Interest earned from Commercial /Cooperative Bank having License under Banking Regulation Act is considered under Head of Income From Other Sources: ITAT [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has held that interest earned from commercial /cooperative banks having a license under the Banking Regulation Act is considered under Head of Income From Other Sources.

Kedambady Keyyur Primary Agricultural Co-operative Society Ltd, the appellant assessee challenged the order passed under section 250 of the Income-tax Act,1961 ['the Act'].

The Order of the Commissioner passed under section 250 of the Act is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant's case.

The Appellant denies to be assessed to tax on total income as determined by the learned AO of Rs. 43,08,040/- as against the total income reported by the Appellant of Rs. 600/-on the facts and circumstances of the case.

The assessee is a Primary Agricultural Credit Co-operative Society engaged mainly in the business of providing credit facilities to its member-agriculturists and distribution of ration articles.  For the assessment year 2017-18, the entire income of the assessee is eligible for deduction u/s 8OP of the Act and hence had filed its return of income declaring 'NIL' taxable income.

 Supreme Court in a case observed that in case of an assessee who is a state-level Agricultural and Rural Development Bank, governed as a cooperative society, under the relevant state cooperative societies Act, and was engaged in providing credit facilities to its members who were cooperative societies only. On facts, the assessee therein claimed deduction under Section 80P (2)(a)(i) of the Act. 

The AO disallowed the deduction under Section 80P(2)(a)(i) holding that the appellant/assessee is neither a primary agricultural credit society nor a primary co-operative agricultural and rural development bank. The AO therein held that the appellant/assessee is a "co-operative bank" and thus, was hit by the provisions of Section 80(P)(4) and was not entitled to the benefit of Section 80(P)(2) of the Act. This was upheld by the CIT(A) and the Tribunal.  The decision of the Tribunal was confirmed by  Kerala High Court.

 A two-member bench comprising Shri Chandra Poojari, an Accountant Member and Smt Beena Pillai, a Judicial Member held that the interest income earned by a cooperative society on its investments held with a cooperative bank that does not have a license under section 22 of the Banking Regulation Act 1949, falls outside the definition the term, “Banking Company” as per section 2(c ) of the Banking Regulations Act, 1949, would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.   The AO is thus directed to carry out necessary verification in respect of that same to consider the claim of deduction under section 80 P(2)(d) of the Act.

The ITAT directed that in the event it is found that the interest is earned by the assessee from such commercial/cooperative banks that fall within the definition of “banking company’ as per section 2(c), Section 5(b) and holds license under section 22 of the Banking Regulation Act 1949, such interest are to be considered under the head ‘income from other sources’.

To Read the full text of the Order CLICK HERE

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