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June 8, 2022

No section 80P deduction for  interest on investment earnings on co-operative bank

by CA Shivam Jaiswal in Income Tax

No section 80P deduction for  interest on investment earnings on co-operative bank

There is a delay of 4 days in filing this appeal. The assessee has filed a petition for condonation of delay  along with an Affidavit of the Secretary of the assessee-society. On perusal of the reasons stated for belated filing  of the appeal, we  noticed that no latches can be attributed to the assessee and there is sufficient cause in filing this appeal belatedly. Accordingly, we condone the delay in filing this appeal and proceed to dispose of this appeal on merits.

Grounds of the appeal

1. The appellant denies himself liable to be taxed on disallowance of Rs.6,89,167/- as assessed by the learned CIT(A) as against the return income of Rs. NIL under the facts and circumstances of the case of the appellant.

2. The learned CIT(A) has erred in disallowing the claim of deduction of an amount of Rs. 6,89,167/- u/s.80P(2)(d) of the Act on the fact and circumstances of the case.

3.The CIT(A) erred in coming to the conclusion that, the Appellant failed to establish as to how the facts of  its  case differs from that of the Jurisdictional Karnataka High Court in M/s. Totgars Co-Operative Sale Society Ltd case’, without appreciating the facts and circumstances of the case.

4. Both the Assessing Officer and CIT(A) failed to understand that the governing Act is to be followed for arriving at total income of Society and not the general taxing Act i.e., Income Tax Act under the fact and circumstances of the case.

5.The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above.

6.In view of the above and the other grounds that may be urged at the time of hearing of the  appeal,  your  Appellant prays that the appeal may be allowed in the interest of equity and justice.”

Facts and Issues of the case

The assessee is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959. For the assessment year 2015-2016, the return of income was filed on 30.09.2015 declaring `NIL’ income after claiming deduction of Rs.50,18,018 u/s 80P(2)(a)(i) of the I.T.Act. The assessment was selected for scrutiny and notice u/s 143(2) and 142(1) of the I.T.Act was duly served on  the assessee. The assessment u/s 143(3) of the I.T.Act was completed vide order dated 28.12.2017, wherein the assessee was denied the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act amounting to Rs.50,18,018.  The A.O. held that the  assessee  is carrying on the business of banking and in view  of  the  amended provisions of section 80P of the I.T.Act, the assessee society,which is carrying on the  business of banking was not entitled to the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act.

The assessee  Aggrieved to preferred an appeal to the first appellate authority. The CIT(A) partly allowed the appeal of the assessee. With regard to the interest income earned by providing credit facilities to the members, the CIT(A) by following the judgment of Hon’ble Karnataka  High  Court  in the case of  Bilur  Gurubasava  Pattina  Sahakari  Sangha Niyamit (supra) held that the assessee is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act. As regards interest income / dividend received on investments with co-operative banks, the CIT(A) held the same has to be assessed as income from other sources. It was further held by the CIT(A) that since this interest / dividend earned out of investments with co- operative banks, the claim of deduction u/s 80P(2)(d) of the I.T.Act also cannot be granted. In holding so,  the  learned CIT(A) relied on the judgment of the Hon’ble Karnataka High Court in the case of Pr.CIT & Anr.  v.  Totagars  Co-operative Sale Society reported in 395 ITR 611 (Kar.).

The assessee has filed this appeal before the Tribunal. The learned AR reiterated the submissions made before the Income Tax Authorities. It was submitted that if the interest income is to be assessed as income  from  other sources, necessarily, the cost incurred for  earning  such interest income should be allowed as deduction u/s 57 of the I.T.Act.

The learned Departmental Representative submitted that the issue in question is squarely covered by the order of the ITAT in the case of M/s.Vasavamba Co-operative Society Ltd.v. The Pr.CIT in ITA No.453/Bang/2020 (order dated 13.08.2021). It was submitted by the learned DR that the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd. (supra) had analysed the judicial pronouncements on the subject and held that the  assessee  is not  entitled the  benefit of deduction u/s 80P(2)(d) nor u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income earned out of investments  made with a co-operative Bank.

Observation by the Court

The court has  heard rival submissions and perused the material on record. The issue to be decided is with regard to the interest income earned on account of investments made with co-operative Banks, whether it is entitled to deduction either u/s 80P(2)(d) or u/s 80P(2)(a)(i) of the I.T.Act. The Bangalore Bench of the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd. (supra) had  held that the assessee is not entitled to  deduction  u/s 80P(2)(d) nor u/s 80P(2)(a)(i) of the I. T. Act with regard to the interest income earned from investments made with co- operative banks. In the light of the above order of the Bangalore Bench of the Tribunal, which has analysed the judicial  precedents  on the subject, we hold that the assessee is not entitled to deduction u/s 80P(2)(d) nor u/s 80P(2)(a)(i) of the I.T.Act in respect of interest income earned from investments with Co- operative Banks.

The learned AR had claimed that if interest income is to be assessed as income from other sources,  necessarily,  the cost incurred for earning such interest income should be allowed as deduction u/s 57 of the I.T.Act. The assessee has not raised the plea before the Income Tax Authorities that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the fundamental principle under Income-tax Act being that only net income has to be taxed and not  the  gross  income,  this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of the Hon’ble jurisdictional High Court in the case of Totagars Sale Co- operative Society v. ITO [2015] 58 taxmann.com 35 (Karnataka). Accordingly, the case is  restored to the  files of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure  for earning  interest  income, which is assessed under the head `income from other sources’. If so, the same shall be allowed as deduction u/s 57 of the I.T.Act. The assessee is directed to co-operate with the  department and furnish the necessary evidence for expeditious disposal of the matter. It is ordered accordingly.

Conclusion

The appeal filed by the assessee is allowed by the court for statistical purposes.

Manjunatheshwara-Credit-Co-operative-Society-Limited-Vs-ITO-ITAT-Bangalore-1-1

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