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TMI Blog2024 (12) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... perative society and not a bank registered under the Banking Regulations Act. The said finding is given in its judgment in the case of Kerala State Co-operative Agricultural Rural Development Bank Ltd. vs. AO [ 2023 (9) TMI 761 - SUPREME COURT ] Therefore the status of The Kerala State Co-operative Agricultural and Rural Development Bank Ltd. was decided by the Hon ble Supreme Court and therefore we are applying the said judgment to the facts of the present case and held that the interest income received from the said The Kerala State Co-operative Agricultural and Rural Development Bank Ltd. is eligible for deduction u/s. 80P(2)(d) Thus, the assessee is entitled for deduction on the interest income received from the said The Kerala State Co-operative Agricultural and Rural Development Bank Ltd. being a co-operative society u/s. 80P(2)(d) - The balance if received from the other banks, then the assessee is not entitled to claim deduction u/s. 80P(2)(d) of the Act as per the judgment of Mavilayi Service Co-operative Bank Ltd. [ 2021 (1) TMI 488 - SUPREME COURT ] In order to ascertain the correct figures, we are remitting this issue to the AO to verify. Disallowance of 30% of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its members for agricultural purposes or for rural development activities and therefore eligible for deduction u/s. 80P of the Act. The assessee also contended that the interest income was received from the Kerala State Cooperative Agricultural and Rural Development Bank Ltd. which is a cooperative society and therefore the interest income is eligible for deduction u/s. 80P(2)(d) of the Act. The assessee further contended that the interest was paid to the Kerala State Co-operative Agricultural and Rural Development Bank Ltd. for the loans availed by the assessee and the said bank being a co-operative society, are not liable to deduct the TDS u/s. 194A(3)(iii) of the Act. Insofar as the payment of interest to the members are concerned, the assessee contended that as per section 194A(3)(v) of the act, the assessee is not liable to deduct the TDS. The Ld.CIT(A) considered the grounds raised by the assessee and allowed the ground no. 1 in which the disallowance u/s. 80P(2)(a)(i) on the business income was made, by holding that the assessee is a co-operative society and therefore its business income is eligible for deduction u/s. 80P(2)(a)(i) of the Act. 3. Insofar as the ground no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant has filed their return on income on 31.10.2018 declaring the total income as NIL after claiming deductions under Section 80P of the Income Tax Act. Thereafter the return was processed under Section 143(1) if the Income Tax Act based on which a notice under Section 143(2) was issued to the appellant. In response to the said notice, the appellant submitted their replies along with statement of total income, copy of P L account, balance sheet, audit report, and other relevant documents. Ignoring the submissions and the averments made by the appellant, the assessing authority on 22.9.2021 issued as assessment order under Section 143 of the Income Tax Act making the following additions: (a) Disallowance of Section 80P deduction on income from business to the tune of Rs 2513759/- (b) Disallowance of Section 80P(2)(d) deduction on interest income (income for other source) to the tune of Rs 2551339/- (c) Disallowance under Section 40(a)(ia) of Rs 2,39,39,793/- 5. Aggrieved by the assessment order the appellant filed appeal before the First Appellant Authority. The First Appellate Authority on 22.3.2023 passed an order, partly allowing the appeal. The First Appellate Authority allowed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Cooperative Societies Act. The functions of which are governed by Kerala State Co-operative Agricultural Development Bank Act, 1984 and thereafter by Kerala State Co-operative Agricultural and Rural Development Bank Act in 1990. Therefore, KSCARD Bank being a cooperative society registered under the Kerala Cooperative Societies Act, the interest earned could be treated as meriting consideration under clause (d) of section 80P(2) of the Act. It is not in dispute that the District/State Cooperative Banks have licence from the Reserve Bank of India under the Banking Regulation Act and are registered Cooperative Societies under the Act. Since Society doing banking business such society will stand on par with a Co-operative Society registered under the Kerala Co-operative Societies Act would come within the purview of clause (d) of section 80P(2). 