2019 (12) TMI 1481 - AT - Income Tax

Deduction u/s 80P in respect of interest from members - HELD THAT - CIT (A) is not justified in holding that the assessee is not eligible for deduction u/s 80P in respect of interest earned from associate members because as per Karnataka Co Operative Societies Act associate members are also members and restriction on no. of associate members up to 15% of total members is by way of a subsequent amendment which is not applicable in the present year. Hence on this issue the order of CIT (A) is set aside and hold that for allowing deduction u/s 80P in respect of interest from members regular members and associate members are to be considered at par in the present year which is before amendment in Karnataka Co Operative Societies Act In respect of interest from regular members learned CIT (A) has directed the AO to allow deduction u/s 80P. I modify this direction and direct the AO to allow deduction u/s 80P as per law in respect of interest income from regular members as well as associate members. Deduction u/s 80P in respect of Bank Interest - We find that the claim of the assessee for deduction u/s 80P in respect of bank interest income was disallowed by AO and CIT (A) by following the judgment of Hon ble Apex Court rendered in the case of Totgars Co Operative Sale Society Limited vs. ITO 2010 (2) TMI 3 - SUPREME COURT There is one judgment of Hon ble Karnataka High Court rendered in the case of Tumkur Merchants Souhadra Credit Cooperative Ltd. 2015 (2) TMI 995 - KARNATAKA HIGH COURT in which this judgment of Hon ble apex court rendered in the case of Totgars Co Operative Sale Society Limited vs. ITO (Supra) was considered but still the issue was decided in favour of the assessee because in that case money used to earn bank interest was out of own funds and not of out of liability. To examine the applicability of these two judgments the facts are to be examined as to whether in the present case the money advanced to earn interest income from various banks is out of liability or own funds of the assessee because if such advances are out of liability then this judgment of Hon ble apex court rendered in the case of Totgars Co Operative Sale Society Limited vs. ITO (Supra) will be applicable and the assessee will not be entitled to deduction u/s 80P with regard to interest from banks but if such advances are not out of liability but are out of own funds of the assessee than the judgment of Hon ble Karnataka High Court rendered in the case of Tumkur Merchants Souhadra Credit Cooperative Ltd. Vs. ITO 2015 (2) TMI 995 - KARNATAKA HIGH COURT will be applicable. Hence set aside the order of CIT (A) on this issue and restore this aspect of the matter back to his file for fresh decision with the direction that he should examine the facts of the present case in the light of these two judgments of Hon ble apex court rendered in the case of Totgars Co Operative Sale Society Limited vs. ITO (Supra) and of Hon ble Karnataka High Court rendered in the case of Tumkur Merchants Souhadra Credit Cooperative Ltd. Vs. ITO (Supra) to find out which judgment is applicable in the facts of the present case. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of deduction claimed by the assessee u/s 80P of I. T. Act.
2. Allowability of deduction u/s 80P in respect of Bank interest.
3. Non-deduction of TDS from interest paid to members.

Issue 1: Disallowance of deduction u/s 80P:
The appeal challenged the CIT (A) order disallowing the deduction claimed by the assessee u/s 80P of I. T. Act. The AR of the assessee argued that the restriction on associate members was not applicable in the relevant year, and cited conflicting judgments of the Karnataka High Court and the Apex Court. The ITAT found the CIT (A) unjustified in denying the deduction for interest earned from associate members, holding that regular and associate members should be treated equally for deduction u/s 80P. The ITAT directed the AO to allow deduction u/s 80P for interest income from both regular and associate members.

Issue 2: Allowability of deduction u/s 80P in respect of Bank interest:
The second aspect involved the assessee's claim for deduction u/s 80P in respect of Bank Interest, disallowed by the AO and CIT (A) based on a judgment of the Apex Court. The ITAT referred to a Karnataka High Court judgment where the applicability of the Apex Court's decision depended on whether the funds used to earn bank interest were out of liability or own funds. The ITAT set aside the CIT (A) order and directed a fresh examination of the facts in light of both judgments to determine the applicability in the present case.

Issue 3: Non-deduction of TDS from interest paid to members:
Regarding Ground No. 4 raised by the assessee on non-deduction of TDS from interest paid to members, the ITAT noted no addition or disallowance in the assessment order. Consequently, the ITAT held that no adjudication was necessary, deeming it of academic interest only.

In conclusion, the ITAT allowed the appeal of the assessee for statistical purposes, setting aside the CIT (A) order on the deduction issues and directing a fresh examination of the facts concerning bank interest.