2024 (3) TMI 719 - AT - Income Tax

Deduction u/s 80P - interest income - HELD THAT - So far as the Revenue s attempt to come out a distinction between nominal and regular members interest income(s) is concerned, hon'ble apex court s recent landmark decision in Mavilayi Service Co-operative Bank Ltd., vs., CIT 2021 (1) TMI 488 - SUPREME COURT has further settled the issue that the same does not bar an assessee from raising sec. 80P deduction once these twin memberships are in tune with the corresponding state s cooperative law. Revenue further denying section 80P(2)(a)(i) deduction for the reason a Souharda Society is registered under Karnataka Souharda Sahakari Act, 1997 than an eligible assessee covered u/s. 2(19) of the Act applicable in case of a credit cooperative society only - Revenue could hardly dispute the clinching fact that the instant issue has already been decided in assessee s favour and against the department by hon ble jurisdictional high court s in Government of India, Ministry of Finance vs., Karnataka State Souharda Federal Cooperative Ltd., 2022 (1) TMI 540 - KARNATAKA HIGH COURT thereby holding that such cooperative societies registered under the Karnataka Souhadra Sahakari Act, 1997 very well come under the purview of a cooperative society defined u/s. 2(19) of the Act. That being the case, we reject the Revenue s sole substantive ground.

Issues Involved:
1. Deduction under section 80P(2)(a)(i) of the Income Tax Act.
2. Interest earned on investments from cooperative banks versus members.
3. Applicability of Karnataka High Court's decision in Totgars Co-Op Sales Society case.
4. Eligibility of Souharda Societies for deduction under section 80P.

Summary:

Issue 1: Deduction under section 80P(2)(a)(i) of the Income Tax Act
The Revenue contested the CIT(A)/NFAC's decision to allow the entire deduction u/s 80P(2)(a)(i) of the Act. The Assessing Officer had disallowed the claim, arguing that the interest income was earned from investments in cooperative banks rather than from members. The tribunal noted that the issue is no longer res integra, referencing the tribunal's recent coordinate bench order in ITA.No.80/PAN./2020, which upheld that interest income from such investments is entitled to the deduction.

Issue 2: Interest earned on investments from cooperative banks versus members
The CIT(A)/NFAC's reliance on the Supreme Court decision in Mavilayi Service Co-operative Bank Ltd. vs. CIT was challenged by the Revenue. The tribunal observed that the Pune Tribunal had previously examined similar facts and held that interest income from investments in cooperative banks qualifies for deduction under section 80P(2)(d) as well as section 80P(2)(a)(i). The tribunal dismissed the Revenue's argument, affirming that the interest income qualifies for the claimed deduction.

Issue 3: Applicability of Karnataka High Court's decision in Totgars Co-Op Sales Society case
The Revenue argued that the CIT(A)/NFAC ignored the Karnataka High Court's decision in PCIT, Hubballi vs. Totgars Co-Op Sales Society, which held that cooperative banks are not covered under clause (d) of section 80P(2). The tribunal, however, found that the issue had been settled in favor of the assessee by judicial precedents, including the Supreme Court decision in Mavilayi Service Co-operative Bank Ltd. vs. CIT, which allows for section 80P deduction for interest income from both nominal and regular members.

Issue 4: Eligibility of Souharda Societies for deduction under section 80P
The Revenue argued that Souharda Societies registered under the Karnataka Souharda Sahakari Act, 1997, are not eligible for deduction u/s 80P(2)(a)(i) as they are not covered under section 2(19) of the Act. The tribunal referenced the Karnataka High Court's decision in Government of India, Ministry of Finance vs. Karnataka State Souharda Federal Cooperative Ltd., which held that such societies do come under the purview of a cooperative society defined u/s 2(19) of the Act. Consequently, the tribunal rejected the Revenue's argument.

Conclusion:
The tribunal dismissed the Revenue's appeal, affirming the CIT(A)/NFAC's decision to allow the deduction under section 80P(2)(a)(i) and section 80P(2)(d) for the assessee. The order was pronounced in the open Court on 13.03.2024.

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