2020 (1) TMI 958 - AT - Income Tax

Deduction u/s 80P(2) - CIT(A) passed order u/s 154 wherein the claim of deduction u/s 80P was denied - HELD THAT - In the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT 2016 (4) TMI 826 - KERALA HIGH COURT had held that when a certificate has been issued to an assessee by the Registrar of Co-operative Societies characterizing it as primary agricultural credit society, necessarily, the deduction u/s 80P(2) has to be granted to the assessee. Full Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT 2016 (4) TMI 826 - KERALA HIGH COURT had held that the A.O. 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. In view of the dictum laid down by the Full Bench of the Hon ble jurisdictional High Court (supra), we restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer. AO shall examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co-operative society functioning under the Kerala Co-operative Societies Act, 1969 and accordingly grant deduction u/s 80P(2) of the I.T.Act. 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 had 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 . However, as regards the grant of deduction u/s 80P on such interest income, the Assessing Officer shall follow the law laid down in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income. It is ordered accordingly.

Summary

Issues Involved:
Appeals against CIT(A) orders disallowing deduction u/s 80P of the I.T.Act for assessment years 2011-12 to 2014-15.

Detailed Analysis:

1. Disallowance of Deduction u/s 80P:
The Assessing Officer disallowed the deduction u/s 80P of the I.T.Act for the assessee, a cooperative society, claiming it was engaged in banking activities. The CIT(A) initially allowed the deduction based on the judgment of the jurisdictional High Court. However, after a subsequent judgment by a Full Bench, the CIT(A) issued orders u/s 154 disallowing the deduction, stating the need for an inquiry into the activities of the society for each assessment year. The Tribunal restored the issue to the Assessing Officer for examination based on the activities of the society under the Kerala Co-operative Societies Act, 1969.

2. Interest Income from Investments:
The Tribunal referred to a previous order regarding interest income from investments with treasuries and banks, categorizing it as 'income from business' instead of 'income from other sources' for the assessee. However, the grant of deduction u/s 80P on such interest income was subject to the examination of the society's activities by the Assessing Officer, as per the Full Bench judgment. The Tribunal ordered the Assessing Officer to follow this directive.

3. Legal Precedents and Jurisdictional High Court Decisions:
The judgment highlighted conflicting decisions by the jurisdictional High Court regarding the eligibility of cooperative societies for deduction u/s 80P. It referenced the need for an inquiry into factual activities of the society, emphasizing that each assessment year requires a separate verification of eligibility. The Tribunal aligned with the Full Bench judgment's requirement for the Assessing Officer to scrutinize the society's activities before granting deductions.

4. Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing a re-examination of the deduction u/s 80P and interest income issues by the Assessing Officer in compliance with the Full Bench judgment. The decision emphasized the necessity of assessing the society's activities to determine eligibility for deductions, in line with legal precedents and jurisdictional High Court interpretations.

Judgment:
The appeals were allowed, and the matter was remanded to the Assessing Officer for further examination based on the activities of the cooperative society under the Kerala Co-operative Societies Act, 1969, and the relevant legal precedents.