Tribunal Grants Tax Exemption to Cooperative Society, Classifies Interest Income as Business Income for Deductions.

The Tribunal partly allowed the appeals, overturning the NFAC's orders and granting the appellant, a cooperative credit society, exemption under section 80P(2)(a)(i) of the Income Tax Act, 1961. The Tribunal recognized the interest income from fixed deposits with cooperative/scheduled banks as business income, eligible for deduction, based on the appellant's credit facility activities without a banking license. Despite conflicting judicial opinions, the Tribunal adhered to precedents supporting the exemption, ensuring the appellant's interest income qualifies for deduction under the specified section.

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Issues involved: Appeal against orders of National Faceless Appeal Centre for assessment years 2014-15 & 2017-18 regarding eligibility of exemption u/s 80P(2)(a)(i) or u/s 80P(2)(d) of the Income Tax Act, 1961.

Issue 1: Eligibility of exemption u/s 80P(2)(a)(i)
The appellant, a Co-operative credit society, filed a return of income for A.Y. 2014-15 claiming exemption of interest income earned from Fixed Deposits with Bank of Maharashtra u/s. 80P(2)(a)(i) of the Act. The Assessing Officer initially determined total income at Rs. 70,503/-, later revised to Rs. 22,20,829/-, bringing the interest earned on Fixed Deposits to tax. The NFAC confirmed this action, leading to the appeal. The Tribunal held that the appellant qualifies for deduction u/s 80P(2)(a)(i) as it is engaged in providing credit facilities without a banking license, citing relevant case laws. Consequently, the interest income on fixed deposits with cooperative/scheduled banks is considered business income eligible for deduction u/s 80P(2)(a)(i) of the Act.

Issue 2: Judicial opinion on exemption under section 80P(2)(a)(i)
There is a divergence of judicial opinion on whether interest income earned by a cooperative society from scheduled banks is eligible for exemption u/s 80P(2)(a)(i) of the Act. Various High Courts have taken conflicting views on this matter. However, the Tribunal followed decisions favoring the eligibility of such interest income for exemption u/s 80P(2)(a)(i), emphasizing that it is attributable to the activities of the society. This stance is supported by judgments from different High Courts and the Coordinate Bench of Pune Benches, ensuring that interest income from fixed deposits with cooperative/scheduled banks qualifies for deduction u/s 80P(2)(a)(i) of the Act.

Conclusion:
The Tribunal partly allowed both appeals, setting aside the orders of the lower authorities and granting exemption u/s 80P(2)(a)(i) of the Act to the appellant. The decision was based on the nature of the appellant's business activities and the character of interest income earned on fixed deposits with cooperative/scheduled banks.

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