Co-operative Societies Act, 1959.
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