2021 (8) TMI 505 - AT - Income Tax

Deduction u/s.80P(2)(a)(i) - interest income earned on fixed deposits - HELD THAT - As relying on THE PUTTUR PRIMARY CO-OP AGRICULTURE AND RURAL DEVELOPMENT BANK LTD. 2021 (6) TMI 460 - ITAT BANGALORE we restore the issue to the AO to examine the claim of the assessee afresh as directed by the Tribunal in the aforesaid order. We also notice that the assessee has raised a specific plea that the investments which yielded interest income were all investments that are statutorily required to be maintained under the Karnataka Co-operative Societies Act and therefore interest income has to be regarded as business income. The AO can examine this aspect also in the set aside proceedings. Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues involved:
1. Deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for interest income earned from investments in cooperative banks.
2. Interpretation of the Karnataka Co-operative Societies Act in relation to deduction u/s 80P(2)(a)(i) of the Act.

Issue 1: Deduction under section 80P(2)(a)(i) of the Income Tax Act:
The appeal pertains to the assessment year 2016-17 where the assessee, a society registered under the Karnataka State Cooperative Societies Act, claimed a deduction of a sum under section 80P(2)(a)(i) of the Act for interest income received from investments in cooperative banks. The Assessing Officer (AO) disallowed the deduction on the grounds that the interest income earned from non-members did not qualify for deduction under section 80P(2)(a)(i) as it was considered income from other sources. The AO relied on judicial precedents, including a decision of the Hon. Supreme Court and the Karnataka High Court, to support this conclusion. The CIT(A) upheld the AO's decision, leading to the appeal before the Tribunal.

Issue 2: Interpretation of the Karnataka Co-operative Societies Act in relation to deduction u/s 80P(2)(a)(i) of the Act:
The Tribunal considered a similar issue in a previous case and remanded it for fresh examination in light of a decision by the Hon'ble Supreme Court regarding the definition of "Members" under section 80P(2)(a)(i) of the Act. The Tribunal decided to restore the issue to the AO for reconsideration based on the principles established by the Supreme Court. In the current appeal, the Tribunal found the facts to be identical to the previous case and, following the same reasoning, decided to remand the issue to the AO for fresh examination. The Tribunal directed the AO to consider the claim of the assessee that the interest income should be treated as business income due to being earned from investments statutorily required under the Karnataka Co-operative Societies Act.

In conclusion, the Tribunal allowed the appeal for statistical purposes and remanded the issue of deduction under section 80P(2)(a)(i) of the Act to the Assessing Officer for fresh examination. The AO was instructed to provide the assessee with an opportunity to present evidence supporting their case, especially regarding the nature of the investments under the Karnataka Co-operative Societies Act.