2018 (3) TMI 308 - AT - Income Tax

Tribunal upholds CIT(A) decision granting deduction under Section 80P(2)(a)(i)

The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal and affirming the Assessee's entitlement to deduction under Section ... Deductions u/s.80P(2)(a)(i) - interest income earned on Fixed Deposits - Held that:- As decided in assessee's own case the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. - Decided against revenue Issues Involved:1. Whether the CIT(A) was justified in allowing deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 on interest income earned on Fixed Deposits.Issue-wise Detailed Analysis:1. Deduction u/s 80P(2)(a)(i) on Interest Income Earned on Fixed Deposits:The primary issue in this appeal by the Revenue is whether the CIT(A) was justified in allowing the deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, on the interest income earned by the Assessee from Fixed Deposits. The Assessee, a Co-operative Society of the employees of Central Bank of India, provides loans to its members and earns interest from them. Additionally, the Assessee had made investments in Fixed Deposits with Banks and other co-operative societies, earning interest income thereon. The Assessee claimed a deduction under Section 80P(2)(a)(i) of the Act for the interest received.2. AO's View and Reference to Supreme Court Decision:The Assessing Officer (AO) referred to the Supreme Court decision in Totgar’s Co-operative Sale Society Ltd vs ITO 322 ITR 283 (SC), which held that interest earned on deposits should be regarded as income under the head ‘Income from other sources’. Consequently, the AO denied the deduction under Section 80P(2)(a)(i), asserting that the interest income was not derived from the business of providing credit facilities to its members.3. CIT(A)'s Decision:The CIT(A) disagreed with the AO and held that the interest income should be assessed under the head 'income from business'. Therefore, the Assessee was entitled to the deduction under Section 80P(2)(a)(i) of the Act on the interest income. The CIT(A) followed his own order in the Assessee’s case for AY 2012-13, where a similar claim was allowed.4. Tribunal's Consideration and Previous Decisions:The Tribunal noted that it had previously adjudicated an identical issue in the Assessee’s own case for AYs 2009-10 to 2012-13. The Tribunal had held that the interest income should be regarded as income from the business of banking and is entitled to deduction under Section 80P(2)(a)(i). This view was supported by several decisions, including those of the Hon’ble Calcutta High Court and the Hon’ble Karnataka High Court, which distinguished the facts of the Totgar’s Co-operative Sale Society Ltd case.5. Jurisdictional High Court and Consistency Principle:The Tribunal emphasized the principle of consistency, as reiterated by the Hon’ble Apex Court in CIT vs Excel Industries 358 ITR 295, stating that when an issue has been decided by the Jurisdictional High Court, a different view should not be taken without convincing reasons. The Tribunal found that the decision of the Hon’ble Calcutta High Court in the Assessee’s own case was binding and supported the Assessee’s claim for deduction.6. Distinguishing Totgar’s Case:The Tribunal distinguished the Totgar’s case by noting that in Totgar’s, the interest was earned on funds retained from members, which were a liability. In contrast, the Assessee’s interest income was from surplus funds not immediately required for its business, thus qualifying for deduction under Section 80P(2)(a)(i).Conclusion:The Tribunal upheld the order of the CIT(A) and dismissed the appeal by the Revenue, affirming that the Assessee is entitled to the deduction under Section 80P(2)(a)(i) of the Act on the interest income earned from Fixed Deposits.Final Order:The appeal by the Revenue was dismissed, and the decision was pronounced in the Court on 01.03.2018.