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Facts
The assessee, a primary agricultural credit co-operative society, filed a nil return for AY 2020-21 claiming deduction under Section 80P. The AO made an addition of Rs. 1,83,43,276/- treating interest earned on deposits with banks and Treasury as "miscellaneous income" and denying Section 80P deduction. The CIT(A) upheld the AO's order.
Held
Following the Hon'ble Jurisdictional High Court's decision, the Tribunal held that interest earned by a primary agricultural credit co-operative society on deposits with scheduled banks and Treasury is attributable to its main business. This income is therefore eligible for deduction under Section 80P(2)(d) of the Income Tax Act, and the addition made by the AO was incorrect.
Key Issues
Whether the interest income earned by a primary agricultural credit co-operative society from deposits with banks and Treasury is eligible for deduction under Section 80P of the Income Tax Act.
Sections Cited
80P, 143(3), 144B
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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 19.12.2023 for Assessment Year (AY) 2020-21.
The appellant is a primary agricultural credit co-operative society registered under the Kerala State Co-operative Societies Act, 1969, established for the purpose of extending credit facilities to its Mazhuvannor Service Co-op. Bank Ltd. members for agricultural and allied activities. The appellant filed its return of income for AY 2020-21 on 27.10.2021 declaring Nil income after claiming deduction u/s. 80P of the Income Tax Act, 1961 (the Act) to the tune of Rs.13,72,393/-. Against the said return of income, the assessment was completed by the Income Tax Officer, Non-corporate Ward-1(1), Ernakulam (hereafter “the AO”) vide order dated 12.09.2022 passed u/s. 143(3) r.w.s. 144B of the Act at a total income of Rs. 1.83,43,276/-. While doing so the AO made an addition of Rs. 1,83,43,276/- being interest earned on deposits held with banks, Treasury, etc. under the head “miscellaneous income”.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.
Being aggrieved, assessee is in appeal before us.
When the appeal was called nobody appeared on behalf of the assessee despite due service of notice of hearing. Therefore, we proceeded to dispose of the appeal after hearing the learned Sr. DR.
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 Mazhuvannor Service Co-op. Bank Ltd. 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 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)(d) of the Act on account of interest received from scheduled bank and Treasury.
In the result, the appeal filed by the assessee is allowed.