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Facts
The assessee, a co-operative society engaged in constructing housing projects, filed its return of income. The Assessing Officer observed that the assessee earned interest income from co-operative banks and denied deduction under section 80P(2)(a)(i) & 80P(2)(d) of the Income Tax Act, 1961, treating it as income from banking and not from its co-operative society business. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal held that the issue of interest income eligibility for deduction under section 80P(2)(d) is no longer res-integra in light of the High Court's judgment in Totgars Society. Therefore, the claim for deduction under section 80P(2)(d) was dismissed. However, the Tribunal considered the income to be taxable under 'income from other sources' and allowed the cost attributable to such income under section 57.
Key Issues
Whether interest income earned by the assessee from cooperative banks is eligible for deduction under section 80P(2)(d) of the Income Tax Act and if cost of funds is allowable.
Sections Cited
80P(2)(d), 57, 2(24)(viia)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI PRAKASH CHAND YADAV
All these appeals are arising from the order of ld. CIT(A) dated 17.8.2024 having DIN & Order No.ITBA/NFAC/S/250/2024- 25/1067714223(1) for the AY 2020-21 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”).
Since facts and circumstances of the cases and issue involved in all these appeals are same, we are deciding all these appeals by way of this consolidated order. We are taking AY 2020-21 as lead mater for deciding the issue involved.
In the original grounds of appeal, the assessee has basically challenged the action of the lower authorities with respect to the disallowance of deduction under section 80P(2)(d) in relation to to 1793/Bang/2024 LRDE Employees Housing Co-operative Society Ltd., Bangalore Page 2 of 3 interest income from the cooperative banks. The assessee vide its application for additional ground dated 19.11.2024 has asked for deduction of cost of funds, if the interest income of the assessee is to be taxed under section 57 of the Act.
4. Short facts regarding the assessment year 2020-21 which we will take as lead year are like that the assessee is a Co-operative society carrying out the construction of housing projects for its members. It has filed its return of income declaring income of Rs.96,780/-. The same was selected for scrutiny. During the course of assessment proceedings, the AO has observed that the assessee has earned interest income from Co-operative banks. The AO after referring to the definition of Income given in section 2(24) (viia) observed that income earned from business of banking is income from banking and not cooperative society. Accordingly, the AO denied the deduction u/s 80P(2)(a)(i) & 80P(2)(d) of the Act to the assessee. Aggrieved with the order of AO, the assessee preferred appeal before the ld. CIT(A) and contended that the assessee is entitled for deduction u/s 80P(2)(d) of the Act on the interest income earned from various co-operative banks. Ld. CIT(A) however dismissed the appeal of the assessee.
5. Feeling aggrieved the assessee has come up in appeal before us. Ld. Counsel for the assessee at the outset contended that the additional ground filed by the assessee with respect to the allowing of cost of funds to the assessee in respect of interest income taxed by the lower authorities’ u/s 57 of the Act may kindly be granted to the assessee.
Ld. D.R. relied upon the orders of authorities below. to 1793/Bang/2024 LRDE Employees Housing Co-operative Society Ltd., Bangalore Page 3 of 3 7. After considering the rival submissions, we observe that the issue whether interest income is eligible for deduction u/s 80P(2)(d) of the Act with respect to interest income and is no more res-integra in the light of the judgement of Hon’ble jurisdictional High Court in the case of Totgars Society Vs. PCIT reported in 395 ITR 611. Therefore, we dismiss the claim of the assessee with respect to the deduction u/s 80P(2)(d) in respect of interest income. However, we are of the considered view that such income is taxable under the head “income from other sources” and cost attributable to such income is allowable to the assessee u/s 57 of the Act. With this observation, we restore this matter to the file of AO for deciding afresh in accordance with law. The AO will compute the cost of funds and then allow the claim as per law.
In the result, all these appeals of the assessee are allowed for statistical purposes.
Order pronounced in the open court on 28th Nov, 2024