2020 (10) TMI 631 - AT - Income Tax

Deduction u/s 80P - interest income earned out of investment with cooperative banks was treated as income from other sources - HELD THAT - Assessee would be addressed by setting aside the issue of deduction u/s.80P(2)(a)(i) to Ld.AO for consideration afresh, with a direction to the Assessee to produce a certificate from RBI that it does not possess license from it for doing banking business and further that business carried on by Assessee is not akin to business of a co-operative bank. First part of Sec.80P(2)(a)(i) allows deduction in respect of income derived by a co- operative Society from business of banking. Even the claim of the Assessee for deduction requires to be examined under the first part of Sec.80P(2)(a)(i) of the Act. Hon'ble Supreme Court in case of Citizen Co- operative Society Ltd. 2017 (8) TMI 536 - SUPREME COURT has also held that, it is also important to ascertain as to what is the nature of income which is claimed as exempt and as to how the principle of mutuality is not violated in respect of such income. An examination of (i)the memorandum of association, the articles of association, (ii) the byelaws and other documents explaining the rules and regulations of the society is necessary, so as to clearly understand the purpose and the nature of business done by it. An examination of the facts in light of discussion cited by Ld.CIT(A) as well as decision in case of Tumkur 2015 (2) TMI 995 - KARNATAKA HIGH COURT is to be carried out. Remand the issue back to Ld.AO for re adjudicating it afresh on the basis of above direction.

Summary

Issues:
Assessment years 2015-16 and 2016-17 - Denial of deduction under section 80P - Violation of principles of mutuality - Addition made by Ld.AO - Upholding of observations by Ld.AO and Ld.CIT(A) - Applicability of decisions of Hon'ble Supreme Court and Hon'ble Karnataka High Court - Remand of issue to Ld.AO for fresh consideration.

Analysis:
The appellant, a cooperative society providing credit facilities to its members, filed returns claiming deductions under section 80P of the Income Tax Act. However, during assessment proceedings, the Ld. AO denied the deductions based on the violation of principles of mutuality. The Ld. CIT(A) upheld the observations made by the Ld. AO, leading to the appellant appealing against this decision.

The Ld. AR argued that the appellant's case was different from the cases cited by the authorities, emphasizing that the appellant dealt only with its members, unlike other societies that engaged with the general public. The Ld. AR also highlighted that various tribunal decisions supported the need for further verification of facts by the Ld. AO.

On the contrary, the Ld. Sr. DR suggested remanding the issue to the Ld. AO for verification in line with the decisions of the Hon'ble jurisdictional High Court and the Hon'ble Apex Court. After reviewing the submissions and records, the Tribunal found that the test of mutuality in the appellant's case needed further examination.

The Tribunal decided to remand the issue back to the Ld. AO for fresh adjudication, directing the appellant to provide specific documentation and clarifications regarding its business activities. The Tribunal stressed the importance of understanding the nature of income claimed as exempt and ensuring compliance with the principles of mutuality.

Ultimately, the appeals filed by the appellant were allowed for statistical purposes, rendering the stay petitions ineffective and dismissed. The judgment was pronounced on 1st August 2020.