2012 (1) TMI 223 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest received by the assessee from the deposit made in Kerala Government Treasury Small Savings Fixed Deposit Scheme - Held that - Since Government of India has withdrawn India Vikas Patra as a small savings instrument funds invested at the discretion of the bank is one of the activities of the banking as per the Banking Regulation Act. Since the assessee co-operative society is in the business of banking the investment in the state promoted treasury small savings fixed deposit certificate scheme is a banking activity therefore the interest accrued on such investment has to be treated as business income in the course of its banking activity. Once it is a business income the assessee is entitled for deduction u/s 80P(2)((a)(i). therefore this Tribunal is of the opinion that the judgment of the Larger Bench of the apex Court in Karnataka State Cooperative Apex Bank (2001 (8) TMI 9 - SUPREME Court) is applicable to the facts of this case. Appeal of the revenue stands dismissed.

Summary

Issues:
Deduction u/s 80P(2)(a)(i) of the Act for interest received from Kerala Government Treasury Small Savings Fixed Deposit Scheme.

Analysis:
The appeal concerned the deduction u/s 80P(2)(a)(i) of the Act for interest received by the assessee from deposits in the Kerala Government Treasury Small Savings Fixed Deposit Scheme for the assessment year 2007-08. The Revenue argued that recent Supreme Court judgments, including Totgar's Co-operative Sale Society Ltd vs ITO, indicated that interest earned on surplus funds not immediately required for business purposes is not eligible for deduction under 80P(2). The Revenue contended that since there was no statutory requirement for the assessee to deposit funds with a specific entity, the judgment in Commissioner of Income-tax vs Karnataka State Co-operative Apex Bank was not applicable. On the other hand, the assessee's counsel cited the Karnataka State Co-operative Apex Bank judgment, emphasizing that there is no restriction in the provision limiting the deduction to income derived from working or circulating capital. The counsel also highlighted the difference in business activities between the assessee and the entities in the Totgar's Co-operative Sale Society Ltd case, arguing that the assessee, being a cooperative society engaged in banking, was eligible for the deduction.

The Tribunal carefully considered both arguments and the relevant precedents. It noted that the assessee, being a cooperative society engaged in banking activities, had invested in the state-promoted treasury small savings fixed deposit scheme following the withdrawal of the Indira Vikas Patra. The Tribunal found that since the funds were invested as part of banking activities, as permitted by the Banking Regulation Act, the interest accrued should be treated as business income. Accordingly, the Tribunal held that the assessee was entitled to the deduction u/s 80P(2)(a)(i) under the principles established in the Karnataka State Cooperative Apex Bank judgment. By upholding the Commissioner of Income-tax(A)'s order, the Tribunal dismissed the appeal of the Revenue.

In conclusion, the Tribunal's decision was based on the nature of the assessee's business activities as a cooperative society engaged in banking, distinguishing it from the entities involved in the Totgar's Co-operative Sale Society Ltd case. The Tribunal found that the investment in the state-promoted scheme aligned with banking activities, making the interest earned eligible for deduction under section 80P(2)(a)(i) of the Act.