2016 (9) TMI 249 - AT - Income Tax

Tribunal grants deduction under Section 80P for interest income, based on precedents.

State Bank of India Employees Co-op. Credit and Supply Society Limited Versus Income Tax Officer, Ward 3 (4), Ahmedabad

The Tribunal allowed the appeals, condoning the delay in filing and directing the Assessing Officer to grant the deduction under Section 80P(2)(a)(i) for ... Deduction under section 80P(2)(a)(i) in respect of interest earnings from the State Bank of India granted Issues Involved:1. Condonation of delay in filing the appeals.2. Eligibility for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, for interest income from fixed deposits with the State Bank of India (SBI).Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeals:The appeals were filed ten days late. The appellant submitted a consolidation petition explaining the delay, attributing it to the unavailability of the authorized signatory, who was out of station for a meeting. The appellant argued that the delay was neither intentional nor deliberate and requested the Tribunal to condone the delay in the interest of justice. After reviewing the petition and hearing both parties, the Tribunal accepted the explanation, finding the delay due to bona fide reasons beyond the control of the assessee. Consequently, the delay was condoned, and the appeals were taken up for adjudication.2. Eligibility for Deduction under Section 80P(2)(a)(i):The core issue was whether the interest income earned by the assessee, a Co-operative Society, from fixed deposits with SBI was eligible for deduction under Section 80P(2)(a)(i). The Assessing Officer had disallowed the deduction, arguing that SBI was not a member of the Society, and the interest income was from surplus funds, not operational funds. The CIT(A) upheld this view, relying on the Supreme Court's judgment in Totgars’ Co-operative Sale Society Ltd., which held that interest on surplus funds should be taxed as 'Income from Other Sources.'The assessee contended that the funds deposited with SBI were operational and used to meet obligations without premature withdrawal of fixed deposits. The assessee cited various case laws, including the Karnataka High Court's judgment in Tumkur Merchants Souharda Credit Cooperative Ltd., which distinguished the Totgars case and held that interest income from operational funds deposited in banks was attributable to the business of providing credit facilities to members and eligible for deduction under Section 80P.The Tribunal found that the issue was squarely covered in favor of the assessee by the division bench order in the case of State Bank of India Supervising Official’s Co-operative Credit Society Limited vs. ITO. The Tribunal noted that the Karnataka High Court and Andhra Pradesh High Court had both ruled in favor of allowing such deductions, distinguishing the Totgars case based on the nature of the funds (operational vs. surplus).Respecting the binding precedent set by the division bench and the High Court judgments, the Tribunal upheld the assessee's grievance and directed the Assessing Officer to grant the deduction under Section 80P(2)(a)(i) for the interest earnings from SBI. The Tribunal decided the appeals on this core issue, rendering it unnecessary to address other issues raised in the appeals.Conclusion:The Tribunal allowed the appeals, condoning the delay and directing the Assessing Officer to grant the deduction under Section 80P(2)(a)(i) for interest income from fixed deposits with SBI, following the binding precedents and distinguishing the Totgars case. The decision was pronounced in open court on July 28, 2016.