2019 (2) TMI 807 - AT - Income Tax

Deduction allowed for interest income of agricultural cooperative society under Income Tax Act

Sri Uma Kamandaleswara Co-op Rural Bank Ltd. Versus Addl. CIT, Kakinada Range, Kakinada

Sri Uma Kamandaleswara Co-op Rural Bank Ltd. Versus Addl. CIT, Kakinada Range, Kakinada - TMI Issues Involved:1. Eligibility of interest income from surplus funds deposited with DCCB for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.Detailed Analysis:1. Eligibility of Interest Income from Surplus Funds Deposited with DCCB for Deduction under Section 80P(2)(a)(i):The primary issue in this appeal is whether the assessee, a primary agricultural Co-op Credit Society, is entitled to claim deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for the interest income earned from surplus funds deposited with the District Co-operative Central Bank (DCCB).The assessee had deposited surplus funds, which were not immediately required for extending credit facilities to its members, with the DCCB. The interest income from these deposits amounted to Rs. 11,29,453/-. The Assessing Officer disallowed the deduction under section 80P(2)(a)(i) for this interest income, following the Supreme Court's decision in Totgars Co-operative Credit Society Ltd. Vs. ITO, which held that such interest income is 'income from other sources' and not attributable to the activities of the society.On appeal, the Commissioner of Income Tax (Appeals) confirmed the Assessing Officer's order. The assessee then appealed to the Tribunal, arguing that the interest income from surplus funds deposited with the bank is attributable to the business of the society and eligible for deduction under section 80P(2)(a)(i). The assessee relied on the Andhra Pradesh High Court's decision in Vavveru Co-op Rural Bank Ltd. Vs. LD.CCIT & Another, which supported the eligibility of such interest income for deduction.The Tribunal considered the arguments and reviewed the relevant case laws, including the Supreme Court's decision in Totgars and the Andhra Pradesh High Court's decision in Vavveru Co-op Rural Bank Ltd. The Tribunal noted that the Andhra Pradesh High Court had distinguished the Totgars case, emphasizing that the term 'attributable to' used in section 80P(2) is broader than 'derived from' and includes income that is indirectly connected to the business activities of the society.The Tribunal also referred to its own decision in M/s. Kakinada Co-op Building Society Ltd. Vs. Addl. CIT, where it held that interest earned on deposits by a co-operative society providing credit facilities to its members qualifies for deduction under section 80P(2)(a)(i).Based on these considerations, the Tribunal concluded that the interest income earned by the assessee from depositing surplus funds with the DCCB is attributable to the business of providing credit facilities to its members and is eligible for deduction under section 80P(2)(a)(i). Therefore, the Tribunal reversed the order of the CIT(A) and allowed the appeal filed by the assessee.In conclusion, the Tribunal held that the interest income received by the assessee from depositing surplus funds collected from its members is eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The appeal filed by the assessee was allowed.