2023 (9) TMI 828 - AT - Income Tax

Tribunal grants deduction for cooperative credit society's interest income as business income

M/s. New Satara Zilla Nagrik Sahakari Patsanstha Maryadit Versus NFAC, Delhi

M/s. New Satara Zilla Nagrik Sahakari Patsanstha Maryadit Versus NFAC, Delhi - TMI Issues Involved:1. Eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act.2. Classification of interest income as 'Income from Business' or 'Income from Other Sources'.3. Applicability of judicial decisions and binding precedents.4. Alternative grounds for deduction under sections 80P(2)(d) and 57.5. Application of judgments like The Totagar Co-operative Sale Society Limited.6. General deduction under section 80P(2)(c).Summary:Issue 1: Eligibility for Deduction under Section 80P(2)(a)(i)The core issue was whether the interest income earned by the assessee, a co-operative credit society, from its funds parked with nationalized and commercial banks, qualifies for deduction under section 80P(2)(a)(i) of the Income Tax Act. The Tribunal held that since the assessee society is wholly engaged in providing credit facilities to its members and the investments in fixed deposits were made in compliance with mandatory provisions under the Maharashtra Co-operative Society Act, the interest income is attributable to the business income and thus eligible for deduction under section 80P(2)(a)(i).Issue 2: Classification of Interest IncomeThe Tribunal noted that the Assessing Officer had incorrectly assessed the interest income under the head 'Income from Other Sources'. It was held that the interest income earned from investments with nationalized and commercial banks is part of the business income of the assessee, as these investments were necessary for the business operations and compliance with statutory requirements.Issue 3: Applicability of Judicial Decisions and Binding PrecedentsThe Tribunal emphasized that the CIT(A) had failed to consider binding judicial decisions of the Jurisdictional ITATs, Hon. Bombay High Court, and the Supreme Court, which had held that similar interest income is to be classified as business income. The Tribunal also referred to CBDT Circular No. 18/2015, which clarified that interest from investments made by banking concerns is part of the business income.Issue 4: Alternative Grounds for DeductionThe Tribunal addressed the alternate grounds raised by the assessee for deduction under sections 80P(2)(d) and 57. However, since the primary ground for deduction under section 80P(2)(a)(i) was allowed, these alternate grounds were not elaborated upon in detail.Issue 5: Application of Judgments like The Totagar Co-operative Sale Society LimitedThe Tribunal found that the CIT(A) had erroneously applied the judgment of The Totagar Co-operative Sale Society Limited and other decisions, which were not applicable to the facts of the assessee's case. The Tribunal reiterated that the assessee's case was covered by the binding decisions of the Jurisdictional ITATs and the Bombay High Court.Issue 6: General Deduction under Section 80P(2)(c)The Tribunal noted that the Assessing Officer had erred in not granting the general deduction of Rs. 50,000/- under section 80P(2)(c) while calculating the tax demand.Conclusion:The Tribunal allowed the appeals filed by the assessee society, directing the AO to allow the deduction claimed under section 80P(2)(a)(i) of the Income Tax Act, thus treating the interest income as business income. The order was pronounced in the open court on 27.04.2023.