2021 (3) TMI 43 - AT - Income Tax

Deduction u/s. 80P(2)(a)(i) - HELD THAT - Since the facts prevailing in the instant case needs to be examined afresh in the light of the principles enunciated by Hon Tale Supreme Court in THE MAVILAYI SERVICE COOPERATIVE BANK LTD. ORS. VERSUS COMMISSIONER OF INCOME TAX, CALICUT ANR. 2021 (1) TMI 488 - SUPREME COURT we are of the view that the issue of deduction u/s. 80P(2)(a)(i) of the Act requires fresh examination at the end of the A.O. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and restore the same to the file of the A.O. for examining it afresh as discussed above. Deduction claimed u/s. 80P(2)(d) in respect of interest income earned from fixed deposits kept with co-operative bank - HELD THAT - We modify the order passed by Ld. CIT(A) and direct the A.O. to allow deduction of proportionate cost, administrative and other expenses from the interest income earned from bank deposits assessed under the head income from other sources . Applicability of TDS provisions on interest income paid to non-regular members - While considering the issue of deduction claimed u/s. 80P(2)(a)(i) of the Act, definition of the term member given in section 80P(2)(a)(i) of the Act has to be understood in the light of definition of that expression as contained in the concerned co-operative societies Act. Hence this issue also requires fresh examination as the definition of the term member has to be examined as per the definition given in the concerned Cooperative societies Act. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and restore the same to the file of the AO for examining it afresh.

Summary

Issues involved:
1. Deduction claimed u/s. 80P(2)(a)(i) of the Income-tax Act, 1961.
2. Rejection of claim for deduction u/s. 80P of the Act in respect of interest income.
3. Applicability of TDS provisions on interest on deposits given to non-regular members.

Analysis:

1. Deduction u/s. 80P(2)(a)(i) of the Act:
The appellant, a credit co-operative society, challenged the AO's decision to reject the deduction claimed u/s. 80P(2)(a)(i) of the Act, arguing that it was carrying on banking business. The Ld. CIT(A) directed the AO to allow the deduction only in respect of income earned on loans given to regular members, based on the distinction between regular and associate members. The ITAT noted settled law by the Supreme Court and directed a fresh examination by the AO in line with the principles laid down by the Supreme Court.

2. Rejection of deduction for interest income:
Regarding the rejection of the deduction claimed u/s. 80P(2)(d) of the Act for interest income earned from deposits, the ITAT referred to a Karnataka High Court decision. It highlighted that the interest earned from bank deposits should be assessed under "Income from other sources" but directed the AO to allow deduction of proportionate costs and administrative expenses incurred in relation to such deposits.

3. Applicability of TDS provisions:
The issue of TDS provisions on interest income paid to non-regular members was linked to the definition of "member" under section 80P(2)(a)(i) of the Act, which needed examination in light of cooperative societies' definitions. The ITAT, in line with the Supreme Court's guidance, set aside the Ld. CIT(A)'s order for fresh examination by the AO based on the definition in the relevant Cooperative societies Act.

In conclusion, the ITAT allowed the appeal for statistical purposes, emphasizing the need for a fresh examination of the issues in accordance with the legal principles established by the Supreme Court and relevant High Court decisions.