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2021 (11) TMI 103 - AT - Income TaxDisallowance of deduction u/s 80P - CIT(A) held that the assessee was having substantial dealings with non-members (nominal members) thus not entitled to any deduction - HELD THAT - Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT had held that the co-operative societies providing credit facilities to its members is entitled to deduction u/s 80P(2)(a)(i) - Section 80P(4) now specifically excludes only co-operative banks which are co-operative societies engaged in the business of banking i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. The Hon ble Apex Court had enunciated various principles in regard to deduction u/s 80P of the I.T.Act. On identical factual situation, Tribunal in the case of M/s.Ravindra Multipurpose Cooperative Society Ltd 2021 (9) TMI 342 - ITAT BANGALORE had remanded the issue to the files of the A.O. for de novo consideration. The Tribunal directed the A.O. to follow the dictum laid down by the Hon ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. Ors. v. CIT Anr. (supra). Thus we restore the issue of claim of deduction u/s 80P of the I.T.Act to the files of the A.O. for de novo consideration. As regards the claim of deduction u/s 80P(2)(d) of the I.T.Act, the CIT(A) has not adjudicated the same for the reason that the assessee has violated the principle of mutuality. If the assessee receives / earns interest / dividend income out of investments with co-operative society, the same is entitled to deduction u/s 80P(2)(d) of the I.T.Act. With these observations, we direct the A.O. to examine the claim of deduction u/s 80P(2)(d) of the I.T.Act, afresh. If interest income is to be assessed income from other sources, necessarily, the cost incurred for earning such interest income should be allowed as deduction u/s 57 - We find an identical issue was considered in the case of Totgars Co-operative Sales Society Ltd. 2015 (4) TMI 829 - KARNATAKA HIGH COURT - assessee has not raised the plea before the Income Tax Authorities that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the fundamental principle under Income-tax Act being that only net income has to be taxed and not the gross income, this plea of the assessee has to be necessarily entertained. Thus issue of deduction u/s 57 of the I.T.Act is restored to the files of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head income from other sources . If so, the same shall be allowed as deduction u/s 57.Appeal filed by the assessee is allowed for statistical purposes.
Issues Involved:
1. Eligibility for deduction under section 80P of the Income Tax Act. 2. Applicability of the Supreme Court decision in the case of Citizens Co-operative Society. 3. Distinction between primary agricultural credit co-operative societies and marketing co-operative societies. 4. Interpretation of section 80P(4) concerning co-operative banks. 5. Deduction under section 80P(2)(d) for interest/dividend income from investments with co-operative banks. 6. Deduction under section 57 for costs incurred in earning interest income assessed as income from other sources. Issue-wise Detailed Analysis: 1. Eligibility for Deduction under Section 80P of the Income Tax Act: The assessee, a primary agricultural credit society, claimed a deduction under section 80P for the assessment year 2016-2017. The Assessing Officer (AO) denied this deduction, citing a violation of mutuality principles based on the Supreme Court's judgment in the case of The Citizen Co-operative Society Ltd. The CIT(A) upheld this decision, noting substantial dealings with non-members. However, the Tribunal referenced the Supreme Court's ruling in Mavilayi Service Co-operative Bank Ltd. v. CIT, which clarified that co-operative societies providing credit to members are entitled to the deduction under section 80P(2)(a)(i). The Tribunal remanded the issue back to the AO for reconsideration, instructing adherence to the principles laid out in the Mavilayi Service Co-operative Bank Ltd. case. 2. Applicability of the Supreme Court Decision in the Case of Citizens Co-operative Society: The assessee argued that the Supreme Court's decision in Citizens Co-operative Society was not applicable to their case. The Tribunal noted the differences highlighted by the assessee, such as the statutory allowance for nominal members under the Karnataka Cooperative Societies Act and government control over the society's activities. The Tribunal directed the AO to reconsider the applicability of this decision in light of the Mavilayi Service Co-operative Bank Ltd. judgment. 3. Distinction Between Primary Agricultural Credit Co-operative Societies and Marketing Co-operative Societies: The assessee contended that the AO erroneously applied the decision in the case of The Tatagars Co-op. Sale Society, which involved a marketing co-operative society, to their case as a primary agricultural credit co-operative society. The Tribunal acknowledged this distinction and instructed the AO to re-evaluate the case accordingly. 4. Interpretation of Section 80P(4) Concerning Co-operative Banks: The assessee argued that section 80P(4) restricts the applicability of section 80P to co-operative banks but does not extend this restriction to other co-operative societies investing in co-operative banks. The Tribunal noted the Supreme Court's interpretation in the Mavilayi Service Co-operative Bank Ltd. case, which clarified that section 80P(4) excludes only co-operative banks engaged in public banking. The Tribunal directed the AO to reassess the deduction claim under this interpretation. 5. Deduction Under Section 80P(2)(d) for Interest/Dividend Income from Investments with Co-operative Banks: The AO denied the deduction under section 80P(2)(d) for interest/dividend income from investments with co-operative banks, supported by the Karnataka High Court's decision in Totagars Co-operative Sales Society. The Tribunal instructed the AO to re-examine this claim afresh, considering the principles of mutuality and the specifics of the investments. 6. Deduction Under Section 57 for Costs Incurred in Earning Interest Income Assessed as Income from Other Sources: The assessee claimed that if interest income is assessed as income from other sources, the costs incurred in earning such income should be deductible under section 57. The Tribunal referenced the Karnataka High Court's decision in Totgars Co-operative Sales Society Ltd., which supported this view. The Tribunal remanded this issue to the AO, directing an examination of incurred expenses for earning the interest income and allowing deductions accordingly. Conclusion: The Tribunal allowed the appeal for statistical purposes, remanding the issues to the AO for de novo consideration. The AO was instructed to follow the principles laid out in relevant judicial pronouncements, including the Mavilayi Service Co-operative Bank Ltd. case, and to provide the assessee with an opportunity to present necessary evidence.
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