INCOME TAX ACT, 1961

Section 80P(2)

Deduction under section 80P(2) - Co-operative society - Banking business - Interest income earned on investment with bank/deposit in bank

Assessee was Association of Persons (AOP) Registered as a Primary Agriculture Credit Co-operative Society under the provisions of Karnataka Co-operative Societies Act, 1959 and engaged in the business of providing credit facilities to its Members for Agriculture related allied activities, selling of feritlisers, PDF Distribution and allied activities as per the byelaws approved by Registrar for Co-operative Societies. Assessee claimed deduction under section 80P(2)(a)(i) in respect of income from co-operative society engaged in carrying on business of banking of providing credit facilities to its Members. AO observed that the interest income of the assessee had to be assessed under 'Income from other sources'. Finally, AO denied to allow deduction under section 80P(2)(a)(i). CIT(A) also confirmed order of AO.Held: Facts of the present case were similar to the decision rendered by the co-ordinate Bench and the jurisdictional High Court in respect of definition of members and 'chargeability of interest income under 'Income from other sources''. The entire disputed issue was restored to the file of AO to adjudicate afresh in the light of the decision of chargeability of interest income under the head 'Income from other sources' and the observations of Supreme Court in the case of Totgar's Co-operative Sales Society Ltd. v. ITO [(2010) 322 ITR 283 (SC) : 2010 TaxPub(DT) 1466 (SC) and Karnataka High Court decision in the case of Tumkur merchants souharda Credit Co-operative Ltd. (2015) 230 Taxman 309 (Kar) : [I.T.A. NO . 307 of 2014, dt. 28-10-2014] : 2015 TaxPub(DT) 2857 (Karn-HC). Whereas in respect of the claim of Nominal Members included in the definition of 'Member' the Tribunal found support on its view relying on the decision of Trapaj Vibhageeya Khet Udyog Mal Rupantar Food Processing Sahakari Mandali Ltd. v. Dy. CIT and Principal CIT v. S-1308 Ammapet Primary Agricultural Co-operative Bank Ltd. which was covered in favour of the assessee. Accordingly, the nominal members were also eligible for the Benefits of credit society. Accordingly, entire disputed issue was restored back to the file of AO to grant the benefit to the nominal members.