2019 (5) TMI 1266 - AT - Income Tax

Deduction u/s 80P - need for inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P - whether the interest income received on investments can be treated ? - HELD THAT - The Larger Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. 2019 (3) TMI 1580 - KERALA HIGH COURT held that the Assessing Officer has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P - Assessing Officer is not bound by the registration certificate issued by the Registrar of Kerala Cooperative Society classifying the assessee-society as a cooperative society. The Hon ble High Court held that each assessment year is separate and eligibility shall be verified by the Assessing Officer for each of the assessment years Thus the issue of deduction u/s 80P(2)(a)(i) is restored to the Assessing Officer. The Assessing Officer shall examine the activities of the assessee and determine whether their activities are in compliance with the activities of a cooperative society functioning under the Kerala Co-operative Societies Act 1969 and grant deduction u/s 80P(2) in accordance with law. Interest on the investments with Cooperative Banks and other Banks the co-ordinate Bench order of the Tribunal in the case of Kizhathadiyoor Service Cooperative Bank Limited 2016 (7) TMI 1405 - ITAT COCHIN held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee and therefore the said interest income was eligible to be assessed as income from business instead of income from other sources .

Summary

Issues:
1. Whether the assessee is entitled to deduction u/s 80P of the I.T.Act?
2. Whether the interest income received on investments can be treated as 'income from business' and granted deduction u/s 80P of the I.T.Act?

Analysis:
1. The appeal was against the CIT(A)'s order denying deduction claimed u/s 80P of the I.T.Act to the assessee, treated as a cooperative bank. The CIT(A) allowed the deduction based on the judgment in the case of Chirakkal Service Co-operative Bank Ltd. The Tribunal held that the Assessing Officer must verify the activities of the assessee society each year to determine eligibility for deduction u/s 80P, as per the judgment in The Mavilayi Service Co-operative Bank Ltd. case. The issue of deduction u/s 80P(2)(a)(i) was restored to the Assessing Officer for examination.

2. The interest income received from investments was treated as 'income from business' by the CIT(A) and granted deduction u/s 80P based on the Tribunal's order in Kizhathadiyoor Service Co-operative Bank Limited case. The Tribunal directed the Assessing Officer to examine the activities of the assessee-society before granting deduction u/s 80P, following the law laid down by the Larger Bench of the Hon'ble jurisdictional High Court in The Mavilayi Service Co-operative Bank Ltd. case. The appeal by the Revenue was allowed for statistical purposes.

This detailed analysis of the judgment highlights the key issues, arguments presented, legal precedents cited, and the Tribunal's decision on each issue involved in the case.