2021 (5) TMI 512 - AT - Income Tax

Tribunal grants deduction for interest income from co-op banks in assessment years 2014-15 and 2015-16

Food Corporation of India Employees Co-Operative Credit Soc. Ltd. Versus The Income Tax Officer, Ward 32 (1) (5), Mumbai

The Tribunal dismissed the primary contention under Section 80P(2)(a)(i) but allowed the alternate contention under Section 80P(2)(d), granting the ... Eligibility to deduction u/s 80P(2)(a)(i)/80P(2)(d) - assessee has earned interest income on investments made in fixed deposits with Saraswat Co-operative Bank Ltd. and Apna Sahkari Bank Ltd. - HELD THAT:- The Hon’ble Supreme Court of India in the case of Totgars, Co-operative Sale Society Ltd. vs. ITO [2010 (2) TMI 3 - SUPREME COURT] has held that interest earned by assessee would come in category of 'Income from other sources' taxable under section 56 and would not qualify for deduction as business income under section 80P(2)(a)(i) of the Act. Similar view has been expressed by the Hon’ble Gujarat High Court in the case of State Bank of India vs. CIT, [2016 (7) TMI 516 - GUJARAT HIGH COURT]. In the light of aforesaid decisions, primary contention of the assessee is liable to be rejected. Therefore, ground No.1 of the appeal is dismissed. Deduction of interest income on investment with Co-operative Banks u/s 80P (2)(d) - whether interest income derived from deposits with cooperative banks is eligible for deduction under section 80P(2)(d) of the Act or not has not crystallised so far? - HELD THAT:- Coordinate Bench of the Tribunal in the case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd[2018 (4) TMI 1678 - ITAT MUMBAI] after considering various decisions by Hon’ble High Courts and the Tribunal and the provisions of the Act, has held that interest income derived by a co-operative society from investments with a co-operative bank, would be entitled for deduction under section 80P(2)(d). Following the decision of Totagars Co-operative Sale Society [2017 (7) TMI 1049 - KARNATAKA HIGH COURT] and SURAT VANKAR SAHAKARI SANGH LTD [2016 (7) TMI 1217 - GUJARAT HIGH COURT] the deduction claimed by the assessee under section 80P(2)(d) of the Act in respect interest derived from investments with the cooperative banks is allowed. We find merit in alternate contention raised by the assessee. Assessee is allowed the benefit of deduction under section 80P(2)(d) on the interest income earned from Cooperative Banks. Issues Involved:1. Eligibility of the assessee to claim deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.2. Eligibility of the assessee to claim deduction under Section 80P(2)(d) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Eligibility to Claim Deduction under Section 80P(2)(a)(i):The primary contention of the assessee was that interest income from fixed deposits and savings bank accounts is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee, a Co-operative Credit Society, earned interest income from fixed deposits with Saraswat Co-operative Bank Ltd. and Apna Sahkari Bank Ltd., and from a savings bank account with the State Bank of India. The Assessing Officer rejected the claim, categorizing the interest income as 'Income from other sources.'The Tribunal referred to the Supreme Court's decision in Totgars, Co-operative Sale Society Ltd. vs. ITO, 322 ITR 283 (SC), which held that such interest income is taxable under Section 56 as 'Income from other sources' and does not qualify for deduction under Section 80P(2)(a)(i). The Tribunal also cited the Gujarat High Court's decision in State Bank of India vs. CIT, 389 ITR 578, which supported the same view. Consequently, the Tribunal dismissed the primary contention of the assessee.2. Eligibility to Claim Deduction under Section 80P(2)(d):The alternate contention of the assessee was for allowing deduction under Section 80P(2)(d) of the Act in respect of interest income on fixed deposits with Co-operative Banks. The Tribunal noted that the issue of whether interest income derived from deposits with co-operative banks is eligible for deduction under Section 80P(2)(d) has not been conclusively settled.The Tribunal referenced its earlier decision in Kaliandas Udyog Bhavan Premises Co-op Society Ltd. vs. ITO, 94 taxmann.com 15 (Mumbai), which held that interest income derived by a co-operative society from investments with a co-operative bank is entitled to deduction under Section 80P(2)(d). The Tribunal emphasized that the relevant statutory provision, Section 80P(2)(d), allows for deduction of income by way of interest derived from investments with any other co-operative society.The Tribunal also cited the Pune Bench's decision in Majalgaon Sahakari Sakhar Karkhana Ltd. vs. ACIT [2019] 105 taxmann.com 100 (Pune - Trib.), which supported the deduction under Section 80P(2)(d) for interest and dividend income derived from investments with co-operative banks.Further, the Tribunal referred to the Karnataka High Court's decision in PCIT vs. Totagars, Cooperative Sale Society 392 ITR 74, which held that for the purpose of Section 80P(2)(d), a co-operative bank should be considered as a co-operative society. The Gujarat High Court in Surat Vankar Sahakari Sangh Ltd. vs. ACIT, 421 ITR 134, also supported this view.However, the Tribunal acknowledged a contrary view by the Karnataka High Court in PCIT vs. Totagars, Co-operative Sale Society 395 ITR 611, which held that interest income from deposits with co-operative banks does not qualify for deduction under Section 80P(2)(d). Notably, this later judgment did not consider the earlier decision.In the absence of a jurisdictional High Court decision, the Tribunal followed the principle laid down by the Bombay High Court in K. Subramanian vs. Siemens India Ltd. 156 ITR 11, which prefers the view that favors the assessee when conflicting decisions exist. Thus, the Tribunal allowed the deduction under Section 80P(2)(d) for interest income derived from investments with co-operative banks.Conclusion for Assessment Year 2014-15:The Tribunal dismissed the primary contention under Section 80P(2)(a)(i) but allowed the alternate contention under Section 80P(2)(d), granting the deduction for interest income from co-operative banks.Assessment Year 2015-16:The facts for the assessment year 2015-16 were identical to those of 2014-15, except for the amount of interest earned. Therefore, the Tribunal applied the same findings and allowed the deduction under Section 80P(2)(d) for interest income from co-operative banks.Final Outcome:Both appeals by the assessee were partly allowed, granting the benefit of deduction under Section 80P(2)(d) for interest income earned from co-operative banks.