2019 (1) TMI 349 - AT - Income Tax

Tribunal directs reevaluation of deduction denial under section 80P(2)(a)(i) for interest income on fixed deposits.

M/s. Primary Co-operative Agriculture & Rural Development Bank Versus The Income Tax Officer, Ward 2, Bellary.

The Tribunal allowed the appeal for statistical purposes, directing the Assessing Officer to reevaluate the disallowance of deduction under section ... Deduction u/s 80P(2)(a)(i) on interest income derived from deposit of surplus funds in fixed deposits in State Bank of India Bellary - Since interest income was not income derived from the business of co-operative society, the deduction claimed by the assessee cannot be allowed - Held that:- Interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d) was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991-92 to 1999-2000 decided by the Hon’ble Supreme Court. Therefore, whether the source of funds were Assessee’s own funds or out of liability, was not subject matter of the decision of the Hon’ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Co-operative Ltd. [2015 (2) TMI 995 - KARNATAKA HIGH COURT] still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgments of the Hon’ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (2010 (2) TMI 3 - SUPREME COURT) and of Hon’ble Karnataka high Court rendered in the case of Tumkur Merchants Souharda Co-operative Ltd. (supra). Appeal of assessee is treated as allowed for statistical purpose. Issues:Appeal against disallowance of deduction under section 80P(2)(a)(i) for interest income on fixed deposits.Analysis:The appellant, a co-operative society, contested the disallowance of a deduction under section 80P(2)(a)(i) for interest income earned on fixed deposits in State Bank of India. The Revenue authorities disallowed the deduction, citing the interest income as not derived from the business of the co-operative society, following a Supreme Court decision. The CIT(A) upheld the AO's decision.The appellant raised multiple grounds of appeal before the Tribunal, arguing that the interest income from fixed deposits is attributable to the banking business and thus eligible for deduction under section 80P(2)(a)(i). They relied on various legal precedents, including decisions of the Jurisdictional High Court and the Supreme Court. The appellant emphasized that even if the funds were not operational income, the deduction should still apply.During the hearing, the appellant cited the Karnataka High Court's decision in Tumkur Merchants Souharda Credit Co-operative Society Ltd. v. ITO, supporting the eligibility of interest income for deduction under section 80P(2)(a)(i). However, the Revenue relied on a subsequent decision of the same court in PCIT v. Totgars Co-operative Sale Society Ltd.The Tribunal carefully analyzed the case law and noted the distinction between the appellant's claims under different sections of the Act for different assessment years. It was observed that the source of funds for investments remained consistent, leading to the conclusion that the issue needed further examination in light of the relevant judgments.Consequently, the Tribunal directed the AO to reevaluate the matter, considering the judgments of the Supreme Court and the Karnataka High Court. The AO was instructed to provide the appellant with an opportunity to present evidence before making a fresh decision on the issue.Ultimately, the Tribunal treated the appeal as allowed for statistical purposes, indicating that the matter required further assessment by the AO. The judgment was pronounced on January 4, 2019, emphasizing the need for a detailed reconsideration of the deduction claim under section 80P(2)(a)(i) for the interest income on fixed deposits.