2018 (12) TMI 1313 - AT - Income Tax

Denial exemption u/s 80P(2)(a)(i)/(ii) and 80P(2)(d) - Held that - Assessee is a cooperative society registered under Gujarat Co-operative Societies Act, 1961 and engaged in providing credit facilities to its members. High Court in the case of State Bank of India Co-operative Society (2016 (7) TMI 516 - GUJARAT HIGH COURT) has held that interest earned from investment made in bank by a cooperative society engaged in providing credit facilities to its members, is not eligible for deduction under section 80P(2). Tribunal in earlier occasions on similar issue has taken a consistent view by following above judgment of the Hon ble jurisdictional High Court. Since orders of the Revenue authorities are in accordance with judgment of the Hon ble jurisdictional High Court cited supra, no interfere is called for in the impugned orders, which we confirm. However, any expenditure incurred by the assessee for earning such income could be allowed to it, if not already allowed. AO has to determine the net interest income as well as misc. income earned by the assessee, and only thereafter that income has to be excluded from the admissibility of deduction under section 80P(2) of the Act. AO is also directed to consider allowance of deduction under section 80P(2)(c)(ii) of the Act in accordance with law. - Decided partly in favour of assessee.

Summary

Issues:
- Denial of exemption under section 80P(2)(a)(i)/(ii) and 80P(2)(d) of the Income Tax Act, 1961.

Detailed Analysis:
1. The assessee, a cooperative society providing credit facilities to its members, filed an appeal against the order of the ld.CIT(A)-4 for the assessment year 2013-14. The main issue raised in the appeal was the denial of exemption under section 80P(2)(a)(i)/(ii) and 80P(2)(d) of the Income Tax Act, 1961.

2. The Assessing Officer (AO) proposed to tax the interest income earned by the assessee under "income from other sources" as it was not derived from the activity of providing credit facilities to its members. The ld.AO denied the claim of the assessee based on the argument that the cases relied upon by the assessee pertained to cooperative banks engaged in banking business, not cooperative societies providing credit facilities. The ld.CIT(A) upheld the AO's decision, citing various case laws, including the judgment of the Hon'ble jurisdictional High Court in a specific case.

3. During the appeal before the Tribunal, the assessee's counsel reiterated the submissions made earlier and requested the setting aside of the Revenue authorities' orders to allow the deduction under section 80P(2)(a)(i) of the Act. The Departmental Representative (DR) argued that the issue was settled in favor of the Revenue by a judgment of the Hon'ble jurisdictional High Court, which concluded that a cooperative society earning interest income on surplus funds parked with nationalized banks was not eligible for deduction under section 80P(2)(a)(i) of the Act.

4. The Tribunal noted that the assessee was a cooperative society registered under the Gujarat Co-operative Societies Act, 1961, engaged in providing credit facilities to its members. Referring to the judgment of the Hon'ble jurisdictional High Court, the Tribunal confirmed the denial of deduction under section 80P(2) for interest earned from investments made in banks. However, the Tribunal directed the AO to consider allowing any expenditure incurred by the assessee for earning such income. The AO was also instructed to determine the net interest income and miscellaneous income earned by the assessee before excluding it from the deduction under section 80P(2) of the Act.

5. Ultimately, the Tribunal partly allowed the appeal of the assessee, confirming the orders of the Revenue authorities in line with the judgment of the Hon'ble jurisdictional High Court. The decision was pronounced on 17th September 2018 at Ahmedabad.