2018 (9) TMI 1300 - AT - Income Tax

Entitled to deduction u/s 80P(2) - Whether the interest income received from investments with co-operative banks is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act? - Held that - In the case of ITO v. The Chengala Service Co-operative Bank Ltd. 2018 (4) TMI 339 - ITAT COCHIN after elaborately considering all the judicial pronouncements had decided the issue in favour of the assessee. As regards the interest received on investments with cooperative Banks, we are of the view that the deduction u/s 80P(2)(d) can be granted only if the interest income is received out of investments made with co-operative societies. In the instant case, it is not clear that the interest income was received out of investments made with co-operative societies. Therefore, we are of the view that deduction u/s 80P(2)(d) of the I.T.Act cannot be granted. Further, we find that the investments are made by the assessee-society in the course of its banking business / providing credit facilities to its members and hence such income will form part of banking activities of the assessee and same is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act. On identical facts, the Cochin Bench of the Tribunal in the case of The Azhikode Service Cooperative Bank Ltd. & Ors. 2017 (7) TMI 1138 - ITAT COCHIN after considering all the judicial pronouncements had decided the issue in favour of the assessee. Co-operative societies engaged in providing credit facilities to its members had in course of business made investments with treasury, bank etc. and earned interest income, such income was eligible for deduction u/s 80P(2)(a)(i). See Saveru Co-operative Rural Bank Ltd. v CIT 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT . In the instant case the assessee had made investments with co-operative banks in the course of its business of banking / providing credit facilities to its members. Therefore, it was entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income that was received on such investments in view of the above judicial pronouncements. - Decided against revenue.

Summary

Issues Involved:
1. Entitlement to deduction under section 80P(2) of the Income Tax Act.
2. Entitlement to deduction under section 80P(2)(a)(i) for interest income received from investments with co-operative banks.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction Under Section 80P(2) of the Income Tax Act:

The primary issue revolves around whether the assessee, a primary agricultural credit society, is entitled to the deduction under section 80P(2). The Assessing Officer (AO) denied this deduction, arguing that the assessee was primarily engaged in banking activities and, due to the provisions of section 80P(4) effective from April 1, 2007, was ineligible for the deduction. The CIT(A) reversed the AO's decision, referencing the jurisdictional High Court's judgment in The Chirakkal Service Co-operative Bank Ltd. & Ors. vs. CIT, which upheld that primary agricultural credit societies registered under the Kerala Cooperative Societies Act are entitled to the deduction.

The Tribunal confirmed the CIT(A)'s decision, emphasizing that the Hon’ble jurisdictional High Court had categorically held that primary agricultural credit societies registered under the Kerala Co-operative Societies Act are entitled to the benefit of deduction under section 80P(2). The Tribunal noted that the AO lacked jurisdiction to determine the nature of the assessee's business contrary to the classification by the Registrar of Cooperative Societies.

2. Entitlement to Deduction Under Section 80P(2)(a)(i) for Interest Income from Co-operative Banks:

The second issue concerns whether the interest income from investments with co-operative banks qualifies for deduction under section 80P(2)(a)(i). The AO treated this interest income as "income from other sources," thereby denying the deduction. The CIT(A) granted the deduction, citing the Hon’ble jurisdictional High Court's decision in The Ottoor Service Cooperative Bank Ltd. v. ITO, which recognized such interest income as part of the banking business and thus eligible for deduction.

The Tribunal upheld the CIT(A)'s decision, distinguishing the facts from the Supreme Court's judgment in Totgar's Co-operative Sale Society Ltd., which dealt with non-operational income. The Tribunal found that the interest income in question was generated from investments made in the course of the assessee's banking business, qualifying it for deduction under section 80P(2)(a)(i). The Tribunal referenced multiple judicial pronouncements, including CIT v. Karnataka State Co-operative Bank and Vaveru Co-operative Rural Bank Ltd. v. CIT, which supported the assessee's claim.

Conclusion:

The appeal by the Revenue was dismissed, affirming the CIT(A)'s decision to grant the deductions under section 80P(2) and section 80P(2)(a)(i). The Tribunal's decision was based on consistent judicial precedents and the specific provisions of the Kerala Co-operative Societies Act, which classify the assessee as a primary agricultural credit society entitled to the claimed deductions.