2019 (10) TMI 1494 - AT - Income Tax

Tribunal disallows interest income on staff advances and savings accounts under Section 80P

M/s. The Govt. Telecommunication Employees Co-operative Society Ltd. Versus The Asst. Commissioner of Income Tax, Non-Corporate Circle-12 (1), Chennai.

The Tribunal upheld the disallowance of interest income on staff advances and interest earned on fixed deposits and savings bank accounts under Section ... Deduction u/s 80P - AO disallowed the interest income earned on staff advance and the interest earned on fixed deposit and Savings Bank Account - HELD THAT:- Tribunal dismissed the assessee’s case for AY 2014-15[2018 (1) TMI 1670 - ITAT CHENNAI] - Since, this Tribunal in the assessee’s own case relying on the decision of Hon'ble Supreme Court rendered [1998 (5) TMI 6 - SUPREME COURT] including the case law relied on by the assessee and since, there is no change in the fact and law, following the judicial discipline, we follow the above order and dismiss the assessee’s appeal. Issues Involved:1. Disallowance of interest income earned on staff advances under Section 80P of the Income Tax Act.2. Disallowance of interest earned on fixed deposits and savings bank accounts under Section 80P of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance of Interest Income Earned on Staff Advances:The assessee, a Multi State Co-operative Society, argued that the interest income of Rs. 1,01,03,351/- earned on staff advances should be eligible for deduction under Section 80P of the Income Tax Act as these advances form an integral part of its business operations. The Tribunal noted that the assessee was a Co-operative Society registered under the Multi-State Cooperative Society’s Act, 2002, and had earned interest from loans given to its members and staff. The assessee contended that such advances were given as a matter of commercial expediency and should be considered as part of its main business activity of providing credit facilities to its members. However, the Departmental Representative argued that the staff were not members of the society and cited the judgment of the Apex Court in the case of the Citizen Co-operative Society Ltd vs. CIT, which held that interest received from loans given to associate members is not eligible for deduction under Section 80P(2)(a)(i) of the Act. The Tribunal, relying on this judgment, concluded that if interest earned from credits provided to associate members is not eligible for deduction, it would not be possible to extend such benefit to interest earned on advances given to staff. Therefore, the Tribunal upheld the disallowance of the interest income on staff advances.2. Disallowance of Interest Earned on Fixed Deposits and Savings Bank Accounts:The assessee also argued that the interest earned on fixed deposits and savings bank accounts amounting to Rs. 3,59,28,438/- should be eligible for deduction under Section 80P of the Income Tax Act. The assessee claimed that these deposits were made from temporary surplus funds and were incidental to the main object of providing credit facilities to its members. The Departmental Representative countered that the interest received from savings bank accounts could not be considered as profits attributable to the business of providing credit facilities to the members and that such interest was independent of the assessee’s primary activity. The Tribunal noted that the interest was earned from savings bank accounts, which are not generally used for regular business activities, and the assessee failed to demonstrate that the deposits were temporary surpluses meant for lending. The Tribunal also referred to the decision of the Bangalore Bench of the Tribunal in the case of M/s. KPTC & HESCOM Employees Co-Op Credit Society Ltd, where the money deposited was surplus due to the absence of takers for loans. However, in this case, the assessee did not provide sufficient evidence to show that the deposits were temporary surpluses. Consequently, the Tribunal upheld the disallowance of the interest earned on fixed deposits and savings bank accounts.Conclusion:The Tribunal dismissed the appeal filed by the assessee, affirming the disallowance of interest income on staff advances and interest earned on fixed deposits and savings bank accounts under Section 80P of the Income Tax Act. The decision was based on the principles laid down by the Apex Court in the case of the Citizen Co-operative Society Ltd vs. CIT and the lack of evidence provided by the assessee to substantiate its claims.