2022 (7) TMI 1379 - AT - Income Tax

Deduction u/s.80P(2)(a)(i) - interest income from the Associated Members - HELD THAT - As per decision of The Principal Commissioner of Income Tax, Salem Vs. M/s.S-1308, Ammapet Primary Agricultural Co-operative Bank Ltd 2019 (1) TMI 116 - MADRAS HIGH COURT and in the decision of the Hon ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited vs. Commissioner of Income Tax, Calicut 2021 (1) TMI 488 - SUPREME COURT Respectfully following the same, we direct the AO to allow the claim of deduction u/s.80P(2)(a)(i) of the Act on the interest income from the Associated Members. Thus, this issue in the Assessee s appeal is allowed. Interest as deduction u/s.80P(2)(a)(i) in regard to the interest income earned from deposits made with the Cooperative Bank - whether the interest earned by the Assessee is from the Co-operative Bank which is governed and registered under the Tamilnadu Co-operative Societies Act, 1983 or as to whether it is governed by the Reserve Bank of India holding banking license under the Banking Regulations Act, 1949? - HELD THAT -This fact is not coming out of the order of the AO or of the CIT (Appeals). Hence, this issue is remanded back to the file of the Assessing Officer who will verify as to whether the Assessee has earned interest from the Co-operative Banks governed by the Reserve Bank of India holding banking license under the Banking Regulations Act, 1949 or as to whether it is governed by the Tamilnadu Co-operative Societies Act, 1983, the Assessing Officer will verify the facts and will decide accordingly. Thus, the appeal of the Assessee is partly allowed as indicated above.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Deduction under Section 80P(2)(a)(i) of the Income Tax Act for loans provided to members.
3. Deduction under Section 80P(2)(a)(i) for interest income earned from deposits made with Cooperative Banks.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The Assessee's appeal was delayed by one day due to the outbreak of the 'Covid-19' pandemic. The Tribunal took into consideration the Order of the Hon'ble Supreme Court in Suo Moto WP 03/2020 dated 20.03.2020, which provided directions regarding delays caused by the pandemic. Based on these directions, the Tribunal condoned the one-day delay and admitted the appeal for adjudication on its merits.

2. Deduction under Section 80P(2)(a)(i) for Loans Provided to Members:
The first issue raised by the Assessee was regarding the CIT(A)'s confirmation of the Assessing Officer's action in denying the deduction under Section 80P(2)(a)(i) of the Income Tax Act for loans provided to its members. The Assessee, a Primary Agricultural Co-operative Credit Society, argued that it provides agricultural loans to its members, including both "A Category members" and "Associate Members." The "A Category members" have privileges such as contesting and voting in elections and receiving dividends, while "Associate Members" do not have these privileges but contribute to the society's income by paying interest on loans.

The Assessing Officer and CIT(A) relied on the Supreme Court's decision in Citizen Cooperative Society Limited vs. ACIT, which disallowed the deduction. However, the Assessee cited the Madras High Court's decision in The Principal Commissioner of Income Tax vs. M/s. S-1308, Ammapet Primary Agricultural Cooperative Bank Ltd., and the Supreme Court's decision in Mavilayi Service Co-operative Bank Limited vs. Commissioner of Income Tax, Calicut, which supported the Assessee's claim. The Tribunal found that the Assessee's case was covered by these decisions and directed the Assessing Officer to allow the deduction under Section 80P(2)(a)(i) for the interest income from Associate Members amounting to Rs.68,79,255/-.

3. Deduction under Section 80P(2)(a)(i) for Interest Income from Deposits with Cooperative Banks:
The next issue was the CIT(A)'s disallowance of the deduction under Section 80P(2)(a)(i) for interest income earned from deposits made with Cooperative Banks. The Assessee argued that Section 80P(2)(a)(i) allows a deduction for income by way of interest or dividends derived from investments with any other Cooperative Society. The Assessee kept surplus funds with other Cooperative Banks as part of its business activity, making the interest income eligible for deduction.

The Tribunal noted that the issue had been addressed in the case of Tamilnadu Co-operative State Agriculture and Rural Development Bank Limited, where it was held that a Co-operative Society not engaged in banking activities but providing financial accommodation to its members is entitled to the deduction under Section 80P(2)(a)(i). The Tribunal remanded the issue back to the Assessing Officer to verify whether the interest was earned from Cooperative Banks governed by the Tamilnadu Co-operative Societies Act, 1983, or by the Reserve Bank of India under the Banking Regulations Act, 1949. The Assessing Officer was directed to decide accordingly.

Conclusion:
The appeal was partly allowed. The Tribunal condoned the one-day delay in filing the appeal, allowed the deduction under Section 80P(2)(a)(i) for interest income from Associate Members, and remanded the issue of interest income from deposits with Cooperative Banks back to the Assessing Officer for verification and decision.