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Manjunatheshwara Credit Co-operative Society Limited vs. The Income Tax Officer - (Income Tax Appellate Tribunal) (14 Oct 2021)

Assessee is not entitled to deduction in respect of interest income earned from investments with Co- operative Banks

MANU/IL/0417/2021

Direct Taxation

The assessee is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959. For the assessment year 2015-2016, the return of income was filed declaring ‘NIL' income after claiming deduction of Rs.50,18,018 under Section 80P(2)(a)(i) of the Income Tax Act, 1961 (I.T. Act) The assessment was selected for scrutiny and notice under Section 143(2) and 142(1) of the I.T. Act was duly served on the assessee. The assessment under Section 143(3) of the I.T. Act was completed vide order, wherein the assessee was denied the claim of deduction under Section 80P(2)(a)(i) of the I.T. Act amounting to Rs.50,18,018. The A.O. held that, the assessee is carrying on the business of banking and in view of the amended provisions of Section 80P of the I.T. Act, the assessee society, which is carrying on the business of banking was not entitled to the claim of deduction under Section 80P(2)(a)(i) of the I.T. Act.

Aggrieved, the assessee preferred an appeal to the first appellate authority. The CIT(A) partly allowed the appeal of the assessee. With regard to the interest income earned by providing credit facilities to the members, the CIT(A) held that, the assessee is entitled to deduction under Section 80P(2)(a)(i) of the I.T. Act. As regards interest income / dividend received on investments with co-operative banks, the CIT(A) held the same has to be assessed as income from other sources. It was further held by the CIT(A) that, since this interest / dividend earned out of investments with co- operative banks, the claim of deduction under Section 80P(2)(d) of the I.T. Act also cannot be granted. Aggrieved, the assessee has filed this appeal before the Tribunal.

The issue to be decided is with regard to the interest income earned on account of investments made with co-operative Banks, whether it is entitled to deduction either under Section 80P(2)(d) or under Section 80P(2)(a)(i) of the I.T.Act.

The Bangalore Bench of the Tribunal in the case of Vasavamba Co-operative Society Ltd. Vs. Pr. CIT had held that the assessee is not entitled to deduction under Section 80P(2)(d) nor under Section 80P(2)(a)(i) of the I. T. Act with regard to the interest income earned from investments made with co- operative banks. The Tribunal in the case of Vasavamba Co-operative Society Ltd. had followed the judgment of the High Court in the case of Pr. Commissioner of Income-tax & Anr. v. Totagars Co-operative Sale Society .

In the light of the above order of the Bangalore Bench of the Tribunal, which has analysed the judicial precedents on the subject, it is held that the assessee is not entitled to deduction under Section 80P(2)(d) nor under Section 80P(2)(a)(i) of the I.T. Act in respect of interest income earned from investments with Co- operative Banks.

The assessee has not raised the plea before the Income Tax Authorities that, it has to be given deduction under Section 57 of the I.T. Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, present Tribunal is of view that, since the fundamental principle under Income-tax Act being that, only net income has to be taxed and not the gross income, this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of the High Court in the case of Totagars Sale Co- operative Society v. ITO. Accordingly, the case is restored to the files of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head ‘income from other sources'. The appeal filed by the assessee is allowed.

Tags : ASSESSMENT   DEDUCTION   DISALLOWANCE  

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