M/S THE JAYANAGAR CO-OPERATIVE HOUSING SOCIETY LIMITED ,BANGALORE vs. THE INCOME TAX OFFICER WARD-7(2)(1), BANGALORE

Briefly stated, the facts of the case are as under:-

Aggrieved by the order of the CIT(A)-7, Bangalore, dated 10.10.2018 for Assessment Year 2014-15, the assessee has preferred this appeal before the Tribunal wherein it has raised the following grounds:-

The issues that arise for consideration in this appeal by the assessee are as to whether the Revenue authorities were justified in holding that the assessee was not entitled to the benefit of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 (in short ‘the Act’) on interest income earned and under section 80P(2)(d) of the Act in respect of interest received from Co-operative institutions. The Assessing Officer (AO) denied the claim of the assessee on the ground that interest income earned by making investment of surplus funds has to be assessed under the head “Income from Other Sources” and not income from business and since interest income is not assessed as business income, the claim for deduction under section 57 of the Act cannot be allowed. In upholding the above conclusions, the CIT(A), inter alia, relied on the decision of the Hon’ble Supreme Court in the case of The Totgar’s Co-operative Sales Society Ltd., Vs. ITO 322 ITR 283 (SC) wherein the Hon’ble Supreme Court held that the benefit of deduction under section 80P(2)(a)(i) of the Act is only on income which is assessable under the head “Income from Business”. Interest earned on investment of surplus funds not immediately required in short term deposits and securities by a Co-operative Society providing credit facilities to members or

While learned AR relied on the decision of the Hon’ble Karnataka High Court in the case of Tumukur Merchants Souharda Credit Co-operative Ltd., 230 taxman 309 (Karn), the 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 said judgment. The facts of the case before the Hon’ble Karnataka High Court was that the Hon’ble Court was considering a case relating to Assessment Years 2007-08 to 2011-12. In case decided by the Hon’ble Supreme Court in the case of the very same assessee, the Assessment Years involved was Assessment Years 1991-92 to 1999-2000. The nature of interest income for all the Assessment Years 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 Totgar's Co-operative Sale Society Ltd. (supra), were shifted from Schedule Banks to Cooperative Bank. U/s.80P(2)(d) of the Act, income by way of interest or dividends derived by a Co-operative Society from its investments with any other Co-operative Society is entitled to deduction of the whole of such interest or dividend income. The claim of the Assessee was that Co-operative Bank is essentially a Co-operative Society and therefore deduction has to be allowed under Clause (d) of Sec.80P(2) of the Act. The Hon'ble Karnataka High Court followed the decision of the supreme Court in The Totgars Co-operative Sales Society Ltd. (supra) and held that interest earned from Schedule bank or co- operative bank is assessable under the head income from other sources and

The AO will afford adequate opportunity of being heard to the Assessee and for filing details / evidence for the assessee to substantiate its case, before deciding the issue.

In the result, the assessee’s appeal for Assessment Year 2014-15 is allowed for statistical purposes.