2024 (2) TMI 1169 - AT - Income Tax

Deduction u/s 80P(2) - interest accrued/earned on fixed/term deposits investment - reasoning given by the tax authorities in denying the claim for deduction u/s 80P(2)(d) is that interest was received from banks - HELD THAT - Revenue reasoning has no legs to stand as a cooperative bank is principally a cooperative society and holds a banking license to operate on a larger scale under the guidelines of RBI. This issue was came to consider by Hon ble Karnataka High Court in CIT Vs Totagars Cooperative Sale Society , finds reported 2017 (7) TMI 1049 - KARNATAKA HIGH COURT wherein their lordships referring to the decision of Hon ble Apex Court in the case of Totgars Co-operative Sales Society Ltd. 2010 (2) TMI 3 - SUPREME COURT held that the ratio of decision of the Hon ble Supreme Court in the aforesaid case (supra) not to be applied in respect of interest income on investment as same falls u/s 80P(2)(d) and not u/s 80P(2)(a)(i) of the Act Thus we hold that the interest income earned by the appellant society from its investment held with other cooperative banks since being a registered co-operative society under respective state laws, qualifies for deductions u/s 80P(2)(d) of the Act. Resultantly, we set-aside the impugned orders and reverse the denial of deduction. Appeal of assessee allowed.

Summary

Issues:
The judgment involves the denial of deduction claimed under section 80P(2) of the Income-tax Act, 1961 for the assessment years 2018-19 and 2020-21.

For Assessment Year 2018-19:
The appellant, a credit co-operative society, claimed a deduction under section 80P(2) of the Act for interest income earned from fixed deposits and savings account with cooperative banks. The Assessing Officer (AO) denied the deduction citing judicial precedents. The appellant contended that the interest income generated from investments in liquid funds qualifies as business income and is eligible for deduction under section 80P(2)(a)(i) of the Act. The Tribunal agreed, stating that the surplus fund theory does not apply to credit co-operative societies, and the interest earned qualifies for deduction under section 80P(2)(a)(i).

For Assessment Year 2020-21:
In this assessment year, the appellant's deduction under section 80P(2) was denied for interest income accrued from fixed deposits with cooperative banks. The appellant argued that since the interest was earned from investments made with other cooperative societies, it qualifies for deduction under section 80P(2)(d) of the Act. The Tribunal concurred, emphasizing that interest income derived from investments in cooperative banks by a registered co-operative society is eligible for deduction under section 80P(2)(d) of the Act.

Conclusion:
The Tribunal allowed both appeals, setting aside the denial of deduction under section 80P(2) for the respective assessment years. The interest income earned by the appellant from investments in cooperative banks was deemed eligible for deduction under section 80P(2)(a)(i) and 80P(2)(d) of the Act. The impugned orders were reversed, and the appeals of the assessee were allowed.