2016 (5) TMI 1620 - AT - Income Tax

Cooperative society gets section 80P deduction for interest income on bank fixed deposits for operational surplus funds

ITAT Nagpur allowed deduction under section 80P(2)(a)(i) for interest income earned by a cooperative society on bank fixed deposits. The tribunal held ... Denial of deduction u/s 80P - Treatment of interest income earned by the assessee on account of investment in Bank FDRs - being interest income earned by the assessee on investment of surplus funds as “income from other sources” u/s 56 - HELD THAT:- Upon hearing both the counsel and perusing the records, we find that the above issues is covered in favour of the assessee by the decision of this ITAT, referred by the CIT(A) in his appellate order. The distinction mentioned in the Grounds of appeal is not at all sustainable. We further find that this Tribunal again in the case of Chattisgarh Urban Sahakari Sanstha Maryadit [2015 (5) TMI 1088 - ITAT NAGPUR] held that the submissions of the assessee’s counsel is that the assessee society is maintaining operational funds and to meet any eventuality towards repayment of deposit the cooperative society is maintaining some liquidated funds as short term deposits with banks. Hence adhering to the doctrin stair desises, we hold that the assessee should be granted benefit of deduction u/s 80P(2)(a)(i). Accordingly, the interest on deposits would qualify for deduction under the said section. Accordingly, we set aside the orders of authorities below and decide the issue in favour of the assessee. Issues:1. Whether interest income earned by the assessee on investment of surplus funds is deductible under section 80P(2)(a)(i) of the IT ActRs.2. Whether reliance on a specific ITAT decision by the CIT(A) was justifiedRs.3. Whether the assessee's interest income on investments was not required for business purposesRs.4. Whether interest income on loans advanced to non-member employees is deductible under section 80P(2)(a)(i)Rs.Analysis:Issue 1:The appeal concerned the treatment of interest income earned by the assessee on investment in Bank FDRs. The ITAT found that the issue was covered in favor of the assessee by previous decisions. The Tribunal referenced a case involving a Co-operative Society maintaining operational funds and short-term deposits to meet repayment obligations. The Tribunal held that the interest income qualified for deduction under section 80P(2)(a)(i), reversing the CIT(A)'s decision to tax the income under section 56 of the Act.Issue 2:The ITAT upheld the CIT(A)'s reliance on a specific ITAT decision and a Supreme Court case regarding the tax treatment of interest income on surplus funds invested in short-term deposits. The Tribunal found that the facts of the present case aligned with the principles established in the referenced cases, leading to a decision in favor of the assessee.Issue 3:Regarding the contention that the interest income was not required for business purposes, the ITAT compared the facts of the present case with the Supreme Court case discussed in the previous decision. It was noted that the assessee in the present case did not have surplus funds and utilized all funds for business purposes, distinguishing it from the case before the Supreme Court. Consequently, the Tribunal ruled in favor of the assessee, granting the benefit of deduction under section 80P(2)(a)(i).Issue 4:The ITAT addressed the issue of interest income on loans advanced to non-member employees. Citing a decision by the ITAT Chandigarh Bench, the Tribunal held that such income was incidental to the business of providing credit facilities to members. Therefore, the interest income on loans to employees was deemed deductible under section 80P(2)(a)(i), leading to a decision in favor of the assessee.In conclusion, the ITAT decided all issues in favor of the assessee based on precedents, statutory provisions, and the specific facts of the case, ultimately dismissing the appeal by the Revenue.