The Income Tax Appellate Tribunal ( ITAT ), Bangalore recently affirmed that deductions under Section 80P(2)(d) of the Income Tax Act, 1961 may be availed on interest income received from co-operative societies or banks.
The Bangalore ITAT rendered the decision while adjudicating an Income Tax Appeal filed by M/s. Prathamika Krushi Pathina Sahakara Sangha Niyamitha Nelaji against the Income Tax Officer, Ward – 1, Madikeri (ITO), against the order of the Commissioner of Income Taxes (Appeals) [CIT(A)], passed under Section 250 of the Income Tax Act, 1961 with regards to the Assessment Year (A.Y.) 2021-22.
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The Assessee is a primary agricultural credit co-operative society registered under the Karnataka Co-operative Societies Act, 1959, engaged in the business of providing credit facilities to its members. The Assessee filed their returns of income for A.Y. 2021-22 claiming ‘Nil’ income while claiming deductions of Rs.38,15,140/- through Sections 80P(2)(a)(i) and 80P(2)(a)(iv) of the Act.
During scrutiny, it was observed that the Assessee had received interest income from Kodagu District Co-operative Central Bank Ltd., (KDCC Bank). On the basis of such information, assessment was completed under Section 143(3) of the Income Tax Act, 1961, disallowing the deduction claim to the extent of Rs.11,54,058/- under Section 80P of the Act.
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Authorized Representative for the Assessee, Lakshmi submitted that the investments with KDCC Bank arose on compulsion from the Karnataka Cooperative Societies Act, 1959, and other relevant Rules, and hence such income would qualify as business income and be entitled to deduction under section 80P(2)(a)(i) of the Act.
The submissions of the Assessee were refuted by Standing Counsel for the Respondent, Ganesh R Gale, who averred that the Assessee failed to raise such arguments before the lower authorities, vitiating their current claims.
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The Income Tax Appellate Tribunal, Bangalore presided over by George George K, Vice President referred to the decision of the Supreme Court in Kerala State Co-operative Agricultural and Rural Development Bank Vs. ITO (2023) wherein the Apex Court held that “only those cooperative banks which has RBI licence to do the business of banking alone would be considered as a Co-operative Bank and not other Co-operative societies.”
Read More: Income Tax Deduction Eligibility of Cooperative Society
With respect to the decision of the Supreme Court in Kerala State (supra), the Bench restored the matter back to the concerned Assessing Officer to examine whether the interest income is received from Co-operative Society or Co-operative Banks. While allowing the present Appeal, ITAT clarified that if the interest income was found to have been received from Co-operative Society, then the same shall be entitled to deduction under Section 80P(2)(d) of the Act.
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