M/S. BHARATH CREDIT CO-OPERATIVE SOCIETY LIMITED,BENGALURU vs. THE INCOME TAX OFFICER, WARD- 6(2)(2), BENGALURU

The issue that arises for consideration in this appeal is with regard to the claim for deduction u/s. 80P(2)(a)(i) of the Income Tax Act, 1961 (the Act) which was denied by the Revenue authorities. The assessee is a credit co-operative society registered under the Karnataka Co-operative societies Act, 1959. It is primarily engaged in providing credit facilities to its members. The Assessee claimed deduction u/s 80P(2)(a)(i) of the Act on a sum of Rs.7,05,026/- which was interest income derived from investments out of surplus funds of the Assessee. It was the plea of the Assessee that funds not immediately required were invested to earn interest income and therefore the interest income was very much part of the income derived from the business of providing credit facilities to members.

The deduction calmed by the assessee was not allowed by the Revenue authorities for the reason that the income which was claimed as deduction was interest income which was earned by the assessee on deposits and in view of the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Totgars Co-operative Sale Society Ltd., 83 taxmann.com 140, interest income had to be regarded as ‘income from other sources’. Since interest income was not income derived from the business of co- operative society, the deduction claimed by the assessee cannot be allowed. The revenue authorities also placed reliance on a similar decision rendered by the Hon’ble Karnataka High Court in the case of PCIT Vs. Totgars Co-operative Sale Society Ltd. 395 ITR 611 (Karn.).

We have heard the rival submissions. The learned AR relied on the decision of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. Vs. ITO 230 taxman 309 (Karn) wherein the Hon’ble Karnataka High Court considered the decision of the Hon’ble Apex Court in the case of The Totgar’s Co- operative Sales Society (supra) and held that interest income in respect of temporary parking of own surplus funds not immediately required is eligible for deduction u/s.80P(2)(a)(i) of the Act. The learned DR relied on a subsequent decision of the Hon’ble Karnataka High Court in the case of PCIT Vs. Totgars Co-operative Sale Society Ltd. 395 ITR 611 (Karn.).

We have carefully gone through the judgment relied by the learned DR. The facts of the case before the Hon’ble Karnataka High Court in the decision cited by the learned DR was that the Hon’ble Court was considering a case relating to Assessment Years 2007-2008 to 2011- 2012. In case decided by the Hon’ble Supreme Court in the case of the very same Assessee, the Assessment years involved was AY 1991-92 to 1999- 2000. The nature of interest income for all the AYs was identical. The bone of contention of the Assessee in AY 2007-08 to 2011-12 was that the deduction under Section 80P(2) of the Act is claimed by the respondent assessee under Section 80P(2)(d) of the Act and not under Section 80P(2)(a) of the Act which was the claim in AY 1991-92 to 1999-2000. The reason given by the Assessee was that in AY 2007-08 to 2011-12 investments and deposits after the Supreme Court's decision against the assessee in Totgar's Co-operative Sale Society Ltd. (supra), were shifted from Schedule Banks to Co-operative Bank. U/s.80P(2)(d) of the Act,

The AO will afford opportunity of being heard to the Assessee and filing appropriate evidence, if desired, by the Assessee to substantiate its case, before deciding the issue.