Interest income from bank deposits qualifies as business income for tax deduction under Section 80P(2)(a)(i)

The Tribunal held that interest income earned on fixed deposits with cooperative/scheduled banks qualifies as business income eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act. The appellant's appeal was allowed, overturning the denial of exemption by the Assessing Officer and the National Faceless Appeal Centre. The decision aligned with the Karnataka High Court's ruling, establishing that such interest income is attributable to the activities of the society and thus eligible for exemption. The judgment was in favor of the assessee, pronounced on May 29, 2023.

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Issues:
The judgment involves the issue of eligibility of exemption under section 80P(2)(a)(i) of the Income Tax Act for interest income earned by a cooperative society from scheduled banks.

Details:
The appellant, a cooperative credit society, filed an appeal against the order of the National Faceless Appeal Centre for the assessment year 2017-18. The assessment was completed by the Assessing Officer, who denied the claim for exemption under section 80P(2)(a)(i) in respect of interest income on deposits made in cooperative and scheduled banks. The NFAC confirmed the addition made by the Assessing Officer. The only issue in the case was the allowability of exemption under section 80P(2)(a)(i) for interest income from scheduled banks.

There was a divergence of judicial opinion among various High Courts on the eligibility of such income for exemption under section 80P(2)(a)(i). Some High Courts held that income from surplus investments in short-term deposits and securities is not eligible for exemption, while others opined that such interest income is attributable to the activities of the society and thus eligible for exemption. The Tribunal, following the decision of a Coordinate Bench and the judgment of the Karnataka High Court, held that interest income earned on fixed deposits with cooperative/scheduled banks qualifies as business income eligible for deduction under section 80P(2)(a)(i). Consequently, the grounds of appeal filed by the assessee were allowed, and the appeal was allowed in favor of the assessee.

The judgment was pronounced on May 29, 2023.

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