2017 (12) TMI 1838 - AT - Income Tax

Tribunal rules interest income from bank deposits not eligible for deduction

Vadodara Mahanagar Seva Sadan Employees Co. Operative Credit Society Ltd. Versus ITO, Ward – 3 (1) (3), Baroda

The Tribunal allowed the appeal filed by the assessee, holding that interest income from nationalized banks on fixed deposits was not eligible for ... Deduction u/s.80P of the Act on the interest income earned from nationalized banks - CIT (Appeals)-3 confirming the order of the AO holding that the amount of interest income earned on fixed deposits made with nationalized banks and co operative bank is not profits and gains attributable to the activity of providing credit facilities to members and hence not eligible for deduction under section 80P of the Act and thereby considering the amount of interest as income from other sources liable to be taxed under section 56 of the Act.- HELD THAT:- In this case, interest amount was received form Allahabad bank, Bank of Baroda and Baroda center Co-op. Bank respectively. From the details, it can be seen that the receipts of interest has been received from other than Co-operative organization i.e. from nationalized banks on FDRs, which is nothing but interest earned on surplus funds invested in bank deposits i.e. FDRs.. We direct the Assessing Officer to verify the assessee’s claims of pro rata expenses by examination the record to be shown for verification by the assessee and accordingly, netting of to be allowed. Appeal of assessee allowed. Issues involved:1. Eligibility of deduction under section 80P of the Act for interest income earned on fixed deposits with nationalized banks and co-operative bank.Analysis:1. The appeal was against the order of the Commissioner of Income Tax(Appeals) confirming the Assessing Officer's decision that interest income from fixed deposits with nationalized banks is not eligible for deduction under section 80P of the Act and should be taxed under section 56 of the Act as income from other sources.2. The Assessing Officer disallowed the deduction under section 80P based on the interest income earned from nationalized banks, stating that it was not related to providing credit facilities to members. The society argued that the funds invested in fixed deposits were from members and justified the claim of deduction under section 80P. However, the Tribunal found the explanation unconvincing, concluding that the interest earned on surplus funds invested in bank deposits cannot be considered as providing credit facilities to members.3. The Tribunal reviewed the relevant record and upheld that interest received from nationalized banks on fixed deposits was not eligible for deduction under section 80P as it was not directly related to the business of providing credit facilities to members.4. Referring to a previous order in a similar case, the Tribunal directed the Assessing Officer to verify the pro rata expenses claimed by the assessee for earning interest income and allowed the appeal partly for statistical purposes.5. Following the previous order, the Tribunal directed the Assessing Officer to verify the assessee's claims of pro rata expenses and allowed the netting of expenses accordingly.6. Consequently, the appeal filed by the assessee was allowed by the Tribunal on the basis that the interest income from nationalized banks on fixed deposits was not eligible for deduction under section 80P of the Act.This detailed analysis covers the issues involved in the legal judgment comprehensively, highlighting the key arguments and decisions made by the Tribunal regarding the eligibility of deduction under section 80P of the Act for interest income earned on fixed deposits with nationalized banks.