The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) has ruled that interest and dividend income from investments with a cooperative society are entitled to a deduction under Section 80P(2) (d) of the Income Tax Act, 1961 and has remitted the case to the AO for fresh consideration.
The assessee Tumkur City Credit Souharda Cooperative Society Limited claimed deduction under Section 80P(2)(a)(i) of the Income Tax Act and also under Section 80P(2)(d) of the Income Tax Act. The deduction under Section 80P(2)(a)(i) of the Income Tax Act has been denied by the lower authorities by applying the judgment of Supreme Court in the case of Citizen Co-operative Society Ltd. by observing that there was violation of principles of mutuality among members and the society cannot be granted deduction under Section 80P(2)(a)(i) of the Income Tax Act.
Further, it was observed that the assessee society is having two accounts of members i.e. associated and nominal members, who are not identical to that of ordinary/resident members. As such, the claim of assessee under Section 80P (2)(a)(i) of the Income Tax Act was denied.
Further, with regard to claim of assessee under Section 80P(2)(a)(i) of the Income Tax Act, the lower authorities observed that for deduction under Section 80P(2)(a)(i) of the Income Tax Act, the assessee earned interest on deposits from Co-operative banks and scheduled banks and it is to be assessed as “income from other sources.
The bench noted that the Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr, had held that the co-operative societies providing credit facilities to its members were entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Apex Court after considering the judicial pronouncements on the subject, had stated the term “member” has not been defined under the Income-tax Act.
It was, therefore, stated by the Apex Court that the term “member” in the respective State Co-operative Societies Acts under which the societies are registered have to be taken into consideration. The Apex Court held that if a nominal / associate member is not prohibited under the said Act, for being taken as a member, the income earned on account of providing credit facilities to such member also qualify for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
The two member bench of the tribunal comprising Keshav Dubey (Judicial member) and Chandra Poojari (Accountant Member) concluded that 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 under Section 57 of the Income Tax Act in accordance with law. Accordingly, the issue is restored to the file of AO for de-novo consideration with the above observations. Accordingly, appeal of the assessee was partly allowed.
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