Interest income from fixed deposits with banks can be treated as business income under section 80P(2)(a)(i)

The Tribunal upheld the CIT(A)'s decision to allow the claim of the assessee under section 80P(2)(a)(i) for interest income earned on fixed deposits with Nationalized Banks/Scheduled Banks, treating it as business income. The Revenue's appeal was dismissed, emphasizing the taxability of interest income from fixed deposits with banks other than cooperative banks/societies under the Income Tax Act.

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Issues:
Taxability of interest income earned from Fixed Deposits with banks other than Cooperative Banks/Societies under section 80P of the Income Tax Act.

Analysis:
The appeal was filed by the Revenue against the order of CIT(A)-1, Kolhapur, regarding the Assessment Year 2013-14. The core issue revolved around the taxability of interest income earned from Fixed Deposits with banks other than Cooperative Banks/Societies under section 80P of the Income Tax Act. Despite the absence of representation from the assessee, the Ld. DR for the Revenue presented the case, emphasizing the taxability of the interest income in question. The grounds raised by the Revenue questioned the eligibility of the assessee for deduction under section 80P(2)(a)(i) of the Act, specifically in relation to interest income on bank deposits with banks other than cooperative banks/societies.

The AO had assessed the total income of the assessee at Rs.66,88,243/-, disallowing the claim of deduction under section 80P(2)(a)(i) of the Act. However, in the First Appellate Proceedings, CIT(A) allowed the claim of the assessee based on previous Tribunal decisions. The Revenue, dissatisfied with this decision, brought the appeal before the Tribunal. The Ld. DR for the Revenue argued that CIT(A) had overlooked the provisions of section 80P(2)(d) of the Act and relied on the decision of the Hon'ble Apex Court in Totgars Co-op Sale Society Ltd Vs. ITO.

After considering the arguments and reviewing the orders and material on record, the Tribunal found that the issue centered on the taxation of interest income from fixed deposits with banks other than cooperative banks/societies. CIT(A) had granted relief to the assessee based on previous Tribunal decisions and the judgment of the Hon'ble Supreme Court in CIT Vs. Vegetable Products. The Tribunal upheld the order of CIT(A) and directed the AO to allow the claim of the assessee under section 80P(2)(a)(i) for the interest income earned on fixed deposits kept with Nationalized Banks/Scheduled Banks, treating it as business income of the assessee. Consequently, the appeal of the Revenue was dismissed, and the decision was pronounced on September 19, 2018.

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