Interest earned from Investments made in any Bank, not being a Co-operative Society, is not deductible: ITAT [Read Order]

The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) has held that Interest earned from investments made in any bank, not being a co-operative society, is not deductible.

The assessee, M/s. Krishnarajapet Taluk Agri Pro Co-op Marketing Society Ltd. is an agricultural produce co-operative marketing society Ltd registered under the Karnataka Co-operative societies Act, 1959. The main objective of the society is to provide credit facilities to members, purchase and sale of fertilisers, agriculture implements. seeds etc., and purchase and sale of food grains under the public distribution system on behalf of the government, purchase and sale of petrol & diesel, letting out of shops / godowns / warehouses for storage, processing, facilitating the marketing of the commodities etc.

By the impugned order the CIT held that the AO’s order allowing deduction u/s.80P(2)(d) of the Act on a sum of Rs.3,91,931/- which was interest received on investments with MDCC Bank, was erroneous and prejudicial to the interest of the revenue. According to the CIT, in view of the provisions of section 80P(4) of the Act excluding co- operative banks from the purview of section 80P of the Act and in view of the fact that provisions of 80P(2)(d) of the Act is applicable only in respect of interest on deposits received from co-operative societies, the deduction ought not to have been allowed by the AO. In reply to the above show cause notice, the assessee submitted that the claim made by it was allowable in terms of the decision of the Karnataka High Court in the case of PCIT Vs. Totagars Co-operative Sale Society 392 ITR 0074 (Karn). The assessee submitted that the insertion of section 80P(4) of the Act w.e.f. Assessment Year 2007-08 was only with a view to deny the benefit of deduction under section 80P(2)(i) of the Act to Co-operative Banks and that it had nothing to do with deduction under section 80P(2)(d) of the Act.

The coram headed by Vice President N.V.Vasudevan and Accountant Member B.R.Baskaran has noted that section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act.

The court held that CIT was therefore justified in exercising his powers of revision u/s.263 of the Act and directing the AO to tax interest income in question as it is neither of the nature specified in Section 80P(2)(a)(i) or 80P(2)(d) of the Act.

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