The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) has directed re-adjudication holding that the amounts invested by the cooperative societies as per Karnataka Co-operative Societies Act are entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act
The assessee, Canara Bank Staff Credit Co-operative Society Ltd was a co-operative society registered under the Karnataka Cooperative Societies Act, 1959. For the Assessment Year 2017-18, the return of income was filed on 30.10.2017. In the return of income, assessee had claimed deduction under Section 80P(2)(a)(i) of the Income Tax Act. The assessment was selected for scrutiny and notice under Section 143(2) of the Income Tax Act was served on the assessee on 09.08.2017.
The assessment was completed under Section 143(3) of the Income Tax Act vide order dated 20.12.2019 wherein a sum (claimed as deduction under section 80P(2)(a)(i) of the Income Tax Act) was disallowed by treating the same as income from other sources. The AO noticed that interest income received by the assessee was out of investments made with banks and consequently he held that the assessee was not entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act. The AO relied on the judgement of the jurisdictional High Court in the case of PCIT Vs. Totgars Co-operative Sales Society.
Suresh Muthukrishna, on behalf of the assessee submitted that the assessee society was mandated to maintain a reserve fund in terms of Section 57(2) of the Karnataka Co-operative Societies Act, 1959 and same had to be deposited in co-operative banks and other reputed institutions as secured bonds. It was submitted that these investments were made out of compulsion as per the Karnataka Co-operative Societies Act, 1959 and the relevant Rules.
Consequently, the same needed to be treated as “business income” entailing the benefit of deduction under Section 80P(2)(a)(i) of the Income Tax Act. In this context, he relied on the judgement of the Apex Court in the case of CIT Vs. Karnataka State Co-operative Apex Bank
Ganesh R Ghale, on behalf of the revenue, supported the orders of the AO and the CIT(A).
A Single Bench of George George K, (Vice President) referred to the decision in
CIT Vs. Karnataka State Co-operative Apex Bank which held that when amounts were invested by the Co-operative Societies as per the statutory requirements, the same would be entitled to deduction under section 80P(2)(a)(i) of the Income Tax Act.
The appeal filed by the assessee was allowed relying upon the decision of Bangalore Bench of the Tribunal in Bharathi Cooperative Credit Society Vs. ITO following its earlier order in the case of Vasavamba Co-operative Society Ltd., Vs. The PCIT had rendered a similar finding that,
“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 cooperative societies is to be allowed as deduction.”
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