Taxpayer earns Interest/Dividend Income out of Investments with Co-Operative Society, Entitles to 80P Deduction of Income Tax Act: ITAT [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) restored to the Assessing Officer the case where the taxpayer, earning interest and dividend income from investments with a co-operative society, was entitled to a deduction under Section 80P (2)(d) of the Income Tax Act, 1961.

The assessee, Kotekar Vyavasaya Seva Sahakara Sangha Niyamitha has earned interest income from the funds invested in the Co-operative banks other than the Cooperative societies which was held non-operational income by the AO as the same was not attributed to the business activities of the assessee. The AO during the assessment proceedings relied upon the decision of High Court of Karnataka in the case of Principal Commissioner of Income-tax, Hubballi Vs Totagars Cooperative Sale Society and has disallowed the deduction claimed under Section 80P of the Income Tax Act. 

 The CIT (A) observed that the issue regarding the word "attributable" has been discussed elaborately by the Supreme Court in the case of M/s. Totagar's Cooperative Sale Society (2010) wherein it is held by the Supreme Court that the deduction under Section 80P of the Income Tax Act was available only to the income which is attributable to the business operation. Since the interest income received by the assessee was not attributable to the main business of the assessee the same should not be allowed as deduction under Section 80P of the Income Tax Act.

He observed that the interest earned from surplus invested/deposited in the Co-operative banks was  not attributable to main business of the assessee, hence needs to be assessed as "income from other sources" and not as "business profits." Further observations and the findings of the AO appear to be in order which does not permit a divergent view.

Accordingly, the disallowance made by the AO in respect of the interest income earned from the deposits made in cooperative bank was upheld and the grounds raised in respect of this issue were dismissed by the CIT (A). Against this assessee is in appeal before tribunal seeking relief under Section 80P (2)(d) of the Income Tax Act.

The two member bench of the tribunal comprising Chandra Poojari (Accountant Member) and Beena Pillai (Judicial Member) directed the AO to verify whether interest / dividend was received by the assessee out of investments made with Cooperative Societies. If the assessee earns interest / dividend income out of investments with co-operative society, as observed by Supreme Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. the same was entitled to deduction under Section 80P (2)(d) of the Income Tax Act.

 Further made it clear that if the interest earned by assessee from the banks is considered under the heading “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 was restored back to the file of AO for de-novo consideration. Accordingly, appeal of the assessee was partly allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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