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2018 (6) TMI 1042 - AT - Income TaxDisallowance of deduction u/s 80P(2) - interest earned on investment made with sub-treasuries, various scheduled banks - Held that - Assessee is a primary agricultural credit society registered under the Kerala Cooperative Societies Act 1969 - assessee do not posses any banking license from the Reserve Bank of India and is not exclusively carrying on any banking facility; but it is carrying on business of lending money to its members and therefore is covered u/s 80P(2) - thus relying on the judgement in case of TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LIMITED VERSUS THE INCOME TAX OFFICER, WARD-1, TUMKUR 2015 (2) TMI 995 - KARNATAKA HIGH COURT we are of the view that the assessee is entitled to the benefit of deduction u/s 80P(2) with regard to interest received on deposits made by the assessee with sub treasury and Trivandrum District Co-operative Bank for Asst. Year 2014-2015 - Decided in favor of assessee.
Issues Involved:
1. Denial of deduction under Section 80P(2) of the Income Tax Act. 2. Classification of interest income from investments as 'income from other sources' or 'income from business'. 3. Applicability of Section 80P(4) of the Income Tax Act. 4. Relevance of the judgment in the case of Totgars Cooperative Sales Society Ltd. 5. Eligibility of interest income from sub-treasuries and cooperative banks for deduction under Section 80P(2). Detailed Analysis: 1. Denial of Deduction under Section 80P(2) of the Income Tax Act: The assessee, a primary agricultural credit society, was denied the deduction under Section 80P(2) by the Assessing Officer on the grounds that it was engaged in the business of banking. The CIT(A), however, allowed the deduction based on the judgment of the Hon’ble jurisdictional High Court in the case of Chirakkal Service Co-op Bank Ltd vs CIT, except for the interest income from certain investments. 2. Classification of Interest Income from Investments: The primary issue was whether the interest income from investments with sub-treasuries, Bank of Baroda, Indian Overseas Bank, Indian Bank, and Trivandrum District Co-operative Bank should be classified as 'income from other sources' or 'income from business'. The Tribunal noted that if classified as 'income from business', the assessee would be entitled to deduction under Section 80P(2). 3. Applicability of Section 80P(4) of the Income Tax Act: Section 80P(4) excludes cooperative banks from availing deductions under Section 80P. The Tribunal referenced the Karnataka High Court judgment in Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamamitha vs ITO, which clarified that primary agricultural credit societies or primary cooperative agricultural and rural development banks without an RBI banking license are not considered cooperative banks under Section 80P(4). 4. Relevance of the Judgment in the Case of Totgars Cooperative Sales Society Ltd: The CIT(A) had relied on the Supreme Court judgment in Totgars Cooperative Sales Society Ltd., which was distinguished by the Tribunal. The Supreme Court case dealt with a cooperative society involved in marketing agricultural produce and retaining sale proceeds as liabilities, which was not the scenario in the present case. The Tribunal referred to the Karnataka High Court's distinction in Tumkur Merchants Souharda Credit Cooperative Ltd., which held that interest income from bank investments, not related to liabilities, qualifies for deduction under Section 80P(2). 5. Eligibility of Interest Income from Sub-treasuries and Cooperative Banks for Deduction under Section 80P(2): The Tribunal concluded that the interest income from sub-treasuries and Trivandrum District Co-operative Bank qualifies for deduction under Section 80P(2), as the assessee was not exclusively engaged in banking and did not hold an RBI license. This decision was supported by the Cochin Bench's previous rulings in similar cases, such as Kizhathadiyoor Service Coop Bank Ltd. and Muttom Service Cooperative Bank Ltd. Conclusion: The Tribunal partly allowed the appeal, granting the benefit of deduction under Section 80P(2) for interest income from sub-treasuries and Trivandrum District Co-operative Bank, while dismissing the claim for interest income from scheduled banks as not pressed. The stay application was dismissed as infructuous. Order Pronouncement: The order was pronounced on June 19, 2018, with the appeal being partly allowed and the stay application dismissed.
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