Denial of exemption u/s 80P(2)(d) in respect of interest income earned from Co-operative banks

This Income Tax Appellate Tribunal case concerns a credit co-operative society's appeals regarding the denial of exemption under Section 80P(2)(d) for interest earned from co-operative banks. The Assessing Officer rejected the claim, citing the society's dealings with nominal members and relying on Supreme Court and Karnataka High Court decisions. The society also sought deductions for commission income on e-stamp sales.

IN THE INCOME TAX APPELLATE TRIBUNAL
“C” BENCH : BANGALORE

BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT
AND SHRI B. R. BASKARAN, ACCOUNTANT MEMBER

ITA Nos.162 and 163/Bang/2020
Assessment years : 2015-16, 2016-17 

M/s. Srinagara Credit Co-operative
Society Ltd.,
No.897, 1st Floor, 12th Main Road,
4th Cross, Hanumanth Nagar,
Bengaluru – 560 019.
PAN : AAAAS 9196 A
APPELLANT 

Vs. 

ITO,
Ward – 5(2)(5),
Bengaluru.
RESPONDENT

Appellant by : Shri. V. Narendra Sharma, Advocate
Respondent by : Smt. R. Premi, JCIT(DR)(ITAT), Bengaluru

Date of hearing : 22.07.2021
Date of Pronouncement : 23.07.2021

O R D E R

Per N.V. Vasudevan, Vice President

These are appeals by the assessee against two orders both dated 29.11.2019 of CIT(A)-5, Bengaluru, relating to Assessment Years 2015-16 and 2016-17.

2. The assessee has raised two issues in both the appeals and the issues so raised are common in both the Assessment Years as given below:

a) Denial of exemption u/s 80P(2)(d) of the Act in respect of interest income earned from Co-operative banks. 

b) Denial of deduction u/s 80P of the Act in respect of commission income earned on sale of e-stamps.

3. We have heard the parties and perused the record. The facts relating to the case are stated in brief. The assessee originally filed its return of income declaring nil total income after claiming deduction u/s 80P of the Act. In assessment year 2013-14 & 2014-15, the A.O. rejected the claim for deduction u/s 80P of the Act. Consequently, the A.O re-opened the assessment of year under consideration by issuing notice u/s 148 of the Act. In the reopened assessment, the A.O. rejected the claim for deduction u/s 80P of the Act by holding that the assessee is dealing with Nominal members and hence, fails in the Principle of mutuality. In support of this proposition, the AO placed his reliance on the decision rendered by Hon'ble Supreme Court in the case of Citizen Cooperative Society Ltd. (250 Taxman 78). Accordingly, the AO held that the assessee is not eligible for deduction u/s 80P of the Act. The assessee had also earned commission income on sale of e-stamps and the A.O. held that the same is not eligible for deduction u/s 80P of the Act. The assessee had also earned interest income of Rs.27.75 lakhs from deposits kept with various co-operative banks. The main contention of the assessee is that the interest income is eligible for deduction u/s 80P(2)(a)(i) of the Act. In the alternative, the assessee claimed that the same is deductible u/s 80P(2)(d) of the Act. The A.O. rejected the alternative claim also by following decision rendered by Hon'ble Karnataka High Court In the case of Principal CIT Vs. Totgars Co-operative Sales Society (2017) 83 Taxmann.com 140. Accordingly, the A.O. brought to tax the entire income of the assessee. 

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