2016 (7) TMI 1405 - AT - Income Tax

Eligibility deduction u/s 80P(2) - interest from treasury and banks - Held that - In the instant case the assessee is a cooperative Bank. The investment in treasury/banks and earning interest on the same is part of the banking activity of the assessee s cooperative bank. Therefore the said income is eligible for deduction u/s 80P(2)(a)(i) of the Act. Therefore the Income Tax Authorities were not justified in treating interest income received by the assessee as income from other source and denying the benefit of section 80P(2) of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Whether the income from investments of a cooperative society should be treated as income from banking eligible for deduction u/s 80P(2)(a)(i) or as income from other sources.
2. Whether interest income received from other cooperative societies is eligible for deduction u/s 80P(2)(d) of the Income Tax Act 1961.

Analysis:
1. The assessee, a cooperative society, filed a return for AY 2009-10 declaring net income as 'Nil' and claimed deduction u/s 80P(2). The AO treated the income from investments as income from other sources, relying on a Supreme Court judgment. The CIT(A) upheld this decision, stating that the surplus idle money invested did not qualify for deduction under 80P(2)(a)(i). However, the Tribunal noted that the investment in treasury/banks was part of the banking activity of the cooperative bank, entitling it to deduction u/s 80P(2)(a)(i). The Tribunal distinguished the Supreme Court judgment and allowed the appeal, directing the Income Tax Authorities to treat the income as eligible for deduction.

2. A significant portion of the investment income was interest received from other cooperative societies. Section 80P(2)(d) allows deduction for such income derived from investments in other cooperative societies. The Tribunal held that this interest income should not be assessed as 'income from other sources' but should be eligible for deduction u/s 80P(2)(d). The Tribunal referred to a previous decision where a cooperative bank's investment in treasury/banks was considered part of its banking activity, making the income eligible for deduction u/s 80P(2)(a)(i). Therefore, the interest income from other cooperative societies was deemed eligible for deduction.

In conclusion, the Tribunal allowed the appeal, directing the Income Tax Authorities to treat the income from investments as eligible for deduction u/s 80P(2)(a)(i) and the interest income from other cooperative societies as eligible for deduction u/s 80P(2)(d) of the Income Tax Act 1961.