2016 (7) TMI 739 - AT - Income Tax

Interest income of credit cooperative society on fixed deposits qualifies for tax exemption under Section 80P(2)

The Tribunal upheld the CIT(A)'s decision that interest income earned by a credit cooperative society on fixed deposits with commercial banks qualifies ... Entitlement for exemption under section 80P(2)(a)(i) - Held that:- The assessee is a cooperative society. It has earned interest of ₹ 55,42,074/- in addition to the interest earned on loans and advances made to its members. The alleged interest was earned on fixed deposits with commercial banks and others. The ld.AO denied the benefit under section 80P(2)(a)(i) of this interest income. In view of the decision of the Co-ordinate Bench in the Asstt.Year 2009-10, the assessee is entitled for exemption under section 80P(2)(a)(i) of the Income Tax on this income also. The ld.CIT(A) has rightly granted the deduction, and no interference in the order of the ld.CIT(A) on this issue is called for, and the appeal of the Revenue is dismissed. - Decided in favour of assesssee Issues Involved:1. Taxability of interest received from short-term deposits with banks.2. Eligibility for deduction under Section 80P of the Income Tax Act.Detailed Analysis:1. Taxability of Interest Received from Short-Term Deposits with Banks:The primary issue in the appeal was whether the interest income earned from short-term deposits with banks should be taxed as 'profit and gains of business' eligible for deduction under Section 80P, or as 'income from other sources' not eligible for such deduction. The Revenue argued that the learned CIT(A) erred in directing to tax such interest as 'profit and gains of business' eligible for deduction under Section 80P, citing the Supreme Court decision in the case of Totgars Cooperative Sale Society Ltd., which held that interest earned on surplus funds invested in short-term deposits is not eligible for deduction under Section 80P(2)(a)(i).2. Eligibility for Deduction under Section 80P of the Income Tax Act:The Tribunal considered the argument that the issue was already covered in favor of the assessee by the Tribunal's order dated 14.3.2016 in the assessee's own case for the Asstt.Year 2009-10. The Tribunal had earlier held that the interest income earned by a credit co-operative society on fixed deposits with commercial banks qualifies for exemption under Section 80P(2) of the Income Tax Act.The Tribunal referenced several judgments, including:- Guttigedarara Credit Co-op. Society Ltd.: The Karnataka High Court held that interest income from deposits made out of amounts used for providing credit facilities to members is attributable to the business of providing credit facilities and thus eligible for deduction under Section 80P.- Tumkur Merchants Souharda Credit Co-op. Ltd.: The Karnataka High Court ruled that interest income from deposits not immediately required for lending to members is attributable to the business of providing credit facilities and eligible for deduction under Section 80P.- Dhanlaxmi Credit Co-op. Society Ltd.: The Tribunal held that interest income from deposits made to maintain liquidity and meet eventualities qualifies for deduction under Section 80P(2)(a)(i).The Tribunal found no disparity in facts between the current case and the previous cases cited. It was established that the assessee, a cooperative society, earned interest on fixed deposits with commercial banks, which was eligible for deduction under Section 80P(2)(a)(i). The Tribunal upheld the CIT(A)'s decision to grant the deduction and dismissed the Revenue's appeal.Conclusion:The Tribunal consistently held that interest income earned by a credit cooperative society on fixed deposits with nationalized banks qualifies for exemption under Section 80P(2) of the Income Tax Act. The appeal of the Revenue was dismissed, and the CIT(A)'s order granting the deduction was upheld.