2015 (2) TMI 1177 - AT - Income Tax

Interest income from surplus funds with PSU Banks not eligible for deduction under section 80P(2)(a)(i)

Rupnarayanpur Samabay Krishiunnayan Samity Ltd., C/o. V.N. Purohit & Co., Chartered Accountants, Versus Assistant Commissioner of Income Tax Circle-1, Hooghly,

Rupnarayanpur Samabay Krishiunnayan Samity Ltd., C/o. V.N. Purohit & Co., Chartered Accountants, Versus Assistant Commissioner of Income Tax Circle-1, ... Issues:1. Interpretation of section 80P(2)(a)(i) of the Income Tax Act regarding deduction eligibility for interest income on short-term deposits.2. Determination of whether interest income from surplus funds with PSU Banks constitutes operational income or income from other sources.3. Assessment of the applicability of the decision of the Hon'ble Supreme Court in the case of Totgar Cooperative Sale Society Limited in the present case.Analysis:1. The appeal pertains to the assessment year 2009-10, where the assessee challenged the order of the ld. Commissioner of Income Tax (Appeals) regarding the enhancement of assessment by an amount of Rs. 1,97,896 representing interest income received on short-term deposits from surplus funds with PSU Banks. The key issue was whether this interest income was eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act.2. The ld. Sr. D.R. argued that the interest income earned by the assessee did not constitute operational income but rather income from other sources, as it was derived from funds not required for business purposes and kept with PSU Banks. Citing the decision of the Hon'ble Supreme Court in the case of Totgar Cooperative Sale Society Limited, it was contended that such interest income falls under the category of 'income from other sources' and is taxable under section 56 of the Act.3. The Tribunal considered the submissions and noted that the PSU Banks were not members of the assessee-Society, indicating that the interest income could not be attributed to the society's business activities of providing credit facility to members. Relying on the precedent set by the Hon'ble Supreme Court in the Totgar Cooperative Sale Society Limited case, the Tribunal upheld the ld. CIT(Appeals)'s decision to enhance the assessment, concluding that the interest income in question was rightly categorized as income from other sources and not eligible for deduction under section 80P(2)(a)(i).4. Consequently, the Tribunal dismissed the appeal filed by the assessee, affirming the decision of the ld. CIT(Appeals) and upholding the taxability of the interest income from surplus funds with PSU Banks. The judgment was pronounced on 24th February 2015.