25 May 2022
Assessee is co operative society. In the year 2010-11 society has purchased KVP (kisan vikas patra) from Co-operative Bank out of its surplus balance, now at the time of maturity interest earned on KVP is mentioned in the Income from other sources head and claimed deduction u/s 80P. But CPC didn't allow the deduction u/s 80P to the income offered in IFOS.
Is the interest income from kvp obtained from Co-operative Bank is taxable or allow as deduction u/s 80P? Please help to resolve the query with any supporting judgement if any.
06 July 2024
The treatment of interest income from Kisan Vikas Patra (KVP) obtained by a cooperative society, particularly regarding the allowance of deduction under section 80P of the Income Tax Act, 1961, can be clarified based on the following points:
1. **Nature of Income**: Interest income from KVP is generally taxable under the head "Income from Other Sources" (IFOS). This income is considered as part of the total taxable income of the cooperative society unless there is a specific provision allowing deduction under section 80P.
2. **Section 80P Deduction**: Section 80P provides for deduction in respect of income of cooperative societies. However, the applicability of this deduction depends on the nature of income earned by the cooperative society. As per the provisions of section 80P: - Deduction is allowed in respect of income derived by a cooperative society from: - Its activities related to agriculture (including processing of agricultural produce). - Sale of agricultural produce. - Purchase of agricultural implements. - Supply of milk or other products of farmers. - Any other specified cooperative activities.
3. **Judicial Interpretation**: The applicability of section 80P has been subject to judicial scrutiny. In several cases, courts have upheld that interest income earned from investments (like KVP) made out of surplus funds does not qualify for deduction under section 80P. The rationale is that such income does not directly relate to the cooperative's specified activities aimed at promoting the economic interests of its members engaged in primary agricultural activities.
4. **Specific Case Precedents**: While there isn't a specific judgment on KVP investments from cooperative societies readily available, the general principle applies that interest income from investments made out of surplus funds (not related to specified cooperative activities) is taxable under IFOS and not eligible for section 80P deduction.
### Conclusion: Based on the information provided: - The interest income earned from KVP investments by the cooperative society is taxable under the head "Income from Other Sources". - It is unlikely to qualify for deduction under section 80P unless the income can be directly linked to activities specified under section 80P.
To resolve the issue, it's advisable to consult with a tax professional or chartered accountant who can review the specific circumstances of the cooperative society and provide guidance accordingly. They can also assist in making representations to the Income Tax authorities or filing an appeal if necessary, based on the facts and applicable legal provisions.
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