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Facts
The assessee, a cooperative society, claimed deduction under Section 80P(2)(d) for interest earned on deposits with a co-operative bank. The AO disallowed this deduction, and the CIT(A) confirmed the AO's order. The assessee appealed this decision.
Held
The Tribunal held that interest on compulsory deposits with the co-operative bank should be allowed as deduction under Section 80P(2)(a)(i). However, interest on surplus fund deposits does not qualify for deduction under Section 80P(2)(d) and is taxable under Section 56. Dividend and bonus from KMF were held eligible for deduction under Section 80P(2)(d). For AY 2020-21, the direction of CIT(A) to allow deduction under Section 80G after verification was upheld.
Key Issues
Whether interest earned on deposits with a co-operative bank is eligible for deduction under Section 80P(2)(d) or other provisions. Whether dividend and bonus from KMF are eligible for deduction. Whether the CIT(A)'s direction regarding Section 80G deduction was correct.
Sections Cited
80P(2)(d), 80P(2)(a)(i), 56, 80G
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI YOGESH KUMAR U.S
Per Waseem Ahmed, Accountant Member: These appeals by the assessee are arising out of the orders of the ld. CIT(A) under section 250 of the Income Tax Act, 1961. The relevant Assessment Years are 2018-19 and 2020-21. 2. At the outset, the learned counsel for the assessee before us submitted that she has been instructed by the assessee not to press ground No. 3 raised in the memo of appeal, accordingly, we dismiss the same as not pressed. 3. The 2nd interconnected issue raised by the assessee in ground No. 2 is that the learned CIT-A erred in confirming the disallowance of the deduction claimed under section 80P(2)(d) of the Act amounting to ₹ 1,47,59,034.00 representing the interest received from the co-operative bank.
The necessary facts are that assessee in the present case is a cooperative society registered under section 7 of the Karnataka cooperative societies Act 1959 vide certificate number DAY/PCS/3657/76.77 dated 30-03-1977. The AO during the assessment proceedings found that the assessee has earned interest of Rs. 1,47,59,034 on the money deposited with the co-operative bank which is not eligible for deduction under section 80P(2)(d) of the Act. Accordingly, the AO disallowed the same and added to the total income of the assessee. On appeal, the ld. CIT-A, confirmed the order of the AO.
Being aggrieved by the order of the learned CIT-A, the assessee is an appeal before us.
The learned AR before us submitted the breakup of the amount of interest disallowed by the AO as detailed below: i. Interest from the co-operative bank on the surplus fund ₹ 53,96,607.00 ii. Interest from the cooperative bank (reserve fund) ₹ 69,54,297.00 iii. Dividend and bonus from KMF ₹ 24,08,130.00 7. According to the ld. AR the amount of interest of ₹ 69,54,297.00 represents the interest from the co-operative bank on the money which was deposited under the guidelines of Karnataka cooperative societies Act. As such the impugned interest was earned as a result of compulsory deposits with the co-operative bank. Therefore, the same should be allowed as deduction by virtue of the judgement of Hon’ble Supreme Court in the case of CIT versus Karnataka State cooperative apex bank reported in 251 ITR 194 vide order dated 22 August 2001. It was also clarified by the ld. AR that the assessee has claimed the deduction of the impugned amount under section 80P(2)(d) of the Act whereas such deduction is available to the assessee under the provisions of section 80P(2)(a)(i) of the Act. According to the ld. AR, claiming the rightful deduction but under the wrong section would not disentitle the assessee from making such deduction. 8. Regarding the interest earned by the assessee amounting to ₹ 53,96,607.00 on the surplus fund deposited with the co-operative bank, the ld. AR fairly agreed that the assessee is not entitled for the deduction under section 80 P(2)(d) of the Act but prayed to give a direction to the AO for allowing the corresponding cost incurred by the assessee in the earning of such interest income under section 57 of the Act.
Regarding the dividend and bonus from KMF amounting to Rs. 24,08,130.00, the ld. AR contended that the assessee is entitled for such deduction under the provisions of section 80P(2)(d) of the Act.
On the other hand, the ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the case have already been elaborated in the preceding paragraph which are not in dispute and therefore for the sake of brevity and convenience, we are not inclined to repeat the same.
Regarding the compulsory deposits with the co-operative bank, we hold that the Hon’ble Supreme Court in the case cited above has directed to allow deduction of the same under the provisions of section 80P(2)(a)(i) of the Act. The relevant extract of the judgement is reproduced as under: There is no doubt, and it is not disputed, that the assessee-co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)( i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessee's business. We are unable to take the view that found favour with the Bench that decided the case of M.P. Co-operative Bank Ltd. (supra) that only income derived from circulating or working capital would fall within section 80P(2)(a)( i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital.
Regarding the surplus deposited with the bank, we note that interest on such deposits does not qualify for deduction under section 80P(2)(d) of the Act. As such, the impugned interest income is chargeable to tax under the head income from other sources under section 56 of the Act. Accordingly, we uphold the finding of the authorities below with the caveat that the corresponding cost incurred by the assessee in the earning of such interest shall be eligible for deduction under section 57 of the Act while computing the disallowance of the deduction under section 80P(2)(a)(i) of the Act.
Regarding the dividend and bonus from KMF amounting to Rs. 24,08,130.00, we note that such income is eligible for deduction under section 80P(2)(d) of the Act. The ld. DR has also not anything contrary to the arguments advanced by the ld. CIT-A. Accordingly, we direct so.
Before parting it is important to note that the observation made by us in the preceding paragraph has not been verified as far as the quantum of deduction under section 80P of the Act is concerned by the authorities below. Accordingly, we set aside the issue to the file of the AO for fresh adjudication and verification in the light of the above stated discussion and as per the provisions of law. Hence, the ground of appeal
of the assessee is hereby partly allowed for statistical purposes.
16. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Coming to AY 2020-21 17. As regards ground No. 2 raised by the assessee, this issue has already been adjudicated in ITA No.1304/Bang/2024. Accordingly, we set aside the issue to the file of the AO for fresh adjudication and verification in the light of the above stated discussion and as per the provisions of law. Hence, the ground of appeal of the assessee is hereby partly allowed for statistical purposes.
18. The next issue raised by the assessee is that the ld. CIT-A erred in directing the AO to allow the deduction under section 80 G of the Act amounting to ₹ 5,28,180 after necessary verification.
19. At the outset, we note that the ld. CIT-A has allowed the claim of the assessee under section 80 G of the Act but after necessary verification. The relevant extract of the order of the ld. CIT-A reads as under:
“As regards the Grounds of Appeal on 80G for AY 2020-21, the Ld. JAO is directed to verify and allow the same, ap per the provisions of ITA 1961, while passing OGE.”
At the time of hearing, the ld. AR appearing on behalf of the assessee has not pointed out any defect in the finding of the ld. CIT-A. As such we note that, there is no grievance to the assessee with regard to the direction given by the learned CIT-A. Accordingly, we uphold the direction given by the ld. CIT-A. Hence, the ground of appeal
of the assessee is hereby dismissed.
21. In the result, the appeal filed by the assessee is hereby partly allowed for statistical purposes.
22. In the combined results, both the appeals filed by the assessee are hereby partly allowed for statistical purposes. Pronounced in the open court on the date mentioned on the caption page.