Tribunal grants exemption for credit society's interest income under section 80P(2)(a)(i)

The Tribunal allowed the appeal of the credit co-operative society, directing the Assessing Officer to grant exemption under section 80P(2)(a)(i) for interest income earned on fixed deposits with nationalized banks. The decision was based on previous Tribunal rulings and the interpretation that such interest income is attributable to the business of providing credit facilities to members.

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Issues Involved:
1. Denial of exemption under section 80P on the amount of Rs. 5,41,604/- as interest from a scheduled bank.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 80P:
The primary issue in this case is whether the interest income earned by the assessee, a credit co-operative society, from fixed deposits with a scheduled bank qualifies for exemption under section 80P(2)(a)(i) of the Income Tax Act. The assessee argued that the issue was already covered in their favor by previous Tribunal decisions, specifically citing the case of Dhanlaxmi Credit Co-op. Society Ltd. vs. ITO. The Tribunal had previously granted exemption under section 80P(2)(a)(i) for interest income earned from fixed deposits with scheduled banks.

The assessee also referenced the decision of the Hon'ble Karnataka High Court in the case of Guttigedarara Credit Co-op. Society Ltd. vs. ITO, where the court allowed the exemption under section 80P for interest income earned from deposits made in nationalized banks. The court held that the interest income was attributable to the credit facilities provided by the society and formed part of the profits and gains of the business.

The Revenue, on the other hand, relied on the orders of the Revenue authorities, arguing against the exemption.

Tribunal's Analysis and Decision:
The Tribunal noted the discussion by the Hon'ble Karnataka High Court, emphasizing the interpretation of the term "attributable to" in section 80P(2)(a)(i). The court highlighted that "attributable to" is broader than "derived from," indicating that interest income from deposits made with banks, which is not immediately required for lending to members, is still attributable to the business of providing credit facilities to members.

The Tribunal further cited the case of Tumkur Merchants Souharda Credit Co-op. Ltd., where it was held that interest income from bank deposits, which were not immediately required for lending to members, is attributable to the business of providing credit facilities and thus eligible for deduction under section 80P(2)(a)(i).

The Tribunal also referenced its own decision in the case of Dhanlaxmi Credit Co-op. Society Ltd. for the Asstt.Year 2008-09, where it was held that maintaining liquid funds in the form of short-term deposits with banks to meet any eventuality is part of the business of providing credit facilities, and the interest income from such deposits qualifies for exemption under section 80P(2)(a)(i).

Conclusion:
The Tribunal consistently held that the interest income earned by a credit co-operative society on fixed deposits with nationalized banks qualifies for exemption under section 80P(2)(a)(i). Accordingly, the Tribunal allowed the appeal of the assessee and directed the AO to grant the exemption.

Final Order:
The appeal of the assessee was allowed, and the AO was directed to grant the exemption under section 80P(2)(a)(i). The order was pronounced in the Court on 13th January 2016 at Ahmedabad.

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