2021 (9) TMI 103 - AT - Income Tax

Deduction claimed u/s 80P(2)(a)(i) - HELD THAT - Since the issue of deduction u/s 80P(2)(a)(i) of the Act requires fresh examination in the light of decision rendered by Hon ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT 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) - HELD THAT - Identical issue was also restored to the file of A.O. in the case of Thannirupantha Primary Agricultural Credit Co-operative Society Ltd. Vs. ITO 2021 (8) TMI 68 - ITAT BANGALORE and accordingly this issue may be restored to the file of the A.O. Expenses relating to interest income should be allowed u/s 57(iii) - HELD THAT - Since we have already restored the issue of claim of deduction u/s 80P(2)(d) of the Act, we restore this alternative contention also to the file of the A.O., since the claim of the assessee gets support from the decision rendered by Hon ble High Court of Karnataka in the case of Totgars Co-operative Sales Society Ltd. 2015 (4) TMI 829 - KARNATAKA HIGH COURT . Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues:
1. Eligibility of deduction u/s 80P(2)(a)(i) of the Act for a co-operative credit society with nominal/associate members.
2. Tax treatment of interest income earned by the co-operative credit society.
3. Consideration of expenses related to interest income under section 57(iii) of the Act.

Analysis:

1. The appellant, a co-operative credit society, challenged the denial of deduction u/s 80P(2)(a)(i) by the assessing officer due to the presence of nominal/associate members, allegedly violating mutuality principles. The appellant contended that its admission of nominal members was permissible under the Karnataka Co-operative Societies Act, distinguishing it from the Citizens Co-operative Society case. The tribunal set aside the CIT(A)'s order for fresh examination in light of the Mavilayi Service Co-operative Bank Ltd. case, emphasizing the need for reevaluation.

2. The assessing officer disallowed the deduction u/s 80P(2)(a)(i) for interest income earned by the appellant from deposits, asserting it should be taxed under the head "Income from Other Sources." The CIT(A) upheld this decision, referencing the Totagars Cooperative Society case. The tribunal restored this issue to the AO for reevaluation following the precedent set in the Thannirupantha Primary Agricultural Credit Cooperative Society Ltd. case.

3. The appellant's alternative claim for expenses related to interest income to be allowed under section 57(iii) was considered alongside the deduction issue. The tribunal, aligning with the decision in the Totgars Co-operative Sales Society Ltd. case, restored this contention to the AO for further examination. The appellant's appeal was treated as allowed for statistical purposes, emphasizing the need for a fresh assessment based on recent legal interpretations.

This comprehensive analysis highlights the key legal arguments, precedents, and the tribunal's decision, ensuring a detailed understanding of the judgment's implications for the appellant's tax treatment and eligibility for deductions.