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2024 (6) TMI 1387 - AT - Income TaxDeduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of bank interest and dividend income - DR submitted that from the assessment order it is not clear whether assessee had given loans exclusively to the members or no therefore case may kindly be set-aside to the Assessing Officer for de-novo adjudication - HELD THAT - Admittedly the Assessee is a Co-Operative Society registered under the Maharashtra State Co-Operative Society Act 1960 vide registration certificate dated 12/03/1986. AO has held assessee to be a Co-Operative Bank based on the Capital and Reserve of the assessee and based on the activities of the Assessee. No where neither the AO nor the CIT(A) has stated that the Assessee has received Banking License from RBI under the Banking Regulation Act. As decided in MAVILAYI SERVICE COOPERATIVE BANK LTD. ORS. 2021 (1) TMI 488 - SUPREME COURT a Co-Operative Society will be treated as a Co-Operative Bank only if it has received License from RBI. In the case of the Assessee neither the AO nor the CIT(A) has stated that the Assessee is in receipt of License from RBI. Therefore in the absence of Banking License respectfully following the Hon ble Supreme Court (Supra) it is held that the assessee is not a Co- Operative Bank as envisaged in section 80P(4) of the Income Tax Act. Hence provisions of Section 80P(4) will not be applicable in the case of the Assessee. As specifically mentioned in the Assessment Order that Assessee has invested Surplus funds in the PDCC and other banks and earned Interest Income. Thus it is an admitted fact by the Assessing officer that the investment is of the income derived from the Business of the assessee. As per Assessment Order the main object of the assessee society is to provide credit facility to its members and also accept deposits from members. Thus admittedly the assessee is providing credit facility to its members. Thus the investments made by the assessee are from the Surplus generated by assessee during the course of providing credit facility to its members and the assessee has earned Interest Income by investing these surplus funds in PDCC Bank. Therefore the section 80P(2)(a) is applicable in the case of the assessee. As decided in THE VAVVERU CO-OPERATIVE RURAL BANK LTD. 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT interest Income earned by investing Income derived from Business of providing credit facility by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act. Thus we are of the considered view that the Interest earned by the assessee is eligible for deduction u/s 80P(2) of the Act. Accordingly the AO is directed to delete the addition made by AO of the Interest Income. Assessee has also earned Dividend - The assessee has claimed deduction u/sec.80P(2)(d) of the Act. For all the reasons discussed in earlier paras we hold that the assessee is eligible for deduction u/s 80P(2)(d) of the Act for the dividend earned from investments made in PDCC Bank. Assessee appeal allowed.
Issues Involved:
1. Deduction under section 80P(2)(a)(i) and 80P(2)(d) for bank interest and dividend income. 2. Disallowance of entire deduction claimed under section 80P. 3. Entitlement to deduction under section 80P(2)(d) for interest income from investments in nationalized and cooperative banks. 4. Direction to AO regarding deduction under section 80P(2)(d) for interest from cooperative and nationalized banks. 5. Direction to AO regarding deduction under section 80P(2)(a)(i) for interest earned from non-members. Issue-wise Detailed Analysis: 1. Deduction under section 80P(2)(a)(i) and 80P(2)(d) for bank interest and dividend income: The assessee, a Co-operative Society, claimed deductions under section 80P(2)(a)(i) and 80P(2)(d) for interest and dividend income from investments in banks. The AO disallowed these deductions, citing the Supreme Court's decision in the Totagars Co-Operative Sale Society case, which held that interest income from investments in banks should be taxed under "income from other sources" and not as business income. The CIT(A) upheld the AO's decision. 2. Disallowance of entire deduction claimed under section 80P: The AO disallowed the entire deduction of Rs. 1,17,59,141/- claimed by the assessee under section 80P, arguing that the assessee could be treated as a Co-Operative Bank due to its paid-up share capital and reserves exceeding Rs. 1 lakh. The AO and CIT(A) did not consider the case laws relied upon by the assessee, which included decisions from the ITAT Pune bench. 3. Entitlement to deduction under section 80P(2)(d) for interest income from investments in nationalized and cooperative banks: The CIT(A) held that the assessee was not entitled to the deduction under section 80P(2)(d) for interest income earned from investments in nationalized and cooperative banks, again relying on the Totagars Co-Operative Sale Society case. The assessee argued that the Pune ITAT consistently ruled in favor of allowing such deductions. 4. Direction to AO regarding deduction under section 80P(2)(d) for interest from cooperative and nationalized banks: The CIT(A) directed the AO not to allow the deduction under section 80P(2)(d) for interest earned from cooperative and nationalized banks. The assessee contended that this direction was incorrect and should be set aside. 5. Direction to AO regarding deduction under section 80P(2)(a)(i) for interest earned from non-members: The CIT(A) directed the AO not to allow the deduction under section 80P(2)(a)(i) for interest earned from non-members, despite the AO not providing any evidence of non-members in the assessment order. The assessee requested that this general direction be withdrawn. Findings and Analysis: 1. Co-operative Society vs. Co-operative Bank: The Tribunal noted that the assessee is a Co-operative Society registered under the Maharashtra State Co-Operative Society Act, 1960, and not a Co-Operative Bank as it did not hold a banking license from the RBI. Citing the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. vs. CIT, the Tribunal held that a Co-Operative Society without an RBI license cannot be treated as a Co-Operative Bank under section 80P(4). 2. Investment of Surplus Funds: The Tribunal observed that the AO admitted the interest income was from surplus funds generated from the assessee's business of providing credit facilities to its members. Therefore, the interest income qualifies for deduction under section 80P(2)(a). 3. High Court and ITAT Precedents: The Tribunal referred to the Andhra Pradesh and Telangana High Court's decision in Vavveru Co-operative Rural Bank Ltd., which distinguished the Totagars case and held that interest income from surplus funds invested in banks is eligible for deduction under section 80P(2)(a). The Tribunal also cited consistent ITAT Pune decisions supporting the deduction of interest income under sections 80P(2)(a)(i) and 80P(2)(d). 4. Dividend Income: The Tribunal held that the assessee is eligible for deduction under section 80P(2)(d) for the dividend income earned from investments in PDCC Bank. 5. Loans to Members: The Tribunal rejected the Revenue's argument that it was unclear whether loans were given exclusively to members, stating that the assessment order indicated loans were provided only to members. Conclusion: The Tribunal allowed the assessee's appeal, directing the AO to delete the addition of interest income and grant the deductions under sections 80P(2)(a) and 80P(2)(d). The general grounds raised by the assessee were dismissed as they required no adjudication. The appeal was allowed in favor of the assessee.
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