2015 (9) TMI 546 - AT - Income Tax

Denial of deduction u/s.80P(2)(d) - assessee is a cooperative society - interest received by it on deposits placed with cooperative banks - Held that - Deposits placed with banks could be considered only as investments irrespective of the classification done by an assessee. All deposits will be investments, unless the context otherwise suggest, whereas all investments may not be deposits. Therefore assessee was eligible for claiming deduction u/s.80P(2)(d) of the Act. As to whether interest income earned on surplus kept as deposit, was eligible for deduction u/s.80P(2)(a)(i) of the Act, issue has been settled in favour of the assessee by the judgment of Hon ble jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Cooperative Society v. ITO 2015 (2) TMI 995 - KARNATAKA HIGH COURT wherein held the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act - Decided in favour of assessee.

Issues involved:
1. Denial of deduction u/s.80P(2)(d) of the Income-tax Act, 1961 for interest received by a cooperative society on deposits placed with cooperative banks.

Detailed Analysis:
1. The appeal was filed by a cooperative society aggrieved by the denial of deduction u/s.80P(2)(d) of the Act for interest received on deposits placed with cooperative banks. The Assessing Officer (AO) disallowed the deduction on the grounds that the society was engaged in banking business and that interest earned from deposits with cooperative banks did not fall under the said sub-section.
2. The CIT (A) ruled that the society was not a cooperative bank and hence eligible for deduction u/s.80P(2)(a)(i) of the Act. However, the CIT (A) disallowed the deduction u/s.80P(2)(d) based on the Supreme Court decision in the case of M/s. Totgars' Cooperative Sale Society Ltd v. ITO, which held that interest earnings on surplus funds parked with commercial banks were not eligible for deduction.
3. The Tribunal considered a similar issue in a previous case and held that interest earned from cooperative banks was eligible for deduction u/s.80P(2)(d) of the Act. The Tribunal noted that deposits placed with banks could be considered as investments, making the society eligible for the deduction.
4. The Tribunal further analyzed the judgment of the Hon'ble jurisdictional High Court in another case, which clarified that interest income earned on surplus funds deposited in banks was attributable to the business of providing credit facilities and thus eligible for deduction u/s.80P(2)(a)(i) of the Act.
5. The Tribunal emphasized the importance of the term "attributable to" in determining the eligibility for deduction, citing a Supreme Court case to explain its wider import. It concluded that the interest income derived from deposits in banks was indeed attributable to the business of providing credit facilities, making the society eligible for the deduction.
6. Considering the legal interpretations and precedents, the Tribunal allowed the appeal of the assessee, ruling in favor of granting the deduction u/s.80P(2)(d) of the Act for the interest earned on deposits with cooperative banks.

Overall, the judgment clarified the eligibility of a cooperative society for claiming deductions under specific sections of the Income-tax Act based on the nature of income and its attribution to the business activities of the society.

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