Tribunal allows appeal on interest income tax deduction for cooperative societies under section 80P(2)

The Tribunal partly allowed the appeal, confirming the addition made by the AO under section 80P(2)(a)(i) of the Income Tax Act for interest income earned from non-cooperative banks by a cooperative society. The Tribunal upheld the High Court's precedent that such interest income is not eligible for deduction under section 80P(2). However, the Tribunal directed the allowance of prorata expenses for interest income earned from nationalized banks for computing the deduction under section 80P(2), emphasizing the treatment of interest income and related expenses for cooperative societies providing credit facilities.

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Issues:
1. Deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for a cooperative society providing credit facilities.

Detailed Analysis:

Issue 1: Deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for a cooperative society providing credit facilities

The case involved an appeal by the assessee against the ld.CIT(A)'s order confirming an addition made by the AO of Rs. 10,04,064, claimed as deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for the assessment year 2014-15. The assessee, a cooperative society, earned interest income from various sources, including non-cooperative/nationalized banks. The AO proposed an addition under section 56 of the Act for the interest earned from non-cooperative banks. The assessee argued that the funds invested with banks were not surplus but working capital for immediate requirements. The ld.AO, however, did not accept these submissions and made the addition. The ld.CIT(A) upheld the addition, leading to the appeal before the Tribunal.

The Tribunal observed that the Hon'ble jurisdictional High Court had previously held that interest earned from investments in scheduled banks by a cooperative society providing credit facilities to its members is not eligible for deduction under section 80P(2). The Tribunal noted that its previous decisions were consistent with the High Court's judgment. Consequently, the Tribunal confirmed the orders of the Revenue authorities. However, the Tribunal directed that any expenditure incurred by the assessee for earning such income should be allowed, if not already done so. The AO was instructed to allow prorata expenses for interest income earned from deposits held with nationalized banks for computing deduction under section 80P(2) of the Act.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, confirming the orders of the Revenue authorities but directing the allowance of prorata expenses for computing the deduction under section 80P(2) of the Act.

This judgment clarifies the eligibility of cooperative societies providing credit facilities for deductions under section 80P(2)(a)(i) of the Income Tax Act, emphasizing the treatment of interest income earned from investments in banks and the allowance of related expenses for such income.

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