TMI Blog2024 (1) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that assessee is not entitled to get the benefit under section 80P(2)(a)(i) of the Act, the AO shall also examine whether it is entitled to deduction u/s 80P(2)(d) in light of the recent judgment of Kerala State Co-operative Agricultural Rural Development [ 2023 (9) TMI 761 - SUPREME COURT] If the assessee is not entitled to benefit of deduction either under section 80P(2)(a)(i) or under section 80P(2)(d) of the Act, the AO shall consider the claim of deduction under section 57 of the Act in respect of the cost of funds for earning such interest income which is assessed as income under the head income from other sources . For the direction to grant deduction for the cost of funds, we rely on the judgment of Totgar s Co-operative Sales Society Ltd [ 2017 (1) TMI 1100 - KARNATAKA HIGH COURT] Appeal filed by the assessee is allowed for statistical purposes. - SHRI GEORGE GEORGE K, VICE PRESIDENT For the Appellant : Ms. Sunaina Bhatia, CA For the Respondent : Shri. Ganesh R Ghale, Advocate ORDER This appeal at the instance of the assessee is directed against CIT(A) s order dated 21.09.2023, passed under section 250 of the Income Tax Act, 1961 (hereinafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act was issued on 23.09.2019. During the course of assessment proceedings, assessee was directed to justify its claim of deduction under section 80P(2) of the Act. Assessee submitted its reply dated 23.02.2021. After considering the reply of the assessee, AO noted that assessee had earned interest income of Rs. 6,97,062/- from Kanara District Co-operative Bank. The AO was of the view that the said interest income received from Kanara District Co-operative Bank was not entitled to deduction under section 80P(2)(a)(i) nor under section 80P(2)(d) of the Act. Accordingly, the assessment was completed under sections 143(3) r.w.s. 143(3A) and 143(3B) of the Act vide order dated 18.03.2021. In holding so, the AO relied on the judgment on the Hon ble Apex Court in the case of Totgar s Co-operative Sales Society Ltd., Vs. ITO reported in 322 ITR 283. 4. Aggrieved by the Assessment Order, assessee filed appeal before the First Appellate Authority (FAA). The CIT(A) dismissed appeal of the assessee. The relevant finding of the CIT(A) reads as follows: 6. Held:- I have considered the submission of the appellant and perused the order of the AO. It is an undisputed fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessing Officer and thus, the grounds of appeal no.2 3 are dismissed. 5. Aggrieved by the order of the CIT(A), assessee has preferred the present appeal before the Tribunal. The learned Counsel for the assessee has filed a Paper Book comprising of 33 pages enclosing therein the statement showing the interest income received on investments, copy of the ITR acknowledgment along with the computation of total income and financials, the case laws relied on, etc. The learned AR submitted that the interest income received out of investment made with District Co-operative Bank, are in compliance with requirements under the Karnataka Co-operative Societies Act, 1959, and the relevant Rules. It was submitted that if the amounts are invested in compliance with Karnataka Co- operative Societies Act, the same necessarily needs to be assessed as income from business which entails the benefit of deduction under section 80P(2)(a)(i) of the Act. The learned AR further relying on the judgment of Hon ble Apex Court in the case of Kerala State Co-operative Agricultural Rural Development Vs. AO reported in 458 ITR 384 (SC) stated that assessee is entitled to benefit of deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of law: Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the interest income arising from the investment made out of reserve fund is exempt under section 80P(2)(a)(i) of the Income-tax Act, 1961? 8. In considering the above question, the Hon ble Apex Court rendered the following findings: 4. This judgment was cited before the Bench of two learned Judges which decided the case of the Bangalore District Co-operative Central Bank Ltd. (supra). It was considered as having been rendered on its own facts and not applicable to the case of Bangalore District Co-operative Central Bank Ltd. (supra) in view of the finding of the Tribunal that the income in question was attributable to the business of that assessee. The Court referred to the Banking Regulation Act, the Karnataka Co-operative Societies Act and the Karnataka Co-operative Societies Rules, which showed that the investments that had been made by the assessee were in compliance with the statutory -provisions and in order to carry on the business of banking. They were necessary and consequently, they were part of the business activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestments made with Cooperative Banks and is in compliance with the requirement under the Karnataka Co-operative Societies Act and Rules. If the amounts are invested in compliance with the Karnataka Co-operative Societies Act, necessarily, the same is to be assessed as income from business, which entails the benefit of deduction u/s 80P(2)(a)(i) of the I.T. Act. Insofar as deduction u/s 80P(2)(d) of the I.T. Act is concerned, we make it clear that interest income received out of investments with co- operative societies is to be allowed as deduction. 11. In light of the aforesaid reasoning and the judicial pronouncements cited supra, we restore this issue to the files of the AO. The AO is directed to examine whether the amounts invested with Apex Co-operative Bank and other banks, are out of compulsions under the Karnataka Co-operative Societies Act, 1959, and the relevant Rules. If it is found that the investments are made out of compulsions under the Act and the relevant Rules, the interest income received out of the investments made under such compulsions would be liable to be taxed as business income which would entail the benefit of deduction under section 80P(2)(a)(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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