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Facts
The assessee, a primary agricultural credit co-operative society, claimed a deduction under Section 80P for AY 2018-19. The Assessing Officer (AO) disallowed a significant portion of this deduction under Section 80P(2)(a)(i) related to interest income and other expenses, which was subsequently confirmed by the CIT(A). The assessee filed an appeal against this order before the ITAT.
Held
Following the precedent set by the Hon'ble Jurisdictional High Court in CIT vs. Sahyadri Co-operative Credit Society Ltd., the Tribunal held that interest income earned by the cooperative society from deposits in treasury, scheduled banks, etc., is attributable to its business of providing credit facilities to members. Therefore, such income is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
Key Issues
Whether the interest income earned by a primary agricultural credit co-operative society from depositing its surplus funds in treasury or scheduled banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
Sections Cited
80P, 80P(2)(a)(i), 144, 143(3A), 143(3B)
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI SOUNDARARAJAN K., JM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 18.06.2024 for Assessment Year (AY) 2016-19.
Brief facts of the case are that the assessee is primary agricultural credit co- operative society registered under the Kerala Co-Operative Societies Act, 1969. The assessee filed the return of income of AY 2018-19 declaring total income of Rs. 52,47,200/- after claiming deduction of Rs. 1,60,02,043/- u/s. 80P of the Income Tax Act, 1961 (the Act). Against the said return of income the Income Tax Officer, Kuthuparamba Service Co-op. Bank Ltd. Kannur (hereinafter “the AO”) completed the assessment vide order dated 31.03.2021 passed u/s. 144 r.w. sections 143(3A) and 143(3B) of the Act at a total income of Rs. 3,28,29,794/-. While doing so, the AO made an addition of Rs. 1,59,52,043/- u/s. 80P(2)(a)(i) and disallowing certain expenses amounting to Rs. 1,16,30,481/-.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.
Being aggrieved, the assessee is in appeal before us in the present appeal.
We have heard the rival contentions of both the parties and perused the material available on record.
Learned CIT- DR vehemently argued that such interest income could have hardly be held even derived from assessee’s regular credit facilities made available to the members concerned. He further quotes PCIT & Anr. v. Totagars Co- operative Sales Society reported in (2017) 395 ITR 611 (Kar.) and submitted that the impugned disallowance has been rightly made in assessee’s hand.
Regarding the interest income received from Treasury, Scheduled Banks, etc., this issue is no longer res integra, as it is covered by the judgement of the Hon'ble Jurisdictional High court in the case of CIT vs. Sahyadri Co-operative Credit Society Ltd. in of 2019, wherein it was held as under: - “ The question that arises therefore is whether, merely because the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view Kuthuparamba Service Co-op. Bank Ltd. that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount (the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members. The nature and character of the principal income [profits earned by the assessee from its lending activity) does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.”
Respectfully following the above decisions of the Hon'ble Jurisdictional High Court, we hold that the assessee is entitled for deduction under sections 80P(2)(a)(i) of the Act in respect of interest received from Treasury, Scheduled Banks, etc.
In the result, the appeal filed by the assessee is allowed.