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Facts
The assessee, a co-operative society, earned interest and dividend income from investments with SCDCC Bank. The AO disallowed deduction under Section 80P(2)(d) as the income was from a bank, not a society. The CIT(A) allowed the deduction, holding that it applied to income from cooperative banks not governed by the RBI Act.
Held
The Tribunal restored the matter to the AO to determine if SCDCC Bank is a co-operative society. If it is, the interest income is eligible for deduction under Section 80P(2)(d). If not, the AO is to consider the deduction of cost of funds under Section 57.
Key Issues
Whether interest income from SCDCC Bank is eligible for deduction under Section 80P(2)(d) and whether SCDCC Bank is a co-operative society.
Sections Cited
80P(2)(d), 250, 143(2), 143(3), 57, 36
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K & SHRI WASEEM AHMEDR
Per George George K, Vice President:
This appeal at the instance of the Revenue is directed against the order of CIT(A) dated 15.01.2024, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2018-19.
The grounds raised read as follows:
Whether the CIT(A) has erred in allowing 100% deduction under Section 80P(2)(d) of the Income Tax Act, 1961 in respect of whole
of its income by way of interest earned by it on the deposits or investments made by it during these years with a Co-operative Bank, M/s. South Canara District Central Co-operative Bank Limited? 2. Whether the C1T(A) has erred in concluding that Mis South Canara District Co-operative Bank Limited is not governed by RBI Banking Regulation Act even when section 36 of the RBI Banking Regulation Act is applicable to the Bank.
Brief facts of the case are as follows:
Assessee is Co-operative Society. It is engaged in procurement and sale of milk and milk products. It is also dealing in cattle feeds. For the Assessment Year 2018-19, the return of income was filed on 30.09.2018 declaring income of Rs.39,42,73,910/-. The Assessment was selected for complete scrutiny under CASS and notice under section 143(2) of the Act was issued on 23.09.2019. During the course of assessment proceedings, it was noticed that assessee had earned interest income of Rs.3,80,41,532/- and dividend income of Rs.3,800/- from its investments with M/s. South Canara District Central Co-operative Bank Limited (SCDCC Bank). The AO completed assessment under section 143(3) of the Act vide order his dated 18.04.2021 wherein he treated interest income and the dividend income received from SCDCC Bank as not entitled to deduction under section 80P(2)(d) of the Act, since the same was received from Co-operative Bank and not Co-operative Society.
Aggrieved by the Assessment Order denying the claim under section 80P(2)(d) of the Act, assessee preferred appeal before the CIT(A). The CIT(A) deleted the disallowance made by the AO and allowed the appeal of the assessee. The CIT(A) followed the order of the Bangalore Bench of the Tribunal in the case of University of Agricultural Vs. ACIT in dated 18.05.2023. The CIT(A) held that assessee is entitled to deduction under section 80P(2)(d) of the Act in respect of interest / dividend income received from investments kept with Co-operative Societies / Co-operative Banks which are not governed by RBI Regulation Act. The relevant finding of the CIT(A) reads as follows:
“6.2 In view of above mentioned facts, legal provisions and following decisions in above mentioned cases, I hereby, direct the AO that appellant should be granted deduction u/s 80P(2)(d) on the interest/dividend received from deposits/savings account kept with other cooperative societies/ banks which are not governed by RBI Banking Regulation Act. However, such deduction will not be available to interest received from scheduled commercial banks. While giving appeal effect; AO will allow these deductions looking into respective amounts/figures from appellant's books of accounts. Accordingly. grounds of appeal are allowed.
5. Aggrieved by the order of the CIT(A), the Revenue has filed the present appeal before the Tribunal. The learned DR, apart from supporting the grounds raised in the memorandum of appeal, submitted that payer Bank viz., SCDCC Bank has got licence from RBI to conduct the banking business under the Banking Regulation Act, 1949. Therefore, it contended that SCDCC Bank cannot be considered as a Co-operative Society, hence, would not be entitled to deduction under section 80P(2)(d) of the Act in view of dictum laid down by the Hon’ble jurisdictional High Court in the case of PCIT Vs. Totgars Co-operative Sale Society Ltd., reported in 395 ITR 611.
The learned AR, on the other hand, submitted that in view of the latest judgment of the Hon’ble Apex Court in the case of Kerala State Co-operative Agricultural Rural Development Vs. AO reported in 458 ITR 384 (SC) and the decision in assessee’s own case for Assessment Year 2020-21 in (order dated 23.04.2024) the issues need to be restored to the AO. It was submitted that payer Bank viz., SCDCC Bank is in essence is a co- operative society, hence, the interest / dividend income received from it would be entitled to deduction under section 80(P)(2)(d) of the Act.
We have heard the rival submissions and perused the material on record. We find that in assessee’s own case for Assessment Year 2020-21, the Tribunal had restored the matter to the AO to examine whether the payer bank viz., SCDCC Bank is a Co-operative Bank or Co-operative Society. The Tribunal in assessee’s own case held that if it is found that the payer bank is a Co-operative Society, the same shall be entitled to deduction under section 80P(2)(d) of the Act. Further, it was held by the Tribunal that in the event the assessee is not entitled to deduction under section 80P(2)(d) of the Act, and the interest income is assessed as “Income from Other Sources” assessee shall be entitled to deduction of cost of funds under section 57 of the Act. The relevant finding of the Tribunal in assessee’s own case reads as follows:
“4. We have heard the rival submissions and perused the materials available on record. As regards the claim of deduction u/s 80P(2)(d) of the I.T. Act, we direct the A.O. to verify whether interest / dividend is received by the assessee out of investments made with Cooperative Societies. If the assessee earns interest / dividend income out of investments with co- operative society, as observed by Hon'ble Supreme Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. in Civil Appeal No.10069 of 2016, order dated 14.09.2023, the same is entitled to deduction u/s 80P(2)(d) of the I.T. Act. 4.1 Without prejudice to the above, we make it clear that if the interest earned by assessee from the banks is considered under the head "Income from other sources", relief to be granted to the assessee u/ s 57 of the Act in accordance with law. Accordingly, the issue is restored to the file of ld. AO for de-novo consideration with the above observations.”
In view of the aforesaid order of the Tribunal in assessee’s own case, we restore the matter to the AO. The AO is directed to examine whether payer bank viz., SCDCC Bank is a Co-operative Society and if so, the interest income received from such Co-operative Society shall be entitled to deduction under section 80P(2)(d) of the Act. In the event it is found that assessee’s income is not entitled to deduction under section 80P(2)(d) of the Act, the AO shall consider the claim of assessee for deduction of cost of funds for earning such interest income. It is ordered accordingly.
In the result, appeal filed by the Revenue is allowed for statistical purposes.