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2023 (2) TMI 124 - AT - Income TaxDeduction u/s 80P(2)(d) - interest received by the Appellant from Co-operative Bank - entitled for deduction under section 57 of the Act for the expenses incurred by it against interest received from Cooperative Bank - HELD THAT - Assessee would not be entitled to deduction under section 80P(2)(d) of the Act in respect of interest received from another Co-operative Bank. Assessee would also not be entitled to deduction under section 80P(2)(a)(i) - See M/s. Krishnarajapet Taluk Agri Pro Co-op Marketing Society Ltd. 2022 (2) TMI 489 - ITAT BANGALORE Deduction u/s 57 for the expenses incurred by it against interest received from Cooperative Bank - However the claim of the assessee that the interest was received by it by reason of the investment of its funds with a view to comply with the mandatory requirements of section 57 of the Co-operative Societies Act, 1959 and with a view to maintain the cash reserve ratio needs to be examined by the AO and if the contention is found to be correct then the question whether it can be regarded as profits of business has to be examined by the AO. In so far as deduction u/s 57 of the Act is concerned, if the claim of the assessee for deduction u/s 80P(2)(a)(i) of the Act is rejected then in terms of paragraph 16 of the Tribunal s order referred to above, the assessee will be entitled to deduction on account of expenses - issues are accordingly restored to the file of the AO to decide the same afresh in accordance with law - Appeal of the assessee is treated as partly allowed for statistical purposes.
Issues Involved:
1. Eligibility of interest income for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. 2. Eligibility of interest income for deduction under section 80P(2)(d) of the Income Tax Act, 1961. 3. Entitlement to deduction under section 57 of the Income Tax Act for expenses incurred against interest received from Cooperative Bank. 4. Levy of interest under sections 234A and 234B of the Income Tax Act. Detailed Analysis: 1. Eligibility of Interest Income for Deduction under Section 80P(2)(a)(i): The assessee, a Primary Agricultural Co-operative Society, claimed deduction under section 80P(2)(a)(i) for interest income received from investments in a Cooperative Bank. The Assessing Officer (AO) rejected this claim based on the Karnataka High Court's decision in PCIT, Hubli Vs. Totgars Co-operative Sale Society Ltd., which held that income from the utilization of surplus funds is taxable under the head "Income from Other Sources" and not eligible for deduction under section 80P(2)(a)(i). The Tribunal upheld this view, referring to the Supreme Court's decision in Totgars Cooperative Sale Society Ltd. Vs. ITO, which distinguished between business income and income from other sources. 2. Eligibility of Interest Income for Deduction under Section 80P(2)(d): The assessee's alternative claim for deduction under section 80P(2)(d) was also rejected by the AO, supported by the Karnataka High Court's ruling in the Totgars Co-operative Sale Society case. The Tribunal noted that section 80P(2)(d) allows deduction for interest income derived from investments with any other cooperative society, but not from cooperative banks. The Tribunal cited the Karnataka High Court's decision in PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE SOCIETY, which held that interest income from investments in cooperative banks is taxable under "Income from Other Sources" and not eligible for deduction under section 80P(2)(d). 3. Entitlement to Deduction under Section 57 for Expenses: The Tribunal acknowledged that if the assessee's claim under section 80P(2)(a)(i) is rejected, the assessee should be allowed expenses under section 57. This is in line with the Karnataka High Court's decision in Totgars Co-operative Sale Society Ltd. Vs. ITO, which allowed deduction of proportionate cost, administrative, and other expenses if the interest income is assessed under "Income from Other Sources." 4. Levy of Interest under Sections 234A and 234B: The Tribunal did not provide a detailed discussion on this issue but confirmed the levy of interest under sections 234A and 234B. Conclusion: The Tribunal concluded that the assessee is not entitled to deduction under sections 80P(2)(a)(i) and 80P(2)(d) for interest income received from a cooperative bank. However, the AO needs to examine if the interest income is related to mandatory investments under section 57 of the Co-operative Societies Act. If the claim under section 80P(2)(a)(i) is rejected, the assessee is entitled to deduction of expenses under section 57. The issues are remanded back to the AO for fresh consideration in light of the Tribunal's observations. The appeal is partly allowed for statistical purposes.
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