2018 (4) TMI 505 - AT - Income Tax

Tribunal affirms deduction for interest income from Co-op Banks under IT Act; alternative claim not addressed

The Income Tax Officer, Ward 5, Panvel Versus Keshavsmurti Nagari Sahakari Patpedhi Ltd. And Vice-Versa

The Income Tax Officer, Ward 5, Panvel Versus Keshavsmurti Nagari Sahakari Patpedhi Ltd. And Vice-Versa - TMI Issues Involved:1. Deduction under section 80P(2)(a) of the Income-tax Act, 1961 on interest income earned from investments with other Co-operative Banks.2. Applicability of the Supreme Court's decision in Totgar's Co-operative Sale Society Ltd. Vs. ITO.3. Alternative claim for deduction under section 80P(2)(d) of the Act.4. Taxation of net interest income after reducing proportionate expenditure.Issue-Wise Analysis:1. Deduction under section 80P(2)(a) of the Income-tax Act, 1961:The primary issue raised by the Revenue was the CIT(A)'s decision to allow deduction under section 80P(2)(a) for interest income earned by the assessee from investments with other Co-operative Banks. The Revenue argued that this interest income did not qualify as business income from banking or providing credit facilities to its members. The CIT(A) held that the interest income was eligible for deduction under section 80P(2)(a) because the investments were mandated by the Maharashtra Co-operative Societies Act, making the income part of the business activity. The Tribunal upheld this view, distinguishing the case from Totgar's Co-operative Sale Society Ltd. Vs. ITO, where the surplus funds were not required for business purposes.2. Applicability of Totgar's Co-operative Sale Society Ltd. Vs. ITO:The Revenue relied on the Supreme Court's decision in Totgar's Co-operative Sale Society Ltd. Vs. ITO, which held that interest on surplus funds not required for business purposes was taxable as 'Other Income.' The CIT(A) and the Tribunal distinguished this case, noting that in Totgar's, the funds were surplus from agricultural produce sales, while in the current case, the funds were mandatorily invested as per the Maharashtra Co-operative Societies Act. The Tribunal emphasized that the assessee's interest income was from funds required to be deposited with Co-operative Banks, making it part of the business activity, thus eligible for deduction under section 80P(2)(a).3. Alternative Claim for Deduction under section 80P(2)(d):The assessee's Cross Objections included an alternative claim for deduction under section 80P(2)(d) if the primary claim under section 80P(2)(a) was disallowed. The Tribunal noted that this issue had been previously decided in favor of the assessee in similar cases by the Pune Bench of the Tribunal, where interest income from Co-operative Banks was deemed eligible for deduction under section 80P(2)(d). However, since the primary claim under section 80P(2)(a) was upheld, the alternative issue was deemed academic and not adjudicated.4. Taxation of Net Interest Income:The assessee argued that if the interest income was taxable, only the net interest income after reducing proportionate expenditure should be taxed. The Tribunal acknowledged this point but did not adjudicate it separately, as the primary claim for deduction under section 80P(2)(a) was upheld. Therefore, the issue of taxing net interest income was not addressed in detail.Conclusion:The Tribunal upheld the CIT(A)'s decision to allow deduction under section 80P(2)(a) of the Income-tax Act, 1961, for interest income earned from investments with other Co-operative Banks, distinguishing the case from Totgar's Co-operative Sale Society Ltd. Vs. ITO. The alternative claim under section 80P(2)(d) was deemed academic, and the issue of taxing net interest income was not separately adjudicated. The appeals by the Revenue and the Cross Objections by the assessee were dismissed.