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2024 (6) TMI 1096 - AT - Income TaxDeduction u/s 80P(2)(a)(i) - Assessee is an agricultural credit Cooperative Society which is engaged in the business of acceptance of deposits from members and lending the same to its members - HELD THAT - The 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). The Hon ble Apex Court after considering the judicial pronouncements on the subject, had stated the term member has not been defined under the Income-tax Act. It was, therefore, stated by the Hon ble Apex Court that the term member in the respective State Co-operative Societies Acts under which the societies are registered have to be taken into consideration. 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) of the Act. It was further held by the Hon ble Apex Court that section 80P(4) of the I.T. Act is to be read as a proviso. As stated by the Hon ble Apex Court that 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. The Hon ble Apex Court had enunciated various principles in regard to deduction u/s 80P of the Act. On identical factual situation, 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. Thus we restore the issue of claim of deduction u/s 80P(2)(a)(i) of the Act to the file of the A.O. for de novo consideration. Deduction u/s 80P(2)(d) - appellant earned interest income from funds invested in Co-operative banks other than Cooperative societies - As regards the claim of deduction u/s 80P(2)(d) of the I.T. Act, we direct the A.O. to verify whether interest / dividend is received by the assessee out of investments made with Cooperative Societies. If the assessee earns interest / dividend income out of investments with co-operative society, as observed in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. 2023 (9) TMI 761 - SUPREME COURT the same is entitled to deduction u/s 80P(2)(d) of the I.T. Act. Deduction u/s 57 - 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.
Issues:
- Disallowance of deduction under Section 80P of the Act for interest income earned from deposits with Cooperative bank - Violation of the principle of mutuality by the assessee society - Claim of deduction under Section 80P(2)(a)(i) of the Act - Claim of deduction under Section 80P(2)(d) of the Act Analysis: Issue 1: Disallowance of deduction under Section 80P of the Act for interest income earned from deposits with Cooperative bank - The assessee, an agricultural credit Cooperative Society, filed its return of income for AY 2017-18 declaring total income after claiming deduction under Section 80P of the Act. The AO disallowed the deduction claimed by the assessee on the grounds that the assessee was not following the principle of mutuality. The AO relied on various decisions of the Supreme Court and High Court to disallow the deduction. - The CIT(A) upheld the AO's decision, stating that the activities of the assessee were in violation of the provisions of Section 80P due to catering to two distinct categories of members. The CIT(A) observed that the AO correctly disallowed the deduction as there was a lack of mutuality between the members of the society. - The ITAT restored the issue of claim of deduction under Section 80P(2)(a)(i) of the Act to the AO for de novo consideration based on the principles laid down by the Supreme Court in similar cases. Issue 2: Violation of the principle of mutuality by the assessee society - The AO found that the assessee society was not following the principle of mutuality as it catered to two distinct categories of members with different rights and work culture. This violation led to the disallowance of the deduction claimed under Section 80P of the Act. - The CIT(A) upheld the AO's decision, stating that the activities of the assessee were in violation of the Cooperative Societies Act, leading to the denial of the benefit of the deduction under Section 80P of the Act. Issue 3: Claim of deduction under Section 80P(2)(a)(i) of the Act - The ITAT remanded the issue of claim of deduction under Section 80P(2)(a)(i) of the Act to the AO for de novo consideration based on the principles laid down by the Supreme Court in similar cases. Issue 4: Claim of deduction under Section 80P(2)(d) of the Act - The assessee earned interest income from funds invested in Cooperative banks, which the AO held as non-operational income. The CIT(A) upheld the AO's decision, stating that the interest income earned from surplus funds invested in Cooperative banks did not qualify for deduction under Section 80P of the Act. - The ITAT directed the AO to verify whether the interest/dividend income received by the assessee was from investments made with Cooperative Societies, and if so, the assessee would be entitled to deduction under Section 80P(2)(d) of the Act. In conclusion, the ITAT partly allowed the appeal of the assessee for statistical purposes, remanding certain issues back to the AO for de novo consideration based on the legal principles outlined in relevant judgments.
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