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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’
Before: SHRI N.V VASUDEVAN & SHRI JASON P BOAZ
PER SHRI N.V VASUDEVAN, VICE PRESIDENT :
This is an appeal by the Assessee against the order dated 26.6.2018 of CIT(A)-Belagavi, relating to AY 2015-16.
2. The only issue that arises for consideration in this appeal by the Assessee is as to whether the revenue authorities were justified in allowing the benefit of deduction u/s/80P(2)((a)(i) of the Income Tax Act, 1961 (Act) to the Assessee on interest income earned on investment in Bagalkot District Central Co-operative Bank and interest earned on savings bank account, FD with Jamkhandi Sugars Ltd. is eligible for deduction u/s.80-P(2)(a)(i)/80P(2)(d) of the Income Tax Act, 1961 (Act). The Assessing Officer 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 cannot be allowed. In coming to the above conclusion, the AO relied on the decision of the Hon’ble Supreme Court in the case of The Togar’s Co-operative Sales Society Ltd. Vs. ITO 322 ITR 283(SC) wherein the Hon’ble Supreme Court held that the benefit of deduction u/s.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 marketing agricultural produce to members is not business income but income from other sources and the society is not entitled to special deduction. On appeal by the Assessee, the CIT(A) allowed the deduction claimed by the Assessee the CIT(A) confirmed the order of the AO.
3. Aggrieved by the order of the CIT(A), the Assessee has filed the present appeal before the Tribunal. The grounds raised by the Assessee in this appeal reads thus:
“1.The learned Assessing Officer's order is opposed to the Facts of the case and law.
Because, the learned Commissioner of Income Tax (Appeals) erred in law as well as on facts while disallowing the deduction claimed under section 8013(2)(a)(i) of the Income Tax Act, 1961 and concluding that the interest earned on deposits with Cooperative and Nationalised Banks as Income from Other Sources.
Because, the learned lower authorities have erred in denying the deduction claimed under section 8013(2)(a)(i) of Income Tax Act, 1961.
The assessee craves leave to add I alter any of the grounds of appeal
before or at the time of hearing.”
4. The 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 2007-2008 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 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 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 Tumukur 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 judgment 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 Tumukur Merchnts 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 before deciding the issue.
In the result, appeal by the Assessee is treated as allowed for statistical purpose.
Order pronounced in the open court on 7th December, 2018.