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2017 (3) TMI 1610 - AT - Income TaxEntitled for deduction u/s. 80P(2)(a)(i) - Interest earned by the assessee from its deposits placed in Sub-Treasury and banks - Held that - It may be true that for application of Sec. 80P(2)(a)(i) of the Act assessee was considered as a primary agricultural credit society based on certificate issued by Joint Registrar Kottayam. In our opinion para 3.2 of the circular reproduced above has accepted the judgment of Hon ble Apex Court in the case of CIT vs. Nawanshahar Central Cooperative Bank Ltd 2005 (8) TMI 28 - SUPREME COURT OF INDIA as correct for cooperative societies /banks claiming deduction u/s. 80P(2)(a)(i) of the Act. In other words the Board has taken a view that interest earnings of a cooperative society which was having as its primary business providing credit facilities to its members who were agriculturists could be considered under the head income from business and not from income from other sources. We are of the opinion that assessee has to succeed in this appeal. Interest earned by the assessee from its deposits placed in Sub-Treasury and banks are eligible for deduction u/s. 80P(2)(a)(i) of the Act. See Kizathadiyoor Service Cooperative Bank Ltd vs. ITO 2016 (7) TMI 1405 - ITAT COCHIN - Decided in favour of assessee.
Issues:
- Applicability of Section 80P of the Income Tax Act, 1961 - Interpretation of Circular No. 18/2015 dated 02.11.2015 - Treatment of interest income received by the assessee Analysis: 1. Applicability of Section 80P of the Income Tax Act, 1961: The initial dispute revolved around the deduction claimed by the assessee under Section 80P (2) (a) (i) of the Act on interest income received, which was denied on the grounds that the interest income did not qualify as business income. The Tribunal, following the judgment of the Hon'ble Apex Court in Totgar's Co-operative Society Ltd vs. ITO, held that the interest income from fixed deposits could not be considered as business income eligible for deduction under Section 80P(2)(a)(i). However, upon appeal to the Hon'ble Jurisdictional High Court, it was directed that all issues, including the applicability of Circular No. 18/2015 and the judgment in the case of Chirakkal Service Co-operative Bank Ltd., be reconsidered by the Tribunal. 2. Interpretation of Circular No. 18/2015 dated 02.11.2015: Circular No. 18/2015 clarified the treatment of interest income from non-SLR securities of banks, emphasizing that such income should be considered under the head "Profits and gains of business and profession" if the investments are part of the banking business. The circular highlighted the Supreme Court's decision in CIT v. Nawanshahar Central Co-operative Bank Ltd., stating that income from investments made by banking concerns is attributable to the business of banking. This clarification was deemed applicable to cooperative societies/banks claiming deductions under Section 80P(2)(a)(i), aligning with the judgment in the case of CIT vs. Nawanshahar Central Cooperative Bank Ltd. The Tribunal, considering the circular and previous decisions, concluded that interest earnings of the assessee, a primary agricultural credit society, should be treated as income from business and not from other sources, thus making them eligible for deduction under Section 80P(2)(a)(i). 3. Treatment of interest income received by the assessee: The Tribunal, after revisiting the issues as per the directions of the Hon'ble Jurisdictional High Court, acknowledged that the assessee's interest income from deposits placed in Sub-Treasury and banks should be eligible for deduction under Section 80P(2)(a)(i) of the Act. This decision was supported by the interpretation of Circular No. 18/2015 and previous judgments, leading to the allowance of the assessee's appeal and the favorable outcome in their favor. In conclusion, the Tribunal, guided by the directives of the Hon'ble Jurisdictional High Court, reevaluated the applicability of Section 80P, the interpretation of Circular No. 18/2015, and the treatment of interest income, ultimately ruling in favor of the assessee and allowing the appeal based on the eligibility for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
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