2022 (6) TMI 936 - AT - Income Tax

Deduction u/s 80P - Denial of interest received from TAICO Bank claimed as deduction - CIT(A) allowed the claim of the assessee u/s. 80P(2)(a)(vi) - HELD THAT - There is a judicial precedence by the Hon'ble High Court of Madras in THE SALEM AGRICULTURAL PRODUCERS CO-OPERATIVE MARKETING SOCIETY LTD. 2016 (9) TMI 699 - MADRAS HIGH COURT carrying force of binding nature covering the case of the assessee in its favour on the issue of claim of deduction u/s. 80P(2)(d) of the Act, affirming the decision of the coordinate bench of ITAT, Chennai 2014 (6) TMI 921 - ITAT CHENNAI Reliance placed by the Ld. CIT(A) on the decision of PCIT vs Totgars Cooperative Sale Society 2017 (1) TMI 1100 - KARNATAKA HIGH COURT is not a jurisdictional court and possibly the judgment of Hon'ble Jurisdictional High Court of Madras (supra) was not placed before him. Considering the aspect of judicial discipline and hierarchy, respectfully following the decision of the Hon'ble Jurisdictional High Court of Madras in the case of CIT vs The Salem Agricultural Producers Co-operative Marketing Society Ltd. (supra), we are of the view that the assessee is entitled to claim deduction u/s. 80P(2)(d) of the Act in respect of interest received from Co-operative bank at Rs. 68,47,885/- derived from The Tamilnadu Industrial Cooperative Bank Ltd. (TAICO Bank) which is also a co-operative society. Accordingly, the grounds of appeal are allowed.

Issues Involved:

1. The validity of the order passed by the Commissioner of Income Tax (Appeals).
2. Disallowance of deduction under Section 80P(2)(d) of the Income Tax Act, 1961 on interest received from TAICO Bank.
3. Interpretation of the term "attributable" in Section 80P(2)(a)(vi) versus "derived from."
4. Applicability of the decision in the case of Pr. CIT Vs. Totgars Co-operative Sale Society.
5. Classification of TAICO Bank as a Co-operative Society or a Co-operative Bank.
6. Eligibility of the appellant for the deduction under Section 80P(2)(d).

Detailed Analysis:

1. Validity of the Order by the Commissioner of Income Tax (Appeals):
The assessee challenged the order of the Commissioner of Income Tax (Appeals) on the grounds that it was contrary to law, facts, and circumstances of the case. The CIT(A) had deleted the addition made under Section 80P(2)(a)(vi) but enhanced the assessment by disallowing Rs. 68,45,885/- claimed as deduction under Section 80P(2)(d).

2. Disallowance of Deduction under Section 80P(2)(d):
The CIT(A) disallowed the deduction of Rs. 68,47,885/- under Section 80P(2)(d) on the grounds that the interest received from TAICO Bank, classified as a Co-operative Bank, was not eligible for deduction. The CIT(A) relied on the Karnataka High Court's decision in the case of Pr. CIT Vs. Totgars Co-operative Sale Society, which held that interest income from investments in banks is not deductible under Section 80P(2)(d).

3. Interpretation of "Attributable" vs. "Derived From":
The assessee argued that the term "attributable" used in Section 80P(2)(a)(vi) has a broader scope than "derived from," intending to cover all receipts from sources other than the actual conduct of business. They cited the Supreme Court's decision in Cambay Electric Supply Vs. CIT.

4. Applicability of Pr. CIT Vs. Totgars Co-operative Sale Society:
The CIT(A) relied on the Totgars decision to disallow the deduction. However, the Tribunal noted that the Totgars case dealt with Section 80P(2)(a)(i) and not Section 80P(2)(d). The Tribunal observed that the interest income from investments in another co-operative society should be deductible under Section 80P(2)(d).

5. Classification of TAICO Bank:
The CIT(A) classified TAICO Bank as a Co-operative Bank based on its activities and facilities. However, the assessee contended that TAICO Bank is a Co-operative Society, making the interest income eligible for deduction under Section 80P(2)(d). The Tribunal examined the nature of TAICO Bank and concluded that it qualifies as a Co-operative Society.

6. Eligibility for Deduction under Section 80P(2)(d):
The Tribunal referred to various judicial precedents, including decisions from the Mumbai ITAT and the Gujarat High Court, which supported the view that interest income from investments in co-operative banks is deductible under Section 80P(2)(d). The Tribunal also cited the jurisdictional High Court of Madras in CIT vs. The Salem Agricultural Producers Cooperative Marketing Society Ltd., which held that interest earned from investments in a co-operative bank is deductible under Section 80P(2)(d).

Conclusion:
The Tribunal allowed the appeal, holding that the assessee is entitled to the deduction under Section 80P(2)(d) for the interest received from TAICO Bank, classified as a Co-operative Society. The Tribunal emphasized the binding nature of the jurisdictional High Court's decision and concluded that the CIT(A)'s reliance on the Totgars case was misplaced. The appeal was allowed, and the disallowance of Rs. 68,47,885/- was deleted.

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