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Facts
The assessee, a primary agricultural credit society, filed a Nil return claiming Section 80P deduction. The AO disallowed the Section 80P deduction, treating the assessee as a co-operative bank, and also denied deduction under Section 80P(2)(d) for interest income from investments with other co-operative banks. The CIT(A) confirmed the AO's order but allowed the expenditure incurred to earn the interest income.
Held
The Tribunal, following the jurisdictional High Court judgment in PCIT v. Peroorkada Service Co-operative Bank Ltd., held that the interest income earned by the appellant society from other co-operative banks qualifies for deduction under Section 80P(2)(d) of the Act. The AO is directed to allow this claim, thereby clarifying that the assessee is eligible for the Section 80P deduction.
Key Issues
1. Whether the assessee is a co-operative bank or a primary agricultural credit society, affecting its eligibility for deduction under Section 80P. 2. Whether interest income earned by the assessee from investments/deposits with other co-operative banks is eligible for deduction under Section 80P(2)(d).
Sections Cited
80P, 80P(2)(a)(i), 80P(2)(d), 80P(4), 143(2), 143(3), 143(3A), 143(3B)
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Income Tax Appellate Tribunal, “SMC” BENCH, COCHIN
Before: Shri Inturi Rama Rao
Asst.Year 2018-2019 The Kannur District Merchants The Income Tax Officer Co-operative Society Limited v. Ward 1 & TPS (Formerly Kannur Jilla Vyapari Kannur. Vyavasai Kshema Sahakarana Sangham Ltd.) No.C-1728 Vyapara Bhavn, Parakandy Kannur – 670 001. PAN : AACAK4660K. (Appellant) (Respondent) Appellant by : Sri.Akhil Shaji, Advocate Respondent by : Smt.Leena Lal, Senior AR Date of Date of Hearing : 13.03.2025 Pronouncement : 08.04.2025 O R D E R This appeal filed by the assessee is directed against the order of the National Faceless Assessment Centre / Commissioner of Income- tax (Appeals) [“CIT(A)” for short] dated 17.01.2024 for the assessment year 2018-2019.
The appellant is a co-operative society, registered under the Kerala Co-operative societies Act, 1969 and it is classified as a primary agricultural credit society. The return of income for the assessment year 2018-2019 was filed on 21.03.2019 declaring Nil income after claiming deduction u/s.80P of the Income-tax Act, 1961 (“the Act” hereinafter). The case of the assessee was selected for scrutiny under CASS and . The Kannur District Merchants Co-op So.Ltd. notice u/s.143(2) of the Act was issued on 22.09.2019 and served upon the assessee through e-proceedings facility in ITBA. There was no response from the appellant. Accordingly, the assessment was completed by the Assessing Officer (“the AO” hereinafter) vide order dated 15.04.2021 passed u/s.143(3) r.w.s. 143(3A) & 143(3B) of the Act at a total income of Rs.7,80,520. While doing so, the AO disallowed the claim of deduction u/s.80P of the Act by holding that the appellant society is a co-operative bank, therefore, not eligible for deduction u/s.80P of the Act. Further, the AO proceed to hold that the interest income earned on the investments and deposits made with co- operative banks out of the surplus funds does not qualify for deduction u/s.80P(2)(d) of the Act.
Being aggrieved, the appellant filed an appeal before the CIT(A), who vide the impugned order confirmed the action of the AO in denying the deduction u/s.80P(2)(a)(i) as well as 80P(2)(d) of the Act. However, the CIT(A) directed the AO to allow the expenditure incurred in earning the interest income earned from co-operative banks. Thus, the CIT(A) partly allowed the appeal of the assessee.
Being aggrieved, the appellant is in appeal before me in the present appeal. The learned Counsel for the assessee submits that the lower authorities grossly erred in holding that the appellant is a co- operative bank but not a primary agricultural credit society and hit by the provisions of sub-section (4) of section 80P of the Act. It is therefore prayed that orders of the lower authorities may be set aside.
. The Kannur District Merchants Co-op So.Ltd. 5. Insofar as the claim of deduction u/s.80P(2)(d) of the Act is concerned, the learned Counsel submits that the interest income earned from co-operative banks qualifies for deduction u/s.80P(2)(d) of the Act in view of the judgment of the Hon’ble jurisdictional High Court in the case of PCIT v. Peroorkada Service Co-operative Bank Ltd. (2022) 442 ITR 141 (Ker.).
On the other hand, the learned Sr.DR relied upon the orders of the authorities below.
I heard the rival submissions and perused the material available on record. With regard to the interest income earned by the appellant from other co-operative banks are concerned, the Hon’ble jurisdictional High Court in the case of PCIT v. Peroorkada Service Co-operative Bank Ltd. (supra) held that such interest income qualifies for deduction u/s.80P(2)(d) of the Act. The relevant paragraph is reproduced as under:-
“12.2 Section 80P deals with co-operative societies' computation of income. As already noted, it has four sub-sections and several clauses and sub-clauses. Parliament has considered the various situations in which the exigible income and the deductible income of the assessee is considered while computing the income of the assessee. For getting deduction, in our considered view, the assessee must also establish that the interest income earned by the assessee is from a co-operative society. As a matter of fact, in the case on hand, there is no dispute that it is not from a co-operative society registered under Kerala Co-operative Societies Act. The interest income earned from District co-operative bank/State co-operative bank, in the facts and circumstances of the case, do come within section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by section 80P(2)(d), viz., interest or dividend derived by the assessee from its investments with any other co-operative . The Kannur District Merchants Co-op So.Ltd. society. The source of interest income is from bank and treasury, interest income received from treasury be included in the computation of total income of the assessee. In other words, interest earned from treasury is registered under the Kerala inadmissible for deduction and interest income from co- operative societies Co-operative Societies Act are eligible for deduction. The contra consideration of the Commissioner of Income-tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of section 80P(2)(a)(i) and permissible deduction of interest income is limited to co-operative societies/banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered.
Respectfully following the above judgment of the Hon’ble High Court, I hold that the interest income earned by the appellant society from other co-operative banks qualifies for deduction u/s.80P(2)(d) of the Act. Accordingly, I direct the A.O. to allow the claim of deduction u/s.80P(2)(d) of the Act.
In the result, the appeal filed by the assessee stands allowed. Order pronounced on this 08th day of April, 2025.