Banking company as per section 2(c) of Banking regulations Act, would be eligible for claim of deduction u/S 80P(2)(d) of Income Tax Act : ITAT [Read Order]

The Bangalore bench of the Income Tax Appellate Authority ( ITAT ) observed that Banking company as per Section 2(c) of Banking regulations Act, 1949, would be eligible for claim of deduction under Section 80P(2)(d) of Income Tax Act, 1961

The assessee's claim for deduction under Section 80P(2)(a)(i) of Income Tax Act, 1961, amounting to Rs. 1,20,08,634/-. However, the assessing officer ( AO ) rejected this claim, arguing that the assessee has three types of members, with regular members constituting less than 8.62% and other members constituting 91.38%. The AO invoked the judgment of the Honorable Supreme Court in the case of Citizen Co-operative Society Ltd. Vs. ACIT (397 ITR 1) (SC), asserting its applicability to the current scenario and consequently denied the deduction under Section 80P(2)(a)(i) of the Act, 1961

The counsel for revenue  Ramesh V. Mudhol referenced a recent decision by the Supreme Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. ( KSCARDB ) vs. The Assessing Officer, Trivandrum & Ors. The submission was made to argue that the assessee cannot claim deduction for interest earned from deposits made in cooperative banks under Section 80P(2)(d) of Income Tax Act, 1961.

The AO held that the assessee was  a co-operative bank" and thus, was hit by the provisions of Section 80(P)(4) of the Income Tax Act, 1961,  and was not entitled to the benefit of Section 80(P)(2) of Income Tax Act, 1961

The two member bench of the tribunal comprising Madumitha Roy ( Judicial member ) and Chandra Poojari ( Accountant member ) affirmed that the interest income acquired by a cooperative society from investments held with a cooperative bank lacking a license under section 22 of the Banking Regulation Act 1949 was excluded from the definition of "Banking Company" as per section 2(c) of the Banking Regulations Act, 1949.

Consequently, it qualified for deduction under Section 80P(2)(d) of the Act, 1961. The Assessing Officer was instructed to conduct necessary verification regarding this matter to evaluate the claim of deduction under Section 80P(2)(d) of the Act, 1961. However, it was clarified that the assessee was not eligible for deduction under Section 80P(2)(a)(i) of the Act, 1961, based on the judgment of the  Supreme Court in the case of Totgars Co-operative Sale Society Ltd.

In the result, appeal of the assessee was partly allowed for statistical purposes

To Read the full text of the Order CLICK HERE

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