2020 (3) TMI 1279 - AT - Income Tax

Tribunal dismisses stay petitions, directs AO on interest income deduction exclusion under Income Tax Act

The Tribunal dismissed the stay petitions for outstanding demands in the Asstt. Year 2013-14 and 2014-15, opting to dispose of the appeals on merit. The ... Grant of deduction u/s 80P(2)(a)(i) - interest income earned from the investments - HELD THAT:- In the present case, the assessee has earned income from the investment made with nationalized banks. Therefore, such income will not qualify for grant of deduction under section 80P(2)(a)(i) as well as under section 80P(2)(d) because it is not from cooperative society. If the component of income does not qualify for grant of deduction under section 80P(2)(a)(i), then such income should be computed on net basis; any expenditure relatable to earning of such income is to be allowed before calculating exclusion of such amount for the purpose of 80P(2)(a)(i) - Since interest income earned by the assessee was treated to be 'income from other sources' under section 56, then, the assessee can claim deduction under section 57 - we direct the AO to allow expenditure for earning such interest income. AO has to determine the net interest income earned by the assessee after giving set off expenditure, and only thereafter that net income has to be excluded from the admissibility of deduction under section 80P(2) of the Act. Grounds of appeals of the assessee are partly allowed for the statistical purpose. Issues:1. Stay petitions for outstanding demand in Asstt. Year 2013-14 and 2014-15.2. Exclusion of interest income earned from nationalized banks under section 56 of the Income Tax Act.3. Quantification of expenditure attributable to earning interest income under section 80P(2) of the Act.4. Applicability of recent judgment in the case of State Bank of India Employees Co-op Credit Society.5. Allowance of expenditure for earning interest income and computation of net interest income.Analysis:1. The Tribunal considered stay petitions for outstanding demands in the Asstt. Year 2013-14 and 2014-15 but decided to dispose of the appeals on merit instead, as agreed upon by both parties. Consequently, the stay petitions were deemed redundant and dismissed accordingly.2. The issue revolved around the exclusion of interest income earned from nationalized banks under section 56 of the Income Tax Act. The appellant contended that the expenditure related to earning such interest income should be set off against the income before excluding it from the deduction under section 80P(2) of the Act. The AO had disallowed a significant portion of interest income, which was partly confirmed by the ld. CIT(A) at a rate of 5% for each assessment year.3. The Tribunal examined the records and noted the appellant's arguments regarding the quantification of the 5% expenditure allowed by the ld. CIT(A). It was observed that the appellant failed to demonstrate direct expenditure related to earning the interest income, leading to a pro-rata expenditure claim. The Tribunal directed the AO to allow expenditure for earning the interest income, compute the net interest income after set-off, and exclude that net income from the deduction under section 80P(2) of the Act.4. The Tribunal considered the recent judgment of the Hon'ble Gujarat High Court in the case of State Bank of India Employees Co-op Credit Society. The judgment clarified that income from investments made with nationalized banks does not qualify for deduction under section 80P(2)(a)(i) or 80P(2)(d) as it is not from a cooperative society. However, the Tribunal acknowledged the appellant's argument that expenditure should be allowed for interest income earned from investments.5. In conclusion, the Tribunal partially allowed the appellant's appeals for statistical purposes, directing the AO to determine the net interest income after considering the expenditure related to earning such income before excluding it from the deduction under section 80P(2) of the Act. The stay petitions were dismissed as redundant, and the appeals were partly allowed.