2021 (3) TMI 1211 - AT - Income Tax

Claim of deduction u/s 80P(2)(a)(i) denied - assessee was also dealing with associate / nominal members - HELD THAT - The Hon ble Apex Court in the case of The Mavilayi Service Co-operative Bank Ltd 2021 (1) TMI 488 - SUPREME COURT had held that the expression members is not defined under the Income-tax Act. Hence, it is necessary to construe the expression members in section 80P(2)(a)(i) of the I.T.Act as it is contained in the respective State Co-operative Act. Also providing credit facilities to associate or nominal members would be entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act unless they are not considered as members of co-operative under the respective State Act. A.O. has merely denied the benefit of deduction u/s 80P(2)(a)(i) for the reason that the assessee was also dealing with associate / nominal members, which is against the dictum laid down by the Hon ble Apex Court in case of Mavilayi Service Co-operative Bank Ltd. Ors. (supra). The Hon ble Apex Court has settled many issues. The instant case needs to be examined by the A.O. in light of the principles enunciated by the Hon ble Apex Court in case of Mavilayi Service Co-operative Bank Ltd. Ors. (supra). Accordingly, the CIT(A) order on this issue is set aside and the same is restored to the files of the A.O. for Re -examination Rejection of claim of deduction u/s 80P(2)(a)(i) of the I.T.Act with regard to interest income earned from fixed deposit kept with Co-operative Banks - Whether the Income Tax Authorities has erred in holding that the interest earned by the assessee from deposit made with Co-operative Banks is chargeable to tax u/s 56? - HELD THAT - On identical facts the co-ordinate bench of the Tribunal in the case of M/s.Raithara Seva Sahakara Sangh v. ITO 2019 (1) TMI 282 - ITAT BANGALORE had restored the matter to the A.O. for de novo consideration. We restore the issue of claim of interest income received from other co-operative banks to the files of the A.O. for de novo consideration. The A.O. shall follow the directions of the Tribunal contained (supra)

Summary

Issues:
1. Disallowance of deduction u/s 80P(2)(a)(i) of the I.T.Act
2. Taxability of interest earned from deposits with Co-operative Banks u/s 56 of the I.T.Act

Issue 1: Disallowance of deduction u/s 80P(2)(a)(i) of the I.T.Act:
The case involved a Co-operative Society providing credit facilities to its members. The Assessing Officer disallowed the deduction claimed u/s 80P(2)(a)(i) of the I.T.Act, citing the absence of mutuality between regular, nominal, and associate members. The CIT(A) upheld this decision. However, the Tribunal referred to the judgment in The Mavilayi Service Co-operative Bank Ltd. case, emphasizing that the definition of "members" must align with the respective State Co-operative Act. The Tribunal ruled that providing credit facilities to all types of members is eligible for deduction unless they are not considered members under the State Act. The Tribunal set aside the CIT(A) order for reevaluation based on the principles established in The Mavilayi Service Co-operative Bank Ltd. case.

Issue 2: Taxability of interest earned from deposits with Co-operative Banks u/s 56 of the I.T.Act:
Regarding interest income from fixed deposits with Co-operative Banks, the Tribunal noted conflicting judgments from the Hon'ble Karnataka High Court. The Tribunal referred to a previous decision where similar facts led to the matter being sent back to the Assessing Officer for reconsideration. The Tribunal highlighted the distinction between the source of funds and the applicability of deductions under Sec. 80P(2)(d) of the Act. The Tribunal directed the Assessing Officer to reexamine the issue, considering the judgments in The Totgar's Co-operative Sales Society case and the Tumkur Merchants Souharda Credit Co-operative Society Ltd. case. The Tribunal allowed the Assessee to submit additional evidence and restored the issue to the A.O. for fresh consideration.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a thorough review based on relevant legal precedents.