8. The second issue involved in the appeal is regarding the addition of Rs. 2,39,39,793/- by disallowing 30% of the interest expenses incurred by the appellant amounting to Rs: 7,97,99,312/-. The appellant has produced documentary evidences before the authorities below to show that the interest of Rs. 7,81,18,938/- was paid to apex bank i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gricultural credit society or a primary credit society or a co-operative land mortgage bank or a cooperative land development bank; (b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking; 9. As stated above KSCARD Bank was a cooperative society registered under Section 10 of the erstwhile Travancore-Cochin Co-operative Societies Act, 1951 and presently it is registered under Kerela State Cooperative Societies Act and therefore by opertation of the provision of Section 194A(3)(iii) the appellant has no obligation to deduct tax at source on the said interest payment in terms of Section 194A(1) of the Income Tax Act. 10. Likewise of the balance amount of Rs 16,80,374/- the same were paid to the members of the appellant society on the deposited maintained with them. Here also the authorities below failed to note that appellant is eligible for exemption from TDS on the interest payments under Section 194A(3)(v) and (viia) of the Income Act. The first appellant authority has not afforded any reason whatsoever, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me received from the co-operative banks are not eligible for deduction. 9. The next dispute is with regard to the disallowance of 30% of the interest payment made to The Kerala State Co-operative Agricultural and Rural Development Bank Ltd. on the ground that no TDS was deducted by the assessee while making the interest payment. 10. We will take up the first issue i.e. the disallowance of interest income received from The Kerala State Co-operative Agricultural and Rural Development Bank Ltd. u/s. 80P(2)(a)(i) of the Act, the authorities below had held that the interest income received from the banks are not eligible for deduction but in the assessment order the AO had given the break-up of the interest received by the assessee from the bank as well as on deposit. But it is the case of the assessee that the interest income has been received from The Kerala State Co-operative Agricultural and Rural Development Bank Ltd and also filed a statement of the interest payment made to KSCARD Bank. But the AO on the false notion held that interest received from banks on the deposit of surplus funds does not qualify for deduction under the provisions of the Act. Unfortunately, the Ld.CIT(A) al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide financial assistance to the society; (3) the State Government; (b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or (ii) the Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business; (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed, (i) where such co-operative society is a consumers' co-operative society, one hundred thousand rupees; and (ii) in any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble Supreme Court and therefore we are applying the said judgment to the facts of the present case and held that the interest income received from the said The Kerala State Co-operative Agricultural and Rural Development Bank Ltd. is eligible for deduction u/s. 80P(2)(d) of the Act. The AO had given a statement about the interest incomes which is reproduced below. Interest from loan to members as per sheet 9,18,97,020/- FDR interest from Bank 39,607/- Interest on deposit 25,11,732/- Total Interest Income 9,44,48,359/- Dividend 21,88,290/- 13. As seen from the said table, the assessee has received interest from The Kerala State Co-operative Agricultural and Rural Development Bank Ltd. amounting to Rs. 25,11,732/- and received a further FDR interest from bank Rs. 39,607/-. If the said statement is correct, the assessee is entitled for deduction on the interest income of Rs. 25,11,732/- received from the said The Kerala State Co-operative Agricultural and Rural Development Bank Ltd. being a co-operative society u/s. 80P(2)(d) of the Act. The balance Rs. 39,607/-, if received from the other banks, then the assessee is not entitled to claim deduction u/s. 80P(2)(d) of the Act as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the A/Y 2018-19 and we are in agreement with the argument advanced by the Ld.AR and hold that the assessee need not deduct the TDS while making the payment to The Kerala State Co-operative Agricultural and Rural Development Bank Ltd. which is a co-operative society as well as to its members. 15. It seems that the assessee had not furnished any details about the payment of interest to the said bank as well as its members while the Ld.CIT(A) had decided the appeal and therefore we are of the opinion that this issue may also be remitted to the AO for verifying the said facts and if the AO find that the interest was paid to The Kerala State Co-operative Agricultural and Rural Development Bank Ltd. and also to the members, then the deduction of 30% u/s. 40(a)(ia) of the Act need not be made. We also made it clear that the assessee will also submit the necessary records in support of their case before the assessing officer before passing the order. It is needless to say that the AO will grant a personal hearing to the assessee before passing the order. 16. In the result, the appeal filed by the assessee is allowed for statistical purposes and the stay petition is dismissed as infructuo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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