2015 (4) TMI 1116 - AT - Income Tax

Entitlement to deduction u/s 80P(2)(a)(i) - interest earned from employees - Held that - Hon ble Supreme Court in The Totgars Cooperative Sale Society Ltd vs ITO 2010 (2) TMI 3 - SUPREME COURT holding that interest on bank deposits of Government Securities derived by a Cooperative Society could not be attributed to the activities of the Society of providing various facilities to its members and was taxable under Section 56 being income from other sources. It appears that since the judgment of the Tribunal is prior to the judgement of the Hon ble Supreme Court relied upon on behalf of the Revenue. The Tribunal did not have advantage of the law laid down therein. The matter is thus, covered in favour of the Revenue by the judgment of Hon ble Supreme Court. On the basis of above observation it can easily be said that on same analogy even the interest earned from employees cannot be said to be core activity of the society and, therefore, in our opinion, interest earned from employees is not eligible for deduction u/s 80P(2)(a)(i), therefore, we set aside the order of Ld. CIT(A) and restore that of Assessing Officer. - Decided against assessee

Summary

Issues:
1. Deduction under section 80P(2)(a)(i) for interest income from commercial banks.
2. Deduction under section 80P(2)(a)(i) for interest income from employees.

Issue 1: Deduction under section 80P(2)(a)(i) for interest income from commercial banks:

The appeal involved a dispute regarding the eligibility of the assessee for a deduction under section 80P(2)(a)(i) for interest income received from commercial banks. The Assessing Officer treated the interest income as income from other sources, not eligible for the deduction. The CIT(A) upheld this decision based on a High Court ruling following the Supreme Court's decision in a similar case. The Tribunal, after considering submissions from both parties, found that the High Court's decision was applicable and dismissed the assessee's appeal. The issue was decided against the assessee, citing the judgment of the Hon'ble Supreme Court and the specific provisions of the Income Tax Act.

Issue 2: Deduction under section 80P(2)(a)(i) for interest income from employees:

The second issue revolved around the deduction under section 80P(2)(a)(i) for interest income earned from employees. The Assessing Officer disallowed the deduction, stating that the employees were not members of the society and, therefore, the income from loans given to them could not be attributed to the society's activities. The CIT(A) reversed this decision, relying on a Tribunal ruling in a similar case. However, the Revenue challenged this decision, arguing that the principles laid down by the Supreme Court in another case were applicable even to interest earned from employees. The Tribunal agreed with the Revenue, emphasizing that the core activities of the society were crucial for claiming the deduction under section 80P(2)(a)(i). As the interest earned from employees did not qualify as a core activity, the Tribunal allowed the Revenue's appeal and set aside the CIT(A)'s order.

In conclusion, the Tribunal's judgment addressed two key issues related to deductions under section 80P(2)(a)(i) for interest income from commercial banks and employees. The decision was based on the interpretation of relevant legal provisions, precedents set by higher courts, and the core activities of the society in question.