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2020 (11) TMI 200 - AT - Income TaxDeduction u/s 80P(2) on interest income received from co-operative banks - lower authorities disallowed the claim of deduction against this income and added to the income of the assessee - contention of the assessee before lower authorities was that assessee is basically a co-operative society and registered under Karnataka Co- operative Society Act, 1959 and as such the interest income earned from S.B. Account and F.Ds Account which is eligible for deduction under Section 80P(2) - HELD THAT - As decided in M/s. Sindhu Credit Souharda Sahakari Niyamita 2019 (12) TMI 1277 - ITAT BANGALORE Assessee s claim regarding deduction u/s. 80P(2)(a)(i) cannot be rejected on this basis that assessee is a Souharda Sahakari and therefore, cannot be regarded as a co-operative society. But after holding so, set aside the order of CIT(A) and restore the matter back to the AO for fresh decision regarding allowability of deduction u/s. 80P(2)(a)(i) after examining other conditions for allowing such deduction because those conditions are not examined by the AO till now. Appeal of the assessee is allowed for statistical purposes.
Issues Involved:
1. Denial of deduction under Section 80P(2) of the Income Tax Act for interest income received from co-operative banks. 2. Applicability of the Supreme Court's decision in Totgars Co-operative Sales Society Ltd. vs. ITO. 3. Classification of Souharda Sahakari as a co-operative society under the Karnataka Souharda Sahakari Act, 1997. 4. Examination of other conditions for allowing deduction under Section 80P(2)(a)(i) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Denial of Deduction under Section 80P(2) of the Income Tax Act: The assessee argued that the interest income from co-operative banks is attributable to the profits and gains of the business of extending credit facilities to its members. The lower authorities disallowed the deduction claim under Section 80P(2) of the Income Tax Act, 1961, and added the interest income to the assessee's total income. The assessee contended that as a co-operative society registered under the Karnataka Co-operative Society Act, 1959, the interest income from the S.B. Account and F.Ds Account should be eligible for deduction under Section 80P(2). 2. Applicability of the Supreme Court's Decision in Totgars Co-operative Sales Society Ltd. vs. ITO: The Department argued that the assessee is not a purely co-operative society and relied on the Supreme Court's judgment in Totgars Co-operative Sales Society Ltd. vs. ITO, which led the CIT (Appeals) to confirm the disallowance order by the Assessing Officer. However, the Tribunal found that the case of Totgars Co-operative Sales Society Ltd. was not directly applicable to the present case. 3. Classification of Souharda Sahakari as a Co-operative Society: The Tribunal referred to its earlier decision in M/s. Sindhu Credit Souharda Sahakari Niyamita vs. ITO, where it was held that Souharda Sahakari registered under the Karnataka Souharda Sahakari Act, 1997, are also considered co-operative societies under the Income Tax Act. The Tribunal emphasized that Souharda co-operatives operate on the principle of co-operation and are registered under a law in force in Karnataka for the registration of co-operative societies. Therefore, the revenue authorities' conclusion that Souharda Sahakari cannot be regarded as co-operative societies was deemed unsustainable. 4. Examination of Other Conditions for Allowing Deduction under Section 80P(2)(a)(i): The Tribunal highlighted that the issue of whether the assessee's claim for deduction under Section 80P(2)(a)(i) should be allowed needs further examination. The Tribunal remanded the matter back to the Assessing Officer to examine the other conditions for allowing such a deduction. This included verifying if the business carried on by the assessee is not akin to that of a co-operative bank and ensuring that the principle of mutuality is not violated. Conclusion: The Tribunal set aside the order of the CIT(A) and remanded the case back to the Assessing Officer for fresh examination regarding the allowability of deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Tribunal directed the Assessing Officer to consider the fulfillment of other conditions necessary for such a deduction and to ensure that the assessee's classification as a Souharda Sahakari does not disqualify it from being regarded as a co-operative society under the Act. The appeal of the assessee was allowed for statistical purposes.
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