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Facts
The assessee, a primary agricultural credit society, claimed deduction under Section 80P for AY 2017-18. The AO denied this deduction, specifically for interest income earned on deposits with other co-operative banks, holding that such interest does not qualify for deduction under Section 80P(2)(d) and also questioned the society's classification for Section 80P(2)(a)(i) exemption. The CIT(A) upheld the AO's order.
Held
The Tribunal, relying on the jurisdictional High Court's decision in PCIT v. Peroorkada Service Co-operative Bank Ltd., held that the assessee-society is entitled to a deduction for interest earned from investments in other co-operative banks. Consequently, the AO was directed to delete the addition of Rs.24,79,197.
Key Issues
Whether interest income earned by a co-operative society from deposits in other co-operative banks is eligible for deduction under Section 80P(2)(d) of the Income-tax Act.
Sections Cited
80P, 80P(2)(a)(i), 80P(2)(d), 143(3)
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Income Tax Appellate Tribunal, “SMC” BENCH, COCHIN
Before: Shri Inturi Rama Rao
Asst.Year 2017-2018 Thodiyoor Service Co-operative The Income Tax Officer Bank Limited, Thodiyoor PO v. Ward – 2 Edakulangara, Kallelibhagam Alappuzha. Kollam – 690 523. PAN : AADAT8397D. (Appellant) (Respondent) Appellant by : Smt.Varsha, Advocate Respondent by : Smt.Leena Lal, Senior AR Date of Date of Hearing : 10.02.2025 Pronouncement :13.02.2025 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 05.12.2024 having DIN & Order No.ITBA/NFAC/S/250/2024-25/1070915594(1) for the assessment year 2017-2018.
Briefly, the assessee is a co-operative society registered under the Kerala Co-operative Societies Act, classified as a primary agricultural credit society. The return of income for assessment year 2017-2017 was filed on 29th March, 2018 declaring total income of Rs.2,46,860, after claiming deduction u/s.80P of the Income-tax Act, 1961 (“the Act” hereinafter) to the extent of Rs.24,79,197. Against the said return of . Thodiyoor SC.B Limited income, the assessment was completed by the Assessing Officer (“the AO” hereinafter) vide order dated 17.12.2019 passed u/s.143(3) of the Act at a total income of Rs.27,26,058. While doing so, the AO denied exemption u/s.80P(2)(a)(i) of the Act by holding that the assessee disbursed agricultural loan of Rs.1,54,64,067 only as against the total loan disbursement of Rs.60,45,87,335. Accordingly the AO held that the assessee-society is not eligible to be classified as a co-operative society. The AO also denied deduction of interest income earned on surplus funds invested in other co-operative banks of Rs.3,29,95,964 by holding that such interest does not qualify for deduction u/s.80P(2)(d) of the Act placing reliance on the judgment of the Hon’ble Karnataka High Court in the case of Pr.CIT & Anr. v. Totagars Co-operative Sale Society reported in (2017) 395 ITR 611 (Kar.)
Being aggrieved by the above assessment, the assessee filed an appeal before the CIT(A), who vide the impugned order confirmed the action of the AO.
Being aggrieved, the assessee is in appeal before me in the present appeal. When the case was called upon, none appeared on behalf of the assessee. Therefore, I proceed to dispose of the appeal on merits after hearing the learned Senior Departmental Representative.
I have heard the Senior DR and perused the material available on record. The issue involved in the present is related to the allowability of the interest income earned by the assessee-society from other co- operative banks. This issue is no longer res integra in view of the . Thodiyoor SC.B Limited settled position of law as laid down by the Hon’ble jurisdictional High Court in the case of PCIT v. Peroorkada Service Co-operative Bank Ltd. and Vilappil Service Co-operative Bank Ltd. 442 ITR 141 (Ker.). The relevant portion of the said judgment 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 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.
In the light of the above judgment, the assessee-society is entitled for deduction in respect of the interest earned from other co-operative
In the result, the appeal filed by the assessee is allowed.