2023 (5) TMI 466 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest derived by the assessee on deposits with banks/institutions - Claim denied by AO on the ground that the Union Bank of India from which the assessee derived such interest is not a co-operative bank - HELD THAT - The assessee is involved in sale of rice, kerosene, sugar etc. A perusal of the balance sheet as on 31/03/2018 does not reveal any liability towards its members in respect of payment of any dues to them. All these things clearly establish that the funds deposited by the assessee with the Union Bank of India are undoubtedly the own funds of the assessee and none of such fund represents any liability of the assessee to its members or anyone else. On a threadbare analysis of the provisions under section 80P in the light of various decisions including the decision of Totgars Co-operative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT and CIT vs. Andhra Pradesh State Co-operative Bank Ltd 2011 (6) TMI 215 - ANDHRA PRADESH HIGH COURT the Hon ble High Court reached a conclusion that if the investment is made in fixed deposits in nationalised banks from out of the own funds of the assessee, the interest derived from such investment would be from the activities listed in clause (i) to (vii) of section 80P(2)(a) of the Act and would be eligible for deduction. It is therefore, clear that the assessee being a primary agricultural co-operative society invested the own surplus funds with the Union Bank of India and, therefore, the assessee is entitled to claim the deduction under section 80P(2)(a)(i) of the Act. With this view of the matter, we direct AO to delete the addition made by disallowing the deduction claimed under section 80P(2)(a)(i) of the Act. Appeal of the assessee is allowed.

Summary

Issues:
The judgment involves the denial of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 to a farmers services cooperative society by the Assessing Officer, based on the argument that the bank from which the interest was derived is not a cooperative bank. The Commissioner of Income Tax (Appeals) upheld this decision, citing precedents from the Supreme Court and Gujarat High Court.

Details of Judgment:

*Issue 1: Denial of Deduction under Section 80P(2)(a)(i)*
The Assessee, a farmers services cooperative society, had its deduction under section 80P(2)(a)(i) of the Act denied by the Assessing Officer due to the bank not being a cooperative bank. The Commissioner of Income Tax (Appeals) upheld this decision, referencing previous court rulings. The Assessee argued that it is a Primary Agricultural Cooperative Society, and the funds deposited were its own surplus funds, establishing a nexus with its business activities.

*Issue 2: Nature of Deposited Amount and Eligibility for Deduction*
The dispute also revolved around whether the deposited amount was exclusively owned by the Assessee and not withheld for members. The Assessee contended that the funds deposited with the Union Bank of India were indeed its own surplus funds, with no liabilities towards its members, as evidenced by its balance sheet.

*Issue 3: Interpretation of Section 80P(2)(a) for Deduction Eligibility*
The judgment delved into the interpretation of Section 80P(2)(a) of the Act, emphasizing the distinction between different types of cooperative societies and the activities eligible for deductions. Citing previous court decisions, including the Hon'ble Apex Court and jurisdictional High Court, the judgment concluded that if investments are made from the Assessee's own funds in nationalized banks, the interest derived would be eligible for deduction under Section 80P(2)(a)(i) of the Act.

In conclusion, the Appellate Tribunal ruled in favor of the Assessee, stating that being a primary agricultural cooperative society, the Assessee was entitled to claim the deduction under Section 80P(2)(a)(i) of the Act. The Assessing Officer was directed to delete the addition made by disallowing the deduction claimed.