Case Law Details
Bantwal Public Employees Consumers Co-operative Society Vs ITO (ITAT Bangalore)
Introduction: In a pivotal decision by the Income Tax Appellate Tribunal (ITAT) Bangalore, the Bantwal Public Employees Consumers Co-operative Society faced a setback as their claim for a deduction under section 80P(2)(d) of the Income Tax Act was dismissed. This ruling, dated 20.09.2023, has significant implications for co-operative societies across the country, particularly those deriving interest income from investments with co-operative banks.
Detailed Analysis: The core of the dispute revolved around the society’s earnings through interest from co-operative banks, which it claimed were eligible for deductions under section 80P(2)(d) of the Income Tax Act. This section ostensibly provides a deduction for income earned by co-operative societies from other co-operative societies. However, the Assessing Officer (AO), upheld by the CIT(A), deemed such interest income ineligible for deduction under both sections 80P(2)(a)(i) and 80P(2)(d), aligning with the principles outlined in the landmark judgment of the Hon’ble Apex Court in the case of Citizen Co-operative Society Ltd. and the Hon’ble Karnataka High Court’s decision in PCIT Vs. Totagars Co-operative Sale Society Ltd.
The tribunal’s ruling emphasized a critical distinction between interest income earned from investments in co-operative banks versus co-operative societies. It underscored the judgment of the Hon’ble Karnataka High Court, which categorically stated that interest income from co-operative banks does not qualify for deduction under section 80P(2)(d) as it cannot be equated with interest received from a co-operative society. Furthermore, such interest income should be taxed under the head “income from other sources.”
This decision reaffirms the position that co-operative societies must exercise caution and diligence in understanding the nuances of tax deductions applicable to their income, especially concerning investments in co-operative banks.
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