2025 (3) TMI 594 - AT - Income Tax

Deduction u/s 80(P)(1) - assessee is a Cooperative Agricultural Society and not a Cooperative Bank - assessee has claimed deduction u/s. 80P(2)(a)(i) of the Act on the interest accrued and received by the assessee - contention of the Ld. AO is that as per section 80P(2)(d) the assessee is eligible to claim deduction u/s. 80P(2)(a)(i) of the Act only when it is invested with any other cooperative society HELD THAT - In the instant case the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last especially when the statute uses the expression attributable to and not any one of the expressions viz. derived from or directly attributable to . Considering the ratio laid down in the case of Vavveru Cooperative Rural Bank Limited 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT and also Kakateeya Mutually Aided Thrift and Credit Cooperative Society 2023 (9) TMI 211 - ITAT VISAKHAPATNAM no hesitation to come to the conclusion that the facts in the case of Totgars Cooperative Sale Society Limited 2008 (9) TMI 493 - KARNATAKA HIGH COURT as the ratio laid down by the Hon ble Supreme Court is not applicable to the present case in hand and therefore AO as well as CIT(Appeals) are not correct to disallow the amount on the ground that the assessee had earned interest income from savings bank accounts other than cooperative bank. Therefore the grounds raised by the assessee are allowed.

1. ISSUES PRESENTED and CONSIDERED

The primary legal questions considered in this judgment include:

Whether the disallowance of the deduction claim of Rs. 7,66,340/- under section 80P(1) of the Income Tax Act is justified.
Whether the interest income of Rs. 7,66,340/- should be classified as 'income from other sources' under section 56 of the Act, rather than as income eligible for deduction under section 80P(2)(a)(i).
Whether the interest charged under sections 234A, 234B, and 234D amounting to Rs. 81,210/- is applicable in this case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Disallowance of Deduction under Section 80P(1)

Relevant legal framework and precedents: Section 80P of the Income Tax Act provides deductions for cooperative societies. Specifically, section 80P(2)(a)(i) allows deductions for income from the business of banking or providing credit facilities to its members. The case of M/s. Totgars Cooperative Sale Society Limited -vs.- ITO was heavily relied upon by the revenue authorities to disallow the deduction.
Court's interpretation and reasoning: The Tribunal examined the applicability of the Totgars case and found that the facts of the present case differed significantly. The Tribunal noted that the original source of the income was from activities listed under section 80P(2)(a), and thus, the income should not lose its character as eligible for deduction.
Key evidence and findings: The Tribunal found that the assessee's activities were consistent with those eligible for deductions under section 80P(2)(a)(i), and the income in question was derived from these activities.
Application of law to facts: The Tribunal applied the principles established in the Vavveru Cooperative Rural Bank Ltd case, which distinguished the Totgars decision, to conclude that the interest income retained its character as income from eligible activities.
Treatment of competing arguments: The Tribunal rejected the revenue's reliance on the Totgars case, noting that the facts were distinguishable and that other High Court decisions supported the assessee's position.
Conclusions: The Tribunal concluded that the disallowance of the deduction claim was incorrect and allowed the deduction under section 80P(2)(a)(i).

Issue 2: Classification of Interest Income

Relevant legal framework and precedents: Section 56 of the Income Tax Act deals with income from other sources. The revenue authorities classified the interest income from non-cooperative bank deposits under this section.
Court's interpretation and reasoning: The Tribunal found that the interest income was attributable to the assessee's primary activities, which are eligible for deduction under section 80P(2)(a)(i), and not merely income from other sources.
Key evidence and findings: The Tribunal noted that the income was generated from deposits made from the assessee's own funds, which were derived from its eligible activities.
Application of law to facts: The Tribunal applied the interpretation of "attributable to" from the Vavveru Cooperative Rural Bank Ltd case, emphasizing that the income's character as eligible for deduction was not lost.
Treatment of competing arguments: The Tribunal dismissed the revenue's argument that the income should be classified under section 56, reinforcing the distinction made in other High Court decisions.
Conclusions: The Tribunal held that the interest income should not be classified as income from other sources and was eligible for deduction under section 80P(2)(a)(i).

Issue 3: Interest Charged under Sections 234A, 234B, and 234D

Relevant legal framework and precedents: Sections 234A, 234B, and 234D pertain to interest on late filing of returns, advance tax, and excess refund, respectively.
Court's interpretation and reasoning: The Tribunal did not provide specific reasoning or findings on this issue within the judgment text.
Key evidence and findings: Not explicitly addressed in the judgment.
Application of law to facts: The judgment does not detail the application of these sections to the facts of the case.
Treatment of competing arguments: The Tribunal did not address any arguments related to these sections in the judgment text.
Conclusions: The judgment does not provide a conclusion on this issue.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The character of such income must be last, especially when the statute uses the expression 'attributable to' and not any one of the expressions viz., 'derived from' or 'directly attributable to'."
Core principles established: The distinction between the Totgars case and the present case was emphasized, with the Tribunal highlighting that income from eligible activities retains its character for deduction purposes, even when deposited in non-cooperative banks.
Final determinations on each issue: The Tribunal allowed the appeal, granting the deduction under section 80P(2)(a)(i) for the interest income and rejecting the classification of this income as 'income from other sources' under section 56.

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