Appeal granted for interest income deductions under section 80P(2)(a)(i)

The Tribunal allowed the appeal, granting the assessee the claimed deductions under section 80P(2)(a)(i) for interest income from Bank of Maharashtra and MSEB deposits, affirming they were part of business income and not surplus funds. The order was pronounced on December 31, 2018.

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Issues Involved:
1. Incorrect invocation of provisions of section 80P(2)(d) of the Income Tax Act, 1961, denying the deduction claimed by the assessee on interest earned from Bank of Maharashtra.
2. Incorrect invocation of provisions of section 80P(2)(d) of the Income Tax Act, 1961, denying the deduction claimed by the assessee on interest earned from MSEB.

Issue-Wise Detailed Analysis:

1. Incorrect Invocation of Provisions of Section 80P(2)(d) on Interest Earned from Bank of Maharashtra:

The appeal concerns the denial of deduction under section 80P(2)(d) of the Income Tax Act, 1961, for interest income earned from Bank of Maharashtra. The assessee, a co-operative society, claimed deductions under section 80P(2)(a)(i) for interest income from investments with Bank of Maharashtra. The Assessing Officer and CIT(A) denied the deduction, relying on precedents including the Hon’ble High Court of Delhi in Mantola Co-operative Thrift & Credit Society Ltd. Vs. CIT and the Hon’ble Supreme Court in Totgars’ Co-operative Sale Society Ltd. Vs. ITO.

The Tribunal referenced its previous orders, specifically in the case of ITO Vs. M/s. Maharashtra Bank Employees Co-op. Credit Society Ltd., and the ratio laid down by the Hon’ble High Court of Punjab & Haryana in CIT Vs. Nawanshahar Central Co-operative Bank Ltd., confirmed by the Hon’ble Supreme Court. The Tribunal held that the interest income from FDRs with Bank of Maharashtra was entitled to deduction under section 80P(2)(a)(i) since the funds were not surplus but statutorily required to be invested as per the Maharashtra Co-operative Societies Act, 1960. The Tribunal concluded that the interest income was business income and eligible for deduction under section 80P(2)(a)(i).

2. Incorrect Invocation of Provisions of Section 80P(2)(d) on Interest Earned from MSEB:

The second issue pertains to the denial of deduction for interest income earned from deposits with MSEB. The assessee claimed that the interest income from MSEB deposits was also eligible for deduction under section 80P(2)(a)(i) as it was part of the business income. The Tribunal, following the same reasoning as with the Bank of Maharashtra deposits, held that the interest received from MSEB deposits was business income and entitled to the claim of deduction under section 80P(2)(a)(i).

Conclusion:

The Tribunal allowed the appeal, granting the assessee the claimed deductions under section 80P(2)(a)(i) for both the interest income from Bank of Maharashtra and MSEB deposits, affirming that these were part of the business income and not surplus funds. The order was pronounced on December 31, 2018.

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