2014 (4) TMI 1234 - AT - Income Tax

Cooperative Society's Interest Income Exempt Under Section 80P(2)(a)(i)

The Tribunal upheld the Commissioner of Income Tax (Appeals)' decision, allowing exemption under Section 80P(2)(a)(i) for a cooperative society's interest ... Exemption u/s 80P(2)(a)(i) on interest income as earned on the fixed deposits fro banks - income declared by the assessee was directly attributable to investments made with non-members, namely, banks - assessee before us is a Co-operative Society registered under the Maharashtra Co-operative Societies Act, 1960 - Held that:- As decided in ITO WARD-1(4), NASHIK VERSUS NIPHAD NAGARI SAHAKARI PATSANSTHA LTD. [2015 (1) TMI 1004 - ITAT PUNE] the society is a credit cooperative society authorised by the registrar of cooperative societies for accepting deposits and lending money to its members as per license granted by the registrar of cooperative societies and the main object of the society is to provide credit facility to members who can be any person of the society. A credit society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s.80P(2)(a)(i). - Decided in favour of assessee. Issues Involved:1. Eligibility for exemption under Section 80P(2)(a)(i) of the Income-tax Act, 1961, for interest income earned by a cooperative society from fixed deposits with non-member banks.Detailed Analysis:Issue 1: Eligibility for Exemption under Section 80P(2)(a)(i) of the Income-tax Act, 1961The primary issue in this appeal is whether the interest income of Rs. 75,36,432/- earned by a cooperative society from fixed deposits with State Bank of India and Bank of Maharashtra is eligible for exemption under Section 80P(2)(a)(i) of the Income-tax Act, 1961.Background:The assessee, a cooperative society registered under the Maharashtra Co-operative Societies Act, 1960, engaged in providing credit facilities to its members, claimed exemption under Section 80P(2)(a)(i) of the Act for the interest income earned from fixed deposits. The Assessing Officer (AO) denied this exemption, arguing that the income was attributable to investments made with non-members (banks) and not to the activity of providing credit facilities to the members. The AO relied on the Supreme Court judgment in Totgar's Co-operative Sale Society Ltd. vs. ITO (2010) to support his decision.CIT(A) Decision:The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed with the AO and allowed the exemption, reasoning that the interest income was attributable to the assessee's business of providing credit facilities to its members.Tribunal's Analysis:The Tribunal noted that an identical issue had been previously resolved in favor of the assessee by the Pune Bench of the Tribunal in the case of ITO vs. Niphad Nagari Sahakari Patsanstha Ltd. The Tribunal in that case had considered the same Supreme Court judgment (Totgar's Co-operative Sale Society Ltd.) and concluded that the interest income from fixed deposits made to maintain liquidity was eligible for exemption under Section 80P(2)(a)(i).Key Points from Precedents:1. Niphad Nagari Sahakari Patsanstha Ltd. Case:- The Tribunal had held that the interest income from fixed deposits with banks was part of the business income of a cooperative society engaged in providing credit facilities to its members.- The decision distinguished the facts from the Totgar's case, where the surplus funds were from the sale proceeds of agricultural produce, not from the business of providing credit facilities.2. M/s. Jafari Momin Vikas Cooperative Credit Society Ltd. Case:- The Ahmedabad Bench of the Tribunal held that interest income from short-term deposits, which were not surplus funds but operational funds, was eligible for deduction under Section 80P(2)(a)(i).3. Muttom Service Cooperative Aplappuzha Bank Ltd. Case:- The Cochin Bench of the Tribunal concluded that interest income from investments made to maintain liquidity was part of the banking activity and eligible for exemption under Section 80P(2)(a)(i).Conclusion:The Tribunal, following the precedents and maintaining consistency, upheld the CIT(A)'s decision allowing the exemption under Section 80P(2)(a)(i) for the interest income of Rs. 75,36,432/-. The Tribunal dismissed the Revenue's appeal, affirming that the interest income was attributable to the cooperative society's business of providing credit facilities to its members.Final Decision:The appeal of the Revenue is dismissed. The Tribunal pronounced this decision in the open Court on 30th April 2014.