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2015 (5) TMI 1088 - AT - Income TaxEntitled to deduction U/s 80(P)(2)(d)- Interest received from the banks and cooperative societies - Held that - The assessee society is maintaining operational funds and to meet any eventuality towards repayment of deposit the cooperative society is maintaining some liquidated funds as short term deposits with banks. Hence adhering to the doctrin stair desises we hold that the assessee should be granted benefit of deduction under section 80P(2)(a)(i). Accordingly the interest on deposits would qualify for deduction under the said section. Accordingly we set aside the orders of authorities below and decide the issue in favour of the assessee.
Issues Involved:
1. Taxability of interest received amounting to Rs. 19,72,805/-. 2. Eligibility for deduction under Section 80P(2)(d) for interest received from banks and cooperative societies amounting to Rs. 2,99,520/-. Issue-wise Detailed Analysis: 1. Taxability of Interest Received Amounting to Rs. 19,72,805/-: The assessee, a cooperative society involved in banking and providing credit facilities to its members, claimed a deduction under Section 80P of the Income Tax Act. The Assessing Officer (AO) noted that the provisions of Section 80P(4) exclude cooperative banks from such deductions, limiting eligibility to primary agricultural credit societies and primary cooperative agricultural and rural development banks. The AO concluded that the assessee qualifies as a cooperative bank under Section 50(c)(i)(ccv) of the Banking Regulation Act, 1949, thus rendering it ineligible for the deduction under Section 80P. The AO further observed that the interest received on fixed deposits and securities should be classified as income from other sources, not business profits, and therefore not eligible for deduction under Section 80P(2)(a)(i). This was based on the notion that the interest income does not stem from the core business activities of the cooperative society but from investments. Upon appeal, the learned CIT(Appeals) upheld the AO's decision, referencing the Supreme Court's decision in Totgars Cooperative Sales Society Ltd. v/s. ITO, which ruled that interest income on surplus funds not immediately required for business purposes should be taxed as income from other sources. Consequently, the CIT(Appeals) confirmed the addition made by the AO and enhanced the income by Rs. 10,26,715/-. 2. Eligibility for Deduction Under Section 80P(2)(d) for Interest Received from Banks and Cooperative Societies Amounting to Rs. 2,99,520/-: The AO disallowed the deduction under Section 80P(2)(d) for interest received from various banks, arguing that the interest income from fixed deposits with banks like Parmatma Bank, Shikshak Bank, Nagpur Nagrik Bank, and Umiya Bank should not be eligible for the deduction. The AO calculated the total interest received from all banks to be Rs. 29,99,520/-, with Rs. 10,26,715/- from nationalized and government-aided banks, leaving Rs. 19,72,805/- as taxable interest income. The assessee contended that the cooperative society maintained high liquid funds due to its short-term liabilities and invested these funds in short-term deposits to ensure liquidity and earn interest. The assessee argued that these investments were a prudent business practice and should qualify for the deduction under Section 80P(2)(a)(i). The learned CIT(Appeals) disagreed, ruling that the interest income should be treated as income from other sources, thus not eligible for the deduction under Section 80P(2)(d). This decision was based on the rationale that the interest income did not arise from the core business activities of the cooperative society. Tribunal's Decision: The Tribunal, upon careful consideration, noted that similar issues had been addressed in the ITAT Ahmedabad Bench decision in the case of Dhanlaxmi Credit Cooperative Society Ltd. v/s. ITO. The Tribunal observed that the cooperative society maintained operational funds and invested in short-term deposits to meet liquidity requirements. It was held that the interest income from such deposits should be eligible for deduction under Section 80P(2)(a)(i). Respecting the principle of judicial consistency (doctrin stair desises), the Tribunal held that the assessee should be granted the benefit of deduction under Section 80P(2)(a)(i), thereby reversing the adverse portions of the CIT(Appeals)' decision. Consequently, the interest on deposits would qualify for deduction under the said section. Conclusion: The appeal filed by the assessee was allowed, and the orders of the authorities below were set aside. The interest income was deemed eligible for deduction under Section 80P(2)(a)(i), and the issue was decided in favor of the assessee. Order Pronounced: The order was pronounced in the open Court on 27th May 2015.
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