M/S SUMANGALA CREDIT CO-OP. SOCIETY LTD.,BANTAWAL vs. INCOME TAX OFFICER, WARD-2(3), MANGALURU., MANGALURU

This appeal by assessee is directed against order of CIT(A)/NFAC dated 17.3.2023 for the assessment year 2017-18.

The first ground for our consideration is with regard to allowability of deduction u/s 80P(2)(d) of the Income-tax Act,1961 ['the Act' for short].

Facts of the case are that the assessee is a registered Co- operative Society under Karnataka Co-operative Societies Act, 1959. In the assessment year under consideration, assessee has earned interest from its investment as follows:- Interest from Co-operative Societies - Rs.31,56,192/- Interest from Co-operative Bank i.e. SCDCC Bank - Rs.13,58,198/- Total - Rs.45,14,390/- Sumangala Credit Co-Operative Society, Bantwal Page 2 of 6 3.1 The ld. A.O. has not granted deduction u/s 80P(2)(d) of the Act on Rs.13,58,198/- on the reason that deduction u/s 80P(2)(d) of the Act to be allowed only on the interest earned from investment with Co-operative Society is eligible for the same and this income of Rs.13,58,198/- earned by assessee is on investment of idle funds, which are immediately not required for lending to its members in District Central Co-operative Bank and Scheduled banks. This interest income on investment is not entitled for deduction u/s 80P(2)(d) of the Act. For that purpose, he relied on the judgement of Hon’ble Karnataka High Court in the case of Totagars Co-operative Sale Society in dated 16.6.2017, wherein held that interest received from Co-operative Bank and Urban banks are to be assessed income u/s 56 of the Act. Thus, after considering the cost of funds at Rs.10,58,493/-, out of total interest received from SCDCC bank at Rs.13,58,198/- taxed a sum of Rs.3,00,705/- as income from other sources. Against this assessee is in appeal before us.

We have heard the rival submissions and perused the materials available on record. With regard to deduction u/s 80P(2)(d) of the Act, the issue is covered in favour of the assessee by order of the Tribunal in the case of Totagars Co-operative Sale Society Ltd. in ITA Nos.376 to 379/Bang/2023 for the assessment years 2015-16 to 2018-19 vide order dated 18.7.2023 wherein held as under: “9. We have perused the submissions advanced by both the sides in the light of the records placed. When we look at the decision of Hon’ble Supreme Court in case of Totgars Co- operative Sale Society's case reported in (2010) 188 Taxman 282, relied by the Ld. DR. Hon’ble Supreme Court was dealing with a case where the assessee therein, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such amount retained by the assessee therein was a liability Sumangala Credit Co-Operative Society, Bantwal Page 3 of 6 and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. On these facts Hon’ble Supreme Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Hon’ble Supreme Court, also clarified that, they are confining the said judgment to the facts of that case.

Ground No.4-6 raised by the assessee is without prejudice to the ground and alternative claim, as we have considered the claim of the assessee by allowing the deduction u/s 80P(2)(d) of the Act. This issue need not be adjudicated and is left open to the assessee for arguing in appropriate circumstances.”