M/S. GAYATRI PATTINA SOUHARDA SAHAKARI NIYAMITHA,BELLARY vs. INCOME TAX OFFICER, WARD- 1, BELLARY

After hearing rival contentions, we find that grounds No.1 to 7 are on the issue of claim of deduction of the assessee u/s 80P(2)(a)(i) of the Income-tax Act,1961 ['the Act' for short]. The Assessing Officer relied on section 80P(2)(d) of the Act.

At the time of hearing, both the parties have agreed that the issue under consideration is covered by the decision dated 4th January,

We have gone through the order passed by the co-ordinate bench in the above said case. For the sake of convenience, we extract below the decision taken by the co-ordinate bench in the above said case.

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 2007-08 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 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 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, 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 Page 3 of 4 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 therefore the provisions of Sec.80P(2)(d) of the Act was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991-92 to 1999-2000 decided by the Hon’ble Supreme Court. Therefore, whether the source of funds were Assessee’s own funds or out of liability, was not subject matter of the decision of the Hon’ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Co-operative Ltd. (supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgments of the Hon’ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon’ble Karnataka high Court rendered in the case of Tumkur Merchants Souharda Co-operative Ltd. (supra).

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.”

Grounds No.8 & 9 are on the issue of disallowance u/s 40(a)(ia) of the Act. The claim of the assessee is that interest has been paid to members and on the ground of mutuality, no tax could be deducted at source. This aspect may also be examined by the Assessing Officer in the set aside proceedings. The assessee would be free to raise any other argument, legal or otherwise on this issue.