Tribunal grants deduction under section 80P(2) for cooperative society's interest income.

The Tribunal partially allowed the appeal, granting the assessee the benefit of deduction u/s. 80P(2) based on the society's classification and activities under the Kerala Cooperative Societies Act. The interest income from the Government Treasury was deemed eligible for deduction u/s. 80P(2)(a)(i) as "income from business," overturning the decision to categorize it as "income from other sources." The Income Tax Authorities were found unjustified in denying the deduction. The Stay Petition was dismissed.

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Issues:
1. Whether the CIT(A) was justified in confirming the disallowance of deduction u/s. 80P(2) of the Act.
2. Whether the interest received from the Government Treasury should be categorized as "income from other sources" or "income from business."

Analysis:

Issue 1:
The appeal was against the CIT(A)'s order confirming the disallowance of deduction u/s. 80P(2) of the Act. The assessee, a primary agricultural credit society, claimed the deduction, but the Assessing Officer denied it, citing the society's primary engagement in banking activities. The CIT(A) upheld the denial, leading to the appeal. The assessee argued citing a judgment by the Hon'ble High Court of Kerala in a similar case, establishing entitlement to the deduction u/s. 80P(2). The Tribunal reviewed the facts, confirming the society's classification and activities under the Kerala Cooperative Societies Act, thus entitling it to the deduction u/s. 80P(2) based on the High Court's judgment.

Issue 2:
Regarding the interest received from the Government Treasury, the CIT(A) upheld the Assessing Officer's decision to categorize it as "income from other sources," denying the deduction u/s. 80P(2). However, the Tribunal referred to a similar case where the Cochin Bench ruled in favor of the assessee, distinguishing a Supreme Court judgment cited by the CIT(A). The Tribunal found that as the assessee, a cooperative bank, invested in treasury/banks as part of its banking activities, the interest income qualified as "income from business" eligible for deduction u/s. 80P(2)(a)(i). Consequently, the Income Tax Authorities were deemed unjustified in treating the interest income as "income from other sources" and denying the deduction.

In conclusion, the Tribunal partially allowed the appeal, granting the assessee the benefit of deduction u/s. 80P(2) and dismissing the Stay Petition. The judgment was pronounced on 31st-10-2016 by the Tribunal comprising SHRI B. P. JAIN, AM & GEORGE GEORGE K., JM, with legal representation for both the assessee and the revenue.

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