2018 (1) TMI 1524 - AT - Income Tax

Deduction granted for interest income from cooperative societies/banks under Section 80P(2)

The Tribunal concluded that the assessee-society was entitled to deduction under Section 80P(2)(a)(i) read with Section 80P(2)(d) for interest income ... Benefit of Section 80P(2) on the interest earned on the deposits made by it to other cooperative banks and societies - business income or income from other sources - HELD THAT:- Reasoning given by the Hon’ble jurisdictional High Court in the matter of Tumkur Merchants [2015 (2) TMI 995 - KARNATAKA HIGH COURT] are clearly applicable to the facts and circumstances of the case. In our view therefore the assessee is entitled to deduction u/s.80P(2)(a)(i) r.w.s. 80P(2)(d) of the Act. In view of the above, appeal of the assessee is allowed. Issues Involved:1. Whether the assessee-society is entitled to the benefit of Section 80P(2) on the interest earned on deposits made with other cooperative banks and societies, treated as business income or income from other sources.Issue-wise Detailed Analysis:1. Entitlement to Section 80P(2) Benefits:The core issue revolves around whether the interest income earned by the assessee-society from deposits made with other cooperative banks and societies qualifies for deduction under Section 80P(2) as business income or should be treated as income from other sources.Reopening of Assessment:The AO reopened the assessment for AY 2011-12, arguing that the assessee, a cooperative society, was not entitled to the benefits of Section 80P(2) because it was carrying on banking activities. The AO held that the income from deposits should be treated as income from other sources, thereby disallowing the deduction under Section 80P(2)(a)(i).CIT (A) Decision:The CIT (A) partially allowed the assessee's appeal, holding that the society was eligible for benefits under Section 80P(2)(a) and deleted the addition of Rs. 5,65,666/-. However, the CIT (A) disallowed the claim for deduction of Rs. 6,72,804/- for interest earned on investments, relying on the Supreme Court decision in Totgars Cooperative Sale Society Ltd v. ITO and a recent High Court judgment.Assessee's Argument:The assessee argued that its primary objective was to provide credit facilities to its members, and the interest income from deposits with other cooperative societies/banks should be considered as business income eligible for deduction under Section 80P(2)(a) and 80P(2)(d). The assessee relied on the Karnataka High Court's decision in ITO v. Tumkur Merchants Souharda Credit Cooperative Ltd, distinguishing its facts from the Totgars case.Revenue's Argument:The Revenue contended that the CIT (A) was correct in disallowing the deduction based on the Totgars Cooperative Sale Society judgment, which held that interest income from investments does not qualify for deduction under Section 80P(2)(a)(i) or 80P(2)(a)(iii).Tribunal's Analysis:The Tribunal noted that the facts of the present case differed from the Totgars case. The assessee's activities were confined to providing credit facilities and accepting deposits from its members, unlike Totgars, which also engaged in marketing agricultural produce. The Tribunal emphasized that the interest income earned from deposits in cooperative societies/banks was attributable to the business of providing credit facilities to its members.Judgment:The Tribunal concluded that the assessee was entitled to deduction under Section 80P(2)(a)(i) read with Section 80P(2)(d) for the interest income earned from deposits in cooperative societies/banks. The appeal for AY 2011-12 was allowed.Similar Case for AY 2012-13:The Tribunal applied the same reasoning to the appeal for AY 2012-13, allowing the assessee's appeal for that year as well.Conclusion:Both appeals of the assessee were allowed, granting the benefit of Section 80P(2) for the interest income earned from deposits with other cooperative banks and societies.Order Pronounced:The order was pronounced in the open court on 31st January 2018.