2014 (8) TMI 946 - AT - Income Tax

Deduction u/s. 80P(2)(a)(i) - Held that - In the case of Ramanathapuram District Co-op Central Bank Ltd. (2001 (10) TMI 9 - SUPREME Court) the question of whether the subsidies received from the Government is to be considered for deduction u/s. 80P(2)(a)(i) was the subject matter before the Hon ble Supreme Court and the Hon ble Supreme Court after considering the entire issue held that the subsidies received from the Government are to be treated as business income of the assessee and is entitled for deduction under section 80P(2)(a)(i) of the I.T. Act. In view of the above judgment of the Hon ble Supreme Court in the case of Ramanathapuram District Co-op Central Bank Ltd. (2001 (10) TMI 9 - SUPREME Court) we are inclined to decide the issue in favour of the assessee. Interest earned on fixed deposits with the Co-operative Bank cant be considered as business income. It is to be considered as income from other sources as held by the Hon ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. v. ITO (2010 (2) TMI 3 - SUPREME COURT) wherein it was held that the assessee being Co-operative Society is engaged in providing credit facilities to its members or marketing agricultural produce of its members interest earned by it by investing surplus funds in short term deposits would fall under the head income from other sources taxable u/s. 56 of the I.T. Act and it cannot be said to be attributable to the activities of the Society and therefore the interest did not qualify for deduction u/s. 80P(2)(a)(i) of the I.T. Act. - assessee has earned interest income on fixed deposits made by the assessee in a Co-operative Bank and the interest income earned on the surplus funds of the assessee cannot be considered as business income so as to be entitled for deduction u/s. 80p(2)(a)(i) - Decided partly in favour of assessee.

Summary

Issues:
1. Treatment of revenue grant as business income for deduction under section 80P of the Income Tax Act.
2. Disallowance of claim for deduction under section 80P(2)(d) of the Income Tax Act due to interest earned from a Co-operative Bank.

Issue 1: Treatment of Revenue Grant as Business Income for Deduction under Section 80P:

The appellant received a revenue grant from the Coir Development Directorate, categorized as Market Development Allowance, which was credited to the Profit and Loss Account as income from other sources. The appellant contended that this grant should be considered as business income to avail deduction under section 80P of the Income Tax Act. The appellant relied on precedents such as CIT v. U.P. Co-operative Federation Ltd. and CIT v. Ramanathapuram Distt. Co-op Central Bank Ltd. to support their argument. The Departmental Representative argued that the grant cannot be treated as business income. The Tribunal referred to the judgment in Ramanathapuram District Co-op Central Bank Ltd. case by the Supreme Court, which held that subsidies received from the Government are to be treated as business income eligible for deduction under section 80P(2)(a)(i). Consequently, the Tribunal allowed this ground in favor of the assessee.

Issue 2: Disallowance of Claim for Deduction under Section 80P(2)(d) due to Interest from a Co-operative Bank:

The appellant's claim for deduction under section 80P(2)(d) was disallowed by the Assessing Officer on the grounds that the interest was earned from a Co-operative Bank, not a Co-operative Society. The Departmental Representative supported the decision citing the definition differences between a Co-operative Bank and a Co-operative Society under the Banking Regulation Act. The Tribunal, after considering the arguments, referred to the Supreme Court judgment in Totgars Co-operative Sale Society Ltd. v. ITO, which held that interest earned by a Co-operative Society from investing surplus funds in short term deposits is considered income from other sources, not business income. Therefore, the interest earned by the appellant from fixed deposits in a Co-operative Bank was not eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act. Consequently, this ground of the assessee was dismissed.

In conclusion, the Appellate Tribunal partially allowed the appeal filed by the assessee, ruling in favor of the assessee regarding the treatment of the revenue grant as business income for deduction under section 80P but dismissing the claim for deduction under section 80P(2)(d) due to interest earned from a Co-operative Bank.