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Facts
The assessee, a primary agricultural credit co-operative society, claimed deduction under Section 80P for interest income earned from deposits with other co-operative banks. The Assessing Officer and CIT(A) disallowed this deduction, treating the interest as 'income from other sources' under Section 56, asserting it was not derived from the assessee's business.
Held
The Tribunal found that the lower authorities erred by misinterpreting a Supreme Court judgment and disregarding a Jurisdictional High Court decision that allowed such interest income from co-operative banks registered under the Kerala Co-operative Societies Act for deduction under Section 80P(2)(d). The matter is remitted to the Assessing Officer to verify the registration status of the banks and, if confirmed, to grant the deduction as per the High Court's judgment.
Key Issues
Whether interest income earned by a primary agricultural credit co-operative society from deposits in other co-operative banks is eligible for deduction under Section 80P(2)(d) or is taxable as 'income from other sources' under Section 56.
Sections Cited
250, 56, 80P, 80P(2)(a)(i), 80P(2)(c)(ii), 80P(2)(d)
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Income Tax Appellate Tribunal, COCHIN BENCH : COCHIN
Before: SHRI INTURI RAMA RAO & SHRI SOUNDARARAJAN K.
ORDER
PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 30/09/2024 in respect of the A.Y. 2022-23 and raised the following grounds:
2. The assessee is a primary agricultural credit co-operative society and filed their return of income and claimed deduction u/s. 80G, 80P(2)(a)(i) and 80P(2)(c)(ii) of the Act. The AO made the assessment by disallowing the deduction claimed u/s. 80P(2)(a)(i) of the Act on the ground that the interest income earned from the co-operative banks are not the profits and gains of the business carried on by the assessee.
3. Challenging the said order, the assessee filed an appeal before the Ld.CIT(A) and contended that the interest income earned from the co- operative banks are eligible for deduction. The Ld.CIT(A) rejected the said contention and held that the interest income earned from the scheduled banks and co-operative banks are also incomes received from non-member category and therefore the same could not be considered for deduction u/s. 80P(2)(a) to 80P(2)(d) of the Act but liable to be assessed u/s. 56 of the Act. The Ld.CIT(A) had observed that the interest income earned from deposits with Scheduled Banks and Co-operative Banks are to be taxed under the head income from other sources.
As against the said order, the assessee is in appeal before this Tribunal.
At the time of hearing, the Ld.AR submitted that the interest income received from Thrissur District Co-operative Bank Ltd. and Kodungallur Town Co-operative Bank Ltd. are eligible for deduction u/s. 80P(2)(d) of the Act since the said banks are originally registered as co-operative societies under the provisions of the Kerala Co-operative Societies Act and therefore the said interest income is eligible for deduction u/s. 80P(2)(d) of the Act. The Ld.AR also relied on the order of the Hon’ble Jurisdictional High Court reported in 328 CTR 443 (Kerala) in the case of the PCIT vs. Peroorkada Service Co-operative Bank Ltd. and prayed to allow the appeal filed by the assessee.
The Ld.DR relied on the orders of the lower authorities and prayed to dismiss the appeal.
We have heard the arguments of both sides and perused the materials available on record.
The only dispute involved in this appeal is about the interest income earned from the deposits made with the Thrissur District Co-operative Bank Ltd. and Kodungallur Town Co-operative Bank Ltd. We have perused the order of the AO as well as the Ld.CIT(A) and we found that the authorities below had wrongly interpreted the Hon’ble Supreme Court judgment reported in 431 ITR 1 in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT. Further, the Hon’ble Jurisdictional High Court also granted the relief to the assessees that the interest income earned from the District Co- operative Banks registered as co-operative society under the Kerala Co- operative Societies Act are eligible for deduction u/s. 80P(2)(d) of the act. Both the authorities had failed to consider the decision of Hon’ble Jurisdictional High Court. Prima facie, we see that the order of the authorities below in denying the deduction u/s. 80P(2)(d) is not correct. Admittedly, the assessee had received interest income from the two co- operative banks registered under the provisions of the Kerala Co-operative Societies Act. In order to verify the said facts including the status of the two district co-operative banks, we are remitting this issue to the file of the AO to verify the status of the two district central co-operative banks and if the AO is satisfied that the said banks are registered under the provisions of the Kerala Co-operative Societies Act, grant the necessary relief u/s. 80P(2)(d) of the Act by following the judgment of the Hon’ble Jurisdictional High Court cited supra.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 27th May, 2025.