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2021 (12) TMI 1084 - HC - Income TaxDeduction u/s 80P(2) - AO claimed inclusion of interest income earned by the assessee from the deposit of idle funds with co-operative bank and treasury treating the said income as business income falling within the admissible ambit of deduction u/s 80P(2) (a)(i) - AO treated the interest income as income from other sources and also that the interest income does not come within the purview of Section 80P(2)(d) - HELD THAT:- Substantial question covered by the judgment of the Supreme Court in Mavilayi Service Co-operative Bank Ltd. [2021 (1) TMI 488 - SUPREME COURT] the assessee since is a registered Co-operative Society and the deduction claimed is interest earned from loans lent to members and amount invested with Co-operative Bank and Treasury, so the threshold eligibility of deduction is admissible to assessee and accordingly the income earned by way of interest from members is eligible for deduction under Section 80P(2)(a)(i) of the Act. Accordingly the questions can be answered against the Revenue and in favour of the assessee. Statement is placed on record. Substantial question nos.1 to 4 are answered in favour of the assessee and against the Revenue. Interest income earned from the deposits the assessee has made with District/State Cooperative Banks and Treasury - Whether the interest income earned by the assessee from the deposits made with District/State Cooperative Banks and Treasury, firstly, would fall as business income of the assessee, and, alternatively, whether the interest income is eligible for deduction under Section 80P(2)(d)? - HELD THAT:- Supreme Court in Mavilayi Service Co-operative Bank Ltd. [2021 (1) TMI 488 - SUPREME COURT] on the construction of Section 80P(2)(a)(i) read with sub-section 4 of Section 80P. Now provision in Section 80P(2)(a)(i) is read without reference to an activity viz. Primary Agriculture etc. It is noted that Section 80P provides for deduction in respect of income of Co-operative Societies and Section 80P(2) allows a straight deduction from the computation of total income of the assessee/Co-operative Society to the extent mentioned in respect of incomes referred therein. Under Section 80P(2)(a)(i) the whole of profits and gains from business of banking or providing credit facilities to the members of the Society is entitled to deduction. Clauses (ii) to (vii) are unnecessary for the purpose of this judgment, hence not included in the narrative. A Division Bench of High Court of Telangana and Andhra Pradesh in Vavveru Co-operative Rural Bank Ltd [2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT] has succinctly tabulated the Societies and the benefits to which each one of the category of Societies is entitled to. In the case on hand, there is no dispute that it is not from a Co-operative Society registered under Kerala Co-operative Societies Act. The interest income earned from District Co-operative Bank/State Co-operative Bank, in the facts and circumstances of the case, do come within Section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by Section 80P(2)(d) viz. Interest or dividend derived by the assessee from its investments with any other Co-operative Society. The source of interest income is from Bank and Treasury, interest income received from Treasury be included in the computation of total income of the assessee. In other words, interest earned from Treasury is inadmissible for deduction and interest income from Co-operative Societies registered under the Kerala Co-operative Societies Act are eligible for deduction. The contra consideration of Commissioner of Income Tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of Section 80P(2)(a)(i) and permissible deduction of interest income is limited to Co-operative Societies/Banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered. Deduction u/s 80P(2)(d) - Interest income earned by the Society comes with the category of income from other sources and Section 80P(2)(d) deals with the eligible deduction in this behalf. It has been held in the connected cases that the assessee is entitled to deduction of interest income earned from Co-operative Banks/Societies/ Federation registered under the Co-operative Societies Act and the income earned from Treasury is not included in Section 80P(2)(d) and is not entitled for deduction from computation of income.
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