Co-Op Credit Society Interest Income: Business Income Eligible for Deduction

The Tribunal held that interest income earned by a Co-Operative Credit Society from a Savings Bank account is considered business income eligible for deduction under section 80P(2) of the Income Tax Act. The Tribunal distinguished the case from previous Supreme Court decisions and supported its decision with a High Court ruling, ultimately allowing the assessee's appeal against the Assessing Officer and CIT (A). The order was pronounced on 6th January 2021.

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Issues:
1. Whether interest income earned by the assessee from deposits in the Savings Bank is eligible for deduction u/s 80P(2) of the Income Tax Act.

Analysis:
The appeal pertains to the assessment year 2016-17 where the assessee, a Co-Operative Credit Society, filed its return of income claiming deduction u/s 80P of the Income Tax Act, 1961. The Assessing Officer (AO) observed interest income earned by the assessee from deposits with Kotak Mahindra Bank and held it as "income from other sources," disallowing the deduction u/s 80P. The AO relied on precedents like the Hon'ble Supreme Court's decision in another case. The assessee argued that the interest income should be considered as business income and thus eligible for deduction u/s 80P.

The dispute centered on whether the interest income from the Savings Bank account should be treated as business income eligible for deduction u/s 80P(2) of the Act. The AO and CIT (A) relied on the Supreme Court's decision in a different case to deny the deduction. However, the Tribunal found the Supreme Court's decision distinguishable as the interest income in the present case was on funds necessary for the business, unlike the surplus funds in the precedent case. The Tribunal also cited a High Court decision supporting the treatment of interest income on bank deposits as business income eligible for deduction u/s 80P(2).

Ultimately, the Tribunal held that the interest income earned by the assessee from the Savings Bank account should be considered as business income and allowed the deduction u/s 80P(2) of the Act. The Tribunal disagreed with the AO and CIT (A)'s reliance on the Supreme Court's decision, stating it was not applicable to the current case. Consequently, the assessee's appeal was allowed, and the order was pronounced on 6th January 2021.

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