MALAVALLY TALUK SRI BASAVESHWARA CREDIT CO-OPERATIVE SOCIETY LIMITED,MANDYA vs. INCOME TAX OFFICER, WARD-1 & TPS, MANDYA

The assessee is a credit co-operative society. In the assessment of the assessee for Assessment Year 2016-17, the assessment was completed under section 143(3) by an order dated 28.12.2018. The assessee earned interest income of Rs.3,20,999/- being interest earned on deposits with the Co-operative bank. The assessee claimed the same as deduction under sections 80P(2)(a)(i)/80P(2)(d) of the Income Tax Act, 1961 (hereinafter called ‘the Act’). Deduction under sections 80P(2)(a)(i)/80P(2)(d) was denied by the AO by following the decision of Hon’ble Karnataka High Court in the case of PCIT Vs. Totagar’s Co-operative Society (2017) 83 Taxmann 140 (Karnataka) wherein it was held that interest earned on deposits with other Co-operative Banks was neither eligible for deduction under section 80P(2)(a)(i) nor under section 80P(2)(d) of the Act. In so far as the deduction under section 80P(2)(d) is concerned, the AO held that the deposit was with the Co-operative Bank and not Co-operative Society and therefore deduction under section 80P(2)(d) of the Act cannot be allowed.

The assessee also claimed that members contributed a sum of Rs.1,20,000/- for printing of calendar and this was claimed as income exempt under section 80P(2)(a)(i) of the Act. This was denied by the AO on the ground that it cannot be said to be income derived from providing credit facilities to its members.

The assessee also earned commission income from e-stamping of Rs.19,310/- and claimed the same as deduction under section 80P. This was rejected by the AO for the reason that this is income derived from the business of providing credit facilities to the members.

On appeal by the assessee, the CIT(A) confirmed the order of the AO. It is pertinent to mention that the assessee did not appear before the CIT(A) despite 3 notices which are set out in para 4 of the impugned order of the CIT(A). Aggrieved by the order of the CIT(A), assessee has preferred present appeal before the Tribunal.

After hearing the rival submissions, I am of the view that in so far as interest on deposits in Co-operative Banks are concerned, the same was neither eligible for deduction under under section 80P(2)(a)(i) nor under section 80P(2)(d) of the Act, in view of the decision of the Hon’ble Karnataka High Court referred to by the AO in the Order of Assessment. The assessee however will be entitled to deduction of expenses incurred in earning the interest income under section 57(iii) of the Act and the AO is directed to allow the same after affording the assessee opportunity of being heard and substantiating the expenses incurred in earning the interest income. In so far as the income from e-stamping is concerned, deduction under section 80P of the Act cannot be allowed as it is not income earned from providing credit facilities to members. I concur with the view of the Revenue authorities in this regard. In so far as the contribution received from members for printing of calendar is concerned, I am of the view that by applying the principle of mutuality, this income cannot be taxed as there is complete identity of the owners as well as contributors. Hence, the addition is directed to be deleted.

In the result, appeal of the assessee is partly allowed.