2024 (6) TMI 1220 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - deduction denied by applying the judgement of Citizen Co-operative Society Ltd. 2017 (8) TMI 536 - SUPREME COURT observing that there was violation of principles of mutuality among members and the society cannot be granted deduction u/s 80P(2)(a)(i) - assessee society is having two accounts of members i.e. associated and nominal members who are not identical to that of ordinary/resident members - HELD THAT -Similar issue came for consideration before this Tribunal in the case of Kotekar Vyavasaya Seva Sahakara Sangha Niyamitha 2024 (6) TMI 1096 - ITAT BANGALORE as held in respect of associate / nominal members Hon ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT has held that the expression Members is not defined in the Income-tax Act. Hence it is necessary to construe the expression Members in section 80P(2)(a)(i) in the light of definition of that expression as contained in the concerned co-operative societies Act - Thus the facts are to be examined in the light of principles laid down in Mavilayi Service Cooperative Bank Ltd. (surpa) - we remit this issue of deduction u/s 80P(2)(a)(i) of the Act to the files of Ld.AO to examine the same de novo in the light of the above judgment. Deduction u/s 80P(2)(d) - c laim denied as assessee earned interest on deposits from Co-operative banks and scheduled banks and it is to be assessed as income from other sources - Similar issue came for consideration before this Tribunal in the case of Kotekar Vyavasaya Seva Sahakara Sangha Niyamitha 2024 (6) TMI 1096 - ITAT BANGALORE wherein directed the A.O. to verify whether interest / dividend is received by the assessee out of investments made with Cooperative Societies. If the assessee earns interest / dividend income out of investments with co-operative society as observed in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd 2023 (9) TMI 761 - SUPREME COURT the same is entitled to deduction u/s 80P(2)(d). In view of the above order of the Tribunal we remit the issue to the file of ld. AO for fresh consideration to decide the same in the light of above observations. Relief u/s 57 - If the interest earned by assessee from the banks is considered under the head Income from other sources relief to be granted to the assessee u/s 57 of the Act in accordance with law. Accordingly the issue is restored to the file of ld. AO for de-novo consideration with the above observations.

Summary

Issues:
1. Eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act.
2. Eligibility for deduction under section 80P(2)(d) of the Income Tax Act.

Eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act:
The appellant claimed a deduction under section 80P of the Income Tax Act, which was denied by the lower authorities based on the judgment of the Hon'ble Supreme Court in the case of Citizen Co-operative Society Ltd. The authorities held that there was a violation of principles of mutuality among members, and the society could not be granted the deduction under section 80P(2)(a)(i) of the Act due to the existence of nominal members. The appellant argued citing various judgments, including the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT Calicut, to support their claim. The Tribunal, in a similar case, held that if nominal/associate members are not prohibited under the State Co-operative Societies Acts, the income earned on providing credit facilities to such members qualifies for deduction under section 80P(2)(a)(i). Consequently, the issue was remitted to the Assessing Officer for fresh consideration based on the principles laid down by the Hon'ble Supreme Court.

Eligibility for deduction under section 80P(2)(d) of the Income Tax Act:
Regarding the claim of deduction under section 80P(2)(d) of the Act, the appellant earned interest on deposits from Co-operative banks and scheduled banks, which was treated as "income from other sources" by the lower authorities, leading to the denial of the deduction. The Tribunal, in a similar case, directed the Assessing Officer to verify whether the interest/dividend income was received from investments made with Cooperative Societies. If the income was earned from investments with cooperative societies, the appellant would be entitled to the deduction under section 80P(2)(d) of the Act. Consequently, this issue was also remitted to the Assessing Officer for fresh consideration in line with the Tribunal's observations.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, remitting both issues of eligibility for deductions under sections 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act to the Assessing Officer for fresh consideration. The Tribunal emphasized the need for a thorough examination of the facts and applicable legal principles in light of relevant judgments and directed the Assessing Officer to provide a proper opportunity for the appellant to present their case.