ITAT Allows Deduction On Credit Facilities Given By Co-operative Society To Its Members

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the deduction under Section 80P of the Income Tax Act on the credit facilities given by the co-operative society to its members as they were directly related to the business while deriving interest.

According to the two-member bench of Suchitra Kamble (Judicial Member) and Waseem Ahmed (Accountant Member), unlike Nationalised Banks, co-operative credit societies/cooperative banks have different setups where deduction under Section 80P(2)(a)(i) is allowable when the interest is derived from credit provided to their members.

The assessee/appellant is a co-operative society and filed its return of income declaring total income for the A.Y. 2014-15. The Assessing Officer observed that the deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 of Rs. 2,55,842 being interest income received from the Co-operative Bank is not eligible.

The PCIT directed the Assessing Officer to reframe the assessment denovo after considering the position of law and as held by the Hon'ble High Court of Karnataka in PCIT vs. Totgars Co-operative Sale Society Limited.

The assessee submitted that the assessee is a co-operative credit society and its main activity is providing credit facilities to its members by accepting deposits, savings, etc., and providing loans and advances to its members only. The Assessing Officer disallowed the claim of Rs. 2,55,842 under Section 80P(2)(d) of the Income Tax Act.

The department submitted that, as per the decision of the Supreme Court in the case of Totgars Co-operative Sales Society Limited vs. ITO, interest income earned from nationalised banks is to be taxed under the head "income from other sources" as provided under Section 56 of the Income Tax Act. Income from other sources is not the business of the assessee and, therefore, not eligible for deduction under the provisions of Section 80P. The department submitted that the CIT(A) erred in deleting the interest earned under Section 80P(2)(d).

The assessee submitted that the High Court in the case of State Bank of India (SBI) vs. CIT clearly held that in the case of a society engaged in providing credit facilities to its members, it is only interest derived from credit provided to its members that is deductible under Section 80P(2)(a)(i) of the Act. Thus, the CIT(A) rightly allowed the appeal of the assessee.

The ITAT noted that the decision of the Apex Court in the case of Totgars Co-operative Sale Society Limited was related to interest income earned from the Nationalised Bank, which is taxed under income from other sources. However, the tribunal observed that co-operative credit societies/cooperative banks cannot be equated with 'nationalised banks'.

Case Title: Asstt. Commissioner of Income Tax Versus Visnagar Taluka Majoor Sahakari Mandli Limited

Citation: ITA Nos.1529 & 1530/Ahd/2019

Date: 07.10.2022

Counsel For Appellant: Sr. DR Atul Pandey

Counsel For Respondent: AR H.V. Doshi

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