2016 (2) TMI 298 - AT - Income Tax

Co-op Society Wins Deduction for Interest Income: Section 80P(2)(a)(i) Ruling

The Tribunal allowed the appeal for A.Y. 2012-13, granting the deduction under Section 80P(2)(a)(i) for interest income earned by a Co-operative Society ... Deduction u/s.80P(2)(a)(i) - Held that:- Issue in dispute is purely covered in favour of the assessee partly by the decision of Hon’ble Karnataka High Court in the case of Guttigedarara Credit Co-operative Society Ltd. vs. ITO [2015 (7) TMI 874 - KARNATAKA HIGH COURT] wherein it has been specifically held that interest income earned by the Credit Co-operative Society from deposits made with scheduled bank would also qualify for grant of deduction u/s.80P(2)(a)(i) of the Income Tax Act. Therefore, we allow the appeal of the assessee and direct the Assessing Officer to grant deduction u/s.80P(2)(a)(i) of the Income Tax Act and the interest income. Issues Involved:1. Denial of deduction under Section 80P(2)(a)(i) of the Income Tax Act for interest income earned from fixed deposits with banks for A.Y. 2012-13.2. Similar denial of deduction under Section 80P(2)(a)(i) for interest income for A.Y. 2010-11.Issue-wise Detailed Analysis:1. Denial of Deduction under Section 80P(2)(a)(i) for A.Y. 2012-13:The primary issue in ITA No.2401/Ahd/2015 for A.Y. 2012-13 was whether the assessee, a Co-operative Society registered under the Gujarat Co-operative Society Act, 1961, was entitled to a deduction under Section 80P(2)(a)(i) of the Income Tax Act on interest income of Rs. 3,77,515 earned from fixed deposits with banks. The Assessing Officer (A.O.) denied this deduction, determining the taxable income at Rs. 3,77,520.The assessee contended that this issue was covered by the ITAT Ahmedabad's decision in the case of ITO vs. Jafari Momin Vikas Co-op. Credit Society Ltd., which was upheld by the Hon'ble Gujarat High Court. The High Court had clarified that Section 80P(4) does not apply to entities that are not co-operative banks but are credit co-operative societies. This was further supported by a CBDT Circular No. 133 of 2007, which clarified that sub-section (4) of Section 80P does not apply to co-operative societies that are not co-operative banks.The Tribunal also referred to the Hon'ble Karnataka High Court's decision in the case of Guttigedarara Credit Co-operative Society Ltd. vs. ITO, which held that interest income earned from short-term deposits by a credit co-operative society is attributable to the business of providing credit facilities to its members and thus qualifies for deduction under Section 80P(2)(a)(i). The Karnataka High Court emphasized that the term 'attributable to' is broader than 'derived from,' thus covering interest income from deposits as part of the business profits of providing credit facilities.Based on these precedents, the Tribunal allowed the appeal for A.Y. 2012-13, directing the A.O. to grant the deduction under Section 80P(2)(a)(i) for the interest income of Rs. 3,77,517.2. Denial of Deduction under Section 80P(2)(a)(i) for A.Y. 2010-11:In ITA No.2400/Ahd/2015 for A.Y. 2010-11, the issue was similar, involving the denial of deduction under Section 80P(2)(a)(i) for interest income of Rs. 56,359 earned by the assessee. The A.O. had determined the taxable income at Rs. 14,02,150, holding that the assessee was not entitled to the deduction due to the provisions of sub-section (4) of Section 80P.The CIT(A) had upheld this view, directing the A.O. to assess the interest income from short-term deposits and government securities as 'income from other sources' and disallow the deduction under Section 80P(2)(a)(i). The A.O., while giving effect to this order, denied the deduction for the interest income of Rs. 56,359.The Tribunal noted that the assessee did not challenge the CIT(A)'s order dated 25th February 2014, which had become final. The A.O. was merely executing the directions of the CIT(A) and had no jurisdiction to deviate from them. Therefore, the Tribunal dismissed the appeal for A.Y. 2010-11, stating that the assessee could not challenge the final order of the CIT(A) under the guise of rectification.Conclusion:The Tribunal allowed the appeal for A.Y. 2012-13, granting the deduction under Section 80P(2)(a)(i) for the interest income, while dismissing the appeal for A.Y. 2010-11 due to procedural finality of the CIT(A)'s order. This judgment underscores the importance of timely challenging appellate orders and clarifies the applicability of Section 80P(2)(a)(i) deductions for co-operative societies' interest income from bank deposits.