Cooperative society wins deduction under Section 80P(2)(a)(i) for bank deposit interest income from surplus funds

ITAT Mumbai allowed the appeal of a cooperative society registered under Maharashtra State Cooperative Societies Act, 1961, granting deduction u/s 80P(2)(a)(i) on interest income from fixed deposits with State Bank of India. The tribunal held that interest earned on surplus funds deposited in banks, which were not immediately required for lending to members, is attributable to carrying on the business of providing credit to members. Following precedents from Karnataka HC and SC, the tribunal distinguished between funds belonging to members versus surplus profits temporarily invested to earn interest while awaiting deployment for member credit facilities.

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Issues:
1. Dispute regarding deduction claimed under section 80P(2) of the Income Tax Act.
2. Eligibility of the assessee for deduction under section 80P(2)(a)(i) of the act.
3. Interpretation of the term "attributable to" in section 80P(2)(a)(i).
4. Comparison with relevant case laws to determine eligibility for deduction.

Analysis:

The appeal was filed by the NPC Employees Cooperative Credit Society Ltd, Mumbai, against the appellate order passed by the National Faceless Appeal Centre (NFAC), Delhi, wherein the appeal against the assessment order was dismissed. The dispute revolved around the assessee's claim for deduction under section 80P(2) of the Income Tax Act, which was denied by the assessing officer.

The assessee, a cooperative society registered under the Maharashtra State Cooperative Societies Act, collected deposits from members and earned income primarily from interest on loans to members and fixed deposits. The assessing officer disallowed the deduction under section 80P, stating that interest income from the bank rendered the assessee ineligible for the deduction.

The assessee contended that based on a Supreme Court decision, they were eligible for the deduction. The CIT-A, however, dismissed the appeal, stating that interest income from the bank was not eligible for deduction under section 80P(2) of the act.

The Tribunal analyzed the provisions of section 80P(2)(a)(i) and referred to a Karnataka High Court case to interpret the term "attributable to." The Tribunal highlighted that the word "attributable to" is wider than "derived from," indicating that interest income from fixed deposits with banks can be considered attributable to the business of providing credit facilities to members.

Referring to the Supreme Court's decision in a similar case, the Tribunal held that the interest income earned by the assessee from fixed deposits with State Bank of India was indeed attributable to the business of providing credit facilities to members. Therefore, the Tribunal allowed the solitary ground of appeal raised by the assessee, granting them the deduction under section 80P(2)(a)(i) of the act.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the deduction under section 80P(2)(a)(i) for the interest income received from State Bank of India, as it was not immediately required for utilization by the cooperative society.

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