2018 (1) TMI 1432 - AT - Income Tax

Tribunal affirms Cooperative Society's right to claim tax deduction on interest income from bank deposits

The Tribunal upheld the CIT(A)'s decision, allowing the Cooperative Society to claim a deduction under section 80P(2)(a)(i) of the Income-tax Act for ... Entitlement to deduction u/s 80P(2)(a)(i) - income of the society on account of interest from banks other than Co-operative Banks - Held that:- The said issue is squarely covered by the order of the Tribunal in ITO Vs. Niphad Nagari Sahakari Patsanstha Ltd. [2015 (1) TMI 1004 - ITAT PUNE] wherein the Tribunal had held that the assessee is entitled to claim deduction under section 80P(2)(a)(i) of the Act on the interest income received by it on bank fixed deposits. As decided in Tumkur Merchants Souhards Credit Cooperative Ltd. Vs. ITO [2015 (2) TMI 995 - KARNATAKA HIGH COURT] interest earned from short term deposits with the bank was entitled to deduction under section 80P(2)(a)(i) of the Act - Decided in favour of assessee. Issues Involved:1. Entitlement to deduction under section 80P(2)(a)(i) of the Income-tax Act for interest income from banks other than Co-operative Banks.2. Compliance with criteria for availing benefit under section 80P(2)(d) of the Income-tax Act.Issue-Wise Detailed Analysis:1. Entitlement to Deduction under Section 80P(2)(a)(i) for Interest Income from Banks Other Than Co-operative Banks:The primary issue in the appeal is whether the assessee, a Cooperative Society, is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act on interest income earned from fixed deposits with Nationalized Banks. The Revenue contended that such interest income does not constitute operational income and thus should not be eligible for the deduction. The Assessing Officer had included the net interest income of Rs. 53,03,446/- under section 56 as 'income from other sources.'The CIT(A) allowed the claim based on precedents, notably the Tribunal's decision in ITO Vs. Niphad Nagari Sahakari Patsanstha Ltd., which held that interest income from bank deposits is eligible for deduction under section 80P(2)(a)(i). This view was supported by multiple orders of the Tribunal in the assessee’s own case for different assessment years (2009-10, 2010-11, and 2011-12), which referenced the Karnataka High Court's ruling in Tumkur Merchants Souhards Credit Cooperative Ltd. Vs. ITO. The Karnataka High Court had held that interest earned from short-term deposits with banks is attributable to the business of providing credit facilities to members and thus eligible for deduction under section 80P(2)(a)(i).The Tribunal also considered the contrary decision by the Delhi High Court in Mantola Co-operative Thrift & Credit Society Ltd., which held that such interest income should be treated as 'income from other sources.' However, following the principle that when two views are possible, the one favoring the assessee should be adopted, the Tribunal upheld the CIT(A)’s decision, allowing the deduction under section 80P(2)(a)(i).2. Compliance with Criteria for Availing Benefit under Section 80P(2)(d):The Revenue argued that for the assessee to avail the benefit under section 80P(2)(d), the interest income should be from another co-operative society. Since the interest income in question was from Nationalized Banks and not from co-operative banks, the Revenue contended that the assessee did not meet the criteria for this deduction.However, the Tribunal's consistent stance in previous cases, including the assessee's own, was that interest income from bank deposits is attributable to the business of providing credit facilities to members and hence qualifies for deduction under section 80P(2)(a)(i). This broader interpretation aligns with the legislative intent to support cooperative societies in their primary activities.Conclusion:The Tribunal dismissed the Revenue’s appeal, affirming the CIT(A)’s order that the assessee is entitled to deduction under section 80P(2)(a)(i) for interest income earned from fixed deposits with Nationalized Banks. The decision was based on consistent judicial precedents favoring the assessee, including the principle that in cases of conflicting judicial views, the interpretation favoring the taxpayer should prevail. The appeal of the Revenue was dismissed, and the order pronounced on January 25, 2018.