Income Tax Officer, Ward-26(2)(1), Mumbai vs State Bank of India Employees M.S. Patel Co-op Credit Society Ltd.

Parties Involved

Facts Summary

The assessee is a cooperative society registered under the Multi State Cooperative Societies Act, 2002. It filed its return of income for the assessment year 2016-17 on 01.10.2016. The assessing officer disallowed the claim of deduction under section 80P(2)(a)(i) of the Income Tax Act for interest received from State Bank of India and interest on income tax refund. The assessee filed an appeal before the Commissioner of Income Tax (Appeal), who allowed the deduction. The revenue appealed to the Income Tax Appellate Tribunal (ITAT). The ITAT dismissed the appeal, holding that the assessee is entitled to the deduction under section 80P(2)(a)(i) of the Act.…

Legal Issues

• 1. Whether the Ld. CIT(A) was correct in allowing deduction u/s.80P(2)(d) of the Income Tax Act in respect of interest earned from deposits from cooperative bank ignoring the amendment made by Finance Act, 2015 in section 194A(3)(V) of the Act.
• 2. Whether the Ld. CIT(A) was correct in allowing deduction u/s.80P(2)(d) of the Income Tax Act in respect of interest earned from deposits in cooperative bank ignoring that whether the deposits and investment of surplus funds of assessee not immediately required for its purposes, is made with Scheduled Bank or Nationalized Banks or with co-operative Banks does not make a difference as far as the character of the income earned by assessee is concerned and it does not partake the character of its operational income from its activity as cooperative credit society, the same would continue to be fully taxable and will not be eligible for deduction under section 80P(2)d) of the Act.
• 3. Whether the Ld. CIT(A) was correct in allowing deduction u/s.80P(2,(@) of the Income Tax Act in respect of interest earned from deposits, though Hon'ble Karnataka High Court in a detailed judgment discussing the law and various related issues in the case of Pr. CIT vs Totagars co-operative Sale Society (2017) 395 TR 611 (Karn) has specifically decided the Question of Law about the allowability of interest earned from deposits with Cooperative Bank u/s. 80P(2)(d) of the Income Tax Act in favour of the Revenue.
• 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in allowing deduction u/s.80P(2)(d) of the Income Tax Act in respect of interest earned from deposits of surplus funds with scheduled bank though the Hon'ble Supreme Court in the case of Totgar's Cooperative Society Ltd. Vs ITO (322 ITR 283) held that the scope of special deduction must relate to the operational income of the Cooperative Society providing credit facility to its members and the interest earned on investments in short term deposits and securities out of surplus funds, not immediately required for business activity, is not business income but income from other sources u/s. 56 of the Income tax Act, 196l and the Society is not entitled to special deduction u/s. 80P on such interest etc. earned.

Judgment Outcome

Decided in favour of Partly Assessee / Partly Revenue.

Precedents Relied Upon

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