2014 (1) TMI 433 - AT - Income Tax

Deduction u/s 80-P Interest earned on Bank Fixed Deposit - Held that - The assessee is not a co-operative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members - To meet any eventuality, the assessee was required to maintain some liquid funds - The assessee had invested in short-term deposits The interest income is not taxable u/s 56 - benefit of deduction u/s.80P(2)(a)(i) was rightly granted by ld.CIT(A) - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 80P of the Income Tax Act regarding deduction for cooperative societies.
2. Taxability of interest income earned from bank deposits under Section 56 of the Act.

Detailed Analysis:
Issue 1: The primary issue in this case was the interpretation of Section 80P of the Income Tax Act regarding the deduction available to cooperative societies. The Assessing Officer (AO) disallowed the deduction claimed by the cooperative society under Section 80P(2)(a)(i), stating that it did not qualify as a "primary agriculture credit society." However, the first appellate authority ruled in favor of the assessee, stating that the society was not a cooperative bank and therefore entitled to the deduction under Section 80P(2)(a)(i). The appellate authority referenced decisions by ITAT Mumbai and ITAT Bangalore to support its decision. The Tribunal upheld the appellate authority's decision, granting the deduction under Section 80P(2)(a)(i) and reversing the adverse portion of the view taken by the appellate authority.

Issue 2: The second issue revolved around the taxability of interest income earned from bank deposits under Section 56 of the Act. The appellate authority held that the interest income earned from bank deposits was taxable under Section 56 and not exempt under Section 80P. The Tribunal, however, disagreed with this view and relied on a Co-ordinate Bench decision to reverse the appellate authority's decision. The Tribunal concluded that the interest income was not taxable under Section 56 and fell under the category of exempted income under Section 80P of the Act. As a result, the Tribunal allowed the appeal of the assessee, overturning the decision of the appellate authority on this issue.

In summary, the Tribunal upheld the deduction under Section 80P for the cooperative society and reversed the decision regarding the taxability of interest income earned from bank deposits, ruling in favor of the assessee on both issues.