2019 (6) TMI 1703 - AT - Income Tax

Tribunal allows appeals, grants deduction for interest income from bank deposits under Income Tax Act

The Tribunal allowed the appeals, directing the deletion of the disallowance made by the Assessing Officer for the assessment years 2012-13 to 2014-15. It ... Disallowing deduction claimed u/s 80P/80P(2)(d) - interest income on FDR(s) with Kota Nagrik Sehkari Bank Ltd. and others - HELD THAT:- As interest earned on the deposits of the assessee’s own fund made in the banks is eligible for deduction u/s 80P(2)(a) being the said income is attributable to the business activity of the assessee. Though there are divergent views on this issue, however, by following the decision of Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd [2016 (9) TMI 1385 - RAJASTHAN HIGH COURT] as well as the decision of Totagars Cooperative Sale Society [2010 (2) TMI 3 - SUPREME COURT] we decide this issue in favour of the assessee and allow the deduction under section 80P/80P(2)(d) in respect of interest earned on deposits made with the banks/cooperative banks - Decided in favour of assessee. Issues Involved:1. Disallowance of deduction under section 80P/80P(2)(d) of the Income Tax Act, 1961 on interest income from Fixed Deposits (FDRs) with Kota Nagrik Sahakari Bank Ltd. and other banks.Issue-wise Detailed Analysis:1. Disallowance of Deduction under Section 80P/80P(2)(d):The primary issue in the appeals was the disallowance of the deduction claimed by the assessee under section 80P/80P(2)(d) of the Income Tax Act, 1961, on interest income from Fixed Deposits (FDRs) with Kota Nagrik Sahakari Bank Ltd. and other scheduled banks.Background:The assessee, a cooperative society formed for the benefit of employees of the Rajasthan State Government Education Department, claimed deductions on interest income from its investments in cooperative and scheduled banks. The Assessing Officer (AO) disallowed this claim, treating the interest income as 'Income from other sources' rather than 'business income,' thereby denying the deduction under section 80P(2)(d).Arguments by Assessee:The assessee argued that the interest earned from investments in cooperative banks and scheduled banks should be eligible for deduction under section 80P(2)(a) and 80P(2)(d). They contended that these investments were made from the society's own surplus funds, not from external sources, and relied on various judicial precedents, including decisions from the Hon'ble Supreme Court and High Courts, to support their claim.Arguments by Revenue:The Revenue countered that the AO and CIT (A) correctly applied the provisions of section 80P(4) and relied on the Supreme Court's decisions in CIT vs. Karnataka State Co-operative Apex Bank Ltd. and Totagar’s Co-operative Sale Society Ltd. vs. ITO. They argued that interest income from FDRs should be treated as 'Income from other sources' and not eligible for deduction under section 80P(2)(d) unless it was earned from deposits in other cooperative societies.Tribunal's Findings:The Tribunal examined the relevant material and submissions from both parties. It noted that the assessee's main activity was to accept deposits from members and provide credit, necessitating prudent fund management, including depositing surplus funds in banks. The Tribunal found that the interest income was from the assessee's own funds, not external liabilities.Key Judicial Precedents Considered:1. CIT vs. Rajasthan Rajya Sahakari Kray Vikray Sangh Ltd.: The Tribunal followed the jurisdictional High Court's decision, which allowed deduction under section 80P(2)(d) for interest income from investments in cooperative banks.2. Vavveru Co-operative Rural Bank Ltd. vs. Chief CIT: The Telangana & Andhra Pradesh High Court held that interest income from investments in nationalized banks by cooperative societies is eligible for deduction under section 80P(2)(a).3. Totagar’s Co-operative Sale Society Ltd. vs. ITO: The Supreme Court decision was distinguished, as it dealt with interest income from surplus funds not immediately required in business.Conclusion:The Tribunal concluded that the interest income from deposits in cooperative banks and scheduled banks was eligible for deduction under section 80P/80P(2)(d) of the Act. It emphasized that the cooperative banks are considered cooperative societies for the purpose of section 80P(2)(d), and the interest income derived from such investments qualifies for the deduction.Order:The Tribunal allowed the appeals of the assessee, directing the deletion of the disallowance made by the AO for all the three assessment years in question (2012-13 to 2014-15).Pronouncement:The order was pronounced in the open court on 17/06/2019.