Cooperative Society qualifies for tax deduction on interest income from cooperative banks under Income Tax Act

The Tribunal held that the appellant, a Cooperative Society, is eligible for deduction under sections 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961 for interest income earned from cooperative banks. The Tribunal relied on relevant Supreme Court and Bombay High Court decisions, determining that the interest income on fixed deposits with cooperative banks qualifies as business income eligible for exemption. Consequently, the addition made by the Assessing Officer was directed to be deleted, and the grounds of appeal by the assessee were allowed.

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Issues involved:
The eligibility of the assessee for exemption under sections 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, 1961 regarding interest income earned by a cooperative society from cooperative banks.

Issue 1: Eligibility for exemption u/s 80P(2)(a)(i) of the Act
The appellant, a Cooperative Society providing credit facilities, filed an appeal against the assessment order bringing interest earned on FDs and SB Accounts with co-operative banks to tax. The NFAC confirmed the Assessing Officer's action. The appellant relied on tribunal decisions and the Co-ordinate Bench's judgment in a similar case. The issue was whether the appellant qualifies for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal held that since the appellant is not a licensed bank, it is eligible for the deduction, citing relevant Supreme Court and Bombay High Court decisions.

Issue 2: Allowability of exemption under section 80P(2)(d) for interest income
Regarding the eligibility of interest income earned by a cooperative society from cooperative banks for exemption under section 80P(2)(d), there was a divergence in judicial opinions among various High Courts. While some courts held such income ineligible for exemption, others considered it attributable to the society's activities and thus eligible. The Tribunal followed the decisions favoring the assessee, including judgments from the Karnataka, Telangana, Andhra Pradesh, Calcutta, and Madras High Courts, as well as a Coordinate Bench decision. It concluded that interest income on fixed deposits with cooperative banks qualifies as business income eligible for deduction under sections 80P(2)(a)(i) and 80P(2)(d) of the Act. Consequently, the addition made by the Assessing Officer was directed to be deleted, and the grounds of appeal by the assessee were allowed.

Separate Judgment:
No separate judgment was delivered by the judges in this case.

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