2016 (1) TMI 1262 - AT - Income Tax

Denial of deduction of interest income earned from fixed deposits u/s 80P(a)(i) and 80P(2)(d) - Held that - For getting the deduction under the section there has to be direct and proximate connection or nexus to the earning of the assessee society. Provision of section 80P was intended to encourage and promote to growth of cooperative societies therefore a liberal construction should be given to the language employed in the provision as was held in CIT vs South Arcot District Co-operative Marketing Society Ltd. 1989 (1) TMI 3 - SUPREME Court If the totality of facts are analyzed with the facts of the present appeal is not clear as to how much interest was received from fixed deposits maintained with the banks and how much from co-operative societies. The Ahmedabad Bench of the Tribunal in State Bank of India Employees co-operative credit society ltd. (2015 (4) TMI 94 - ITAT AHMEDABAD) wherein the assessee society having accepted deposits from its members kept the idle fund with bank since there was no nexus between the interest earned on the said deposits and business of the assessee providing credit facility to its members held that it could not claim deduction u/s 80P(2)(d) of the Act. Since the source of interest as mentioned earlier how much from the bank and from the co-operative society are not clear I remand this appeal to the file of the ld. Assessing Officer to examine the claim of the assessee afresh. The assessee is directed to furnish evidence as to how much interest was received from banks and how much from the co-operative society. Appeal of the assessee is allowed for statistical purposes only.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Denial of deduction of interest income earned from fixed deposits under Section 80P(a)(i) and 80P(2)(d) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee appealed against the ex-parte order dated 27/08/2014. The counsel for the assessee requested condonation for a delay of 161 days in filing the appeal, citing bona fide reasons. The Revenue argued that the assessee should have been more vigilant. The Tribunal considered the rival submissions and emphasized that while filing an appeal is a statutory right, the judiciary should adopt a liberal approach in condoning delays if bona fide reasons exist. Citing the Supreme Court's decision in Collector, Land Acquisition vs Mst. Katiji & Ors. 167 ITR 471, the Tribunal highlighted the importance of substantial justice over technical considerations. The Tribunal found the reasons for the delay bona fide and condoned the delay, allowing the appeal to proceed.

2. Denial of Deduction of Interest Income Earned from Fixed Deposits:
The assessee, a co-operative society registered under the Maharashtra Cooperative Society Act, 1960, claimed deductions under Sections 80P(a)(i) and 80P(2)(d) of the Income Tax Act, 1961. The Assessing Officer denied the deductions, stating that the assessee functioned as a primary co-operative bank, making it ineligible under Section 80P(4). The Tribunal examined the objects of the society, which included encouraging thrift, accepting deposits, providing loans, and other activities for members' benefit.

The Tribunal analyzed Section 80P, which allows deductions for co-operative societies engaged in specific activities, including banking or providing credit facilities to members. The Tribunal referred to several judicial precedents, including the Supreme Court's decisions in Kerala State Cooperative Marketing Federation Ltd. vs CIT and Karnataka State Cooperative Marketing Federation Ltd. vs CIT, which emphasized a liberal interpretation of Section 80P to promote co-operative societies.

The Tribunal noted that the assessee's activities aligned with the objects of a co-operative society and that the income from fixed deposits with co-operative banks should be eligible for deduction under Section 80P(2)(d). However, the Tribunal found that the bifurcation of interest income from banks and co-operative societies was unclear. Citing the Ahmedabad Bench's decision in State Bank of India Employees Co-operative Credit Society Ltd., the Tribunal remanded the matter to the Assessing Officer to clarify the sources of interest income and decide the eligibility for deductions accordingly.

The Tribunal directed the Assessing Officer to re-examine the claim, considering the judicial precedents and the doctrine of mutuality, and to provide the assessee an opportunity to present evidence. The appeal was allowed for statistical purposes.

Conclusion:
The Tribunal condoned the delay in filing the appeal due to bona fide reasons and remanded the matter to the Assessing Officer to re-examine the eligibility for deductions under Sections 80P(a)(i) and 80P(2)(d) after clarifying the sources of interest income. The appeal was allowed for statistical purposes, ensuring the assessee's right to present further evidence.