2016 (3) TMI 14 - AT - Income Tax

Eligibility of deduction u/s 80P - Held that - The assessee is Kakinada Co-operative Building Society engaged in the business of collecting the deposits, lending loans to its members for purchase of sites, buildings and construction of houses. When the assessee society receives the deposits from the members in the course of its business, if the deposits received is not necessary for immediate use of its business i.e. lend it to the members the same is deposited with the bank and interest income is earned. According to the A.O., the interest income earned by the assessee is an income from other sources and the same view has been confirmed by the CIT(A). After careful consideration of the orders of the authorities below and also considering the section 80P(2)(a)(i) of the Act, we find that the assessee has deposited some funds in the KCTB and DCCB and other banks when those funds are not necessary for the immediate business purpose. Therefore, they had deposited the money in a bank to earn the interest. The said interest income was attributable to the carrying of business of banking and therefore it was liable to be deducted in terms of section 80P(2)(a)(i) of the Act. The Hon ble Karnataka High Court in case of Guttigedarara Credit Cooperative Society Ltd. Vs. ITO (2015 (7) TMI 874 - KARNATAKA HIGH COURT ) by following the decision of A.P. High Court in the case of CIT Vs. Andhra Pradesh State Co-operative Bank Ltd. (2011 (6) TMI 215 - ANDHRA PRADESH HIGH COURT ) has held that interest earned on the deposits in the bank by the assessee cooperative society providing credit facility to its members would be quantified for deduction u/s 80P of the Act - Decided in favour of assessee

Summary

Issues:
1. Allowability of deduction u/s 80P of the Income Tax Act for a Co-operative Building Society Limited.
2. Taxability of interest income earned from fixed deposits by the Co-operative Building Society Limited.

Analysis:

Issue 1: Allowability of deduction u/s 80P of the Income Tax Act
The assessee, a Co-operative Building Society Limited, filed appeals against the orders of CIT(A) for the assessment years 2007-08 and 2009-10. The primary contention was the deduction u/s 80P of the Act. The assessee argued that being a cooperative society providing credit facilities to its members, it should be entitled to the deduction u/s 80P, despite not claiming it initially. The CIT(A) acknowledged the eligibility of the assessee for the deduction and directed the Assessing Officer (A.O.) to grant the deduction subject to verification of eligibility conditions under section 80P of the Act. The Tribunal upheld the CIT(A)'s decision, emphasizing that the deduction was a relief provided in the statute, and the assessee met the eligibility criteria.

Issue 2: Taxability of interest income from fixed deposits
Regarding the taxability of interest income earned from fixed deposits, the assessee argued that such income should be considered business income as it was generated in connection with the society's primary activity of collecting deposits and lending money to members. However, the CIT(A) categorized the interest income as income from other sources, based on the nature of the deposits. The Tribunal reviewed the case, considering the activities of the assessee and relevant legal precedents. It concluded that the interest income earned from bank deposits was attributable to the business of banking and hence eligible for deduction u/s 80P(2)(a)(i) of the Act. Citing decisions from the jurisdictional High Court and Karnataka High Court, the Tribunal allowed the appeal raised by the assessee on this issue.

In summary, the Tribunal allowed the appeals filed by the assessee related to both deduction u/s 80P and taxability of interest income, while dismissing the cross-appeal filed by the revenue. The judgment highlighted the importance of statutory provisions and legal precedents in determining the tax treatment of income for Co-operative Building Societies.