Cooperative society's interest income from banks qualifies for Section 80P(2)(a)(i) deduction as business income

ITAT Pune ruled in favor of the assessee cooperative society regarding deduction under Section 80P(2). The tribunal held that interest income earned from investments with other cooperative societies and banks qualifies for deduction under Section 80P(2)(a)(i) as it arises in the course of regular business activities. Following the AP HC precedent in Vavveru Co-operative Rural Bank Ltd., the tribunal determined that such interest income from banking operations constitutes eligible business income for cooperative societies, rejecting the revenue's contrary position.

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Issues:
Allowability of deduction u/s 80P(2) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Allowability of deduction u/s 80P(2)
The appellant challenged the order on three grounds: (i) Ld. NFAC's authority to issue directions, (ii) eligibility of interest income on investments for deduction u/s 80P(2)(a)(i), and (iii) eligibility for deduction u/s 80P(2)(d). The appellant contended that interest earned from investments with cooperative societies and banks is part of its core business of providing credit facilities, making it eligible for deduction. The Tribunal agreed, stating that such interest income qualifies as business income under section 80P(2) and is deductible. The Tribunal also highlighted the distinction between credit cooperative societies and other types of societies in applying the surplus fund theory. It referenced the decision in 'Vavveru Co-operative Rural Bank Ltd. Vs CCIT' to support its conclusion.

Issue 2: Judicial Precedents
The Tribunal referenced the decision of the Hon'ble High Court of AP & TS, which held that interest income derived from investments with banks is earned in the regular course of business by a cooperative society and is eligible for deduction u/s 80P(2)(a) of the Act. The Tribunal noted the absence of contrary decisions from the Revenue and relied on 'Smt. Godavari devi Saraf Vs CIT' to adjudicate in favor of the assessee. Following the decision in 'Vavveru Co-operative Rural Bank Ltd.', the Tribunal directed the AO to delete the disallowance entirely, ruling in favor of the appellant.

Conclusion:
The Tribunal allowed the appeal, holding that the interest income earned by the appellant from investments with cooperative societies and banks qualifies for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal vacated the disallowance and directed the AO to delete it entirely. The decision was based on the principle that such interest income is part of the appellant's regular business activities and is therefore deductible under the Income-tax Act, 1961.

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