2016 (3) TMI 1296 - AT - Income Tax

Claim for exemption u/s 80P(2)(i)(a) - interest earned - Held that - As relying on Mahaveer Co-op. Union Bank Ltd 2013 (10) TMI 463 - ITAT HYDERABAD section 80P(2)(a) is given a restrictive meaning as including the interest earned only on the statutory deposits made by a co-operative society it would amount to supplying a casus omissus and has to be avoided by the court - Investment of funds by banks including the non-reserves is part of banking activities since no bank would like its reserve funds to remain idle and not earn any interest. Therefore the interest earned on such deposits is directly attributable to the business of banking and therefore exempt under section 80P(2)(a)(i) Decided against the Revenue.

Summary

Issues: Disallowance of deduction under S.80P, Interpretation of statutory provisions, Judicial precedents

Disallowance of deduction under S.80P:
The appeal was against the disallowance of the assessee's claim for exemption under S.80P(2)(i)(a) of the Income Tax Act, 1961. The assessee, a cooperative society deriving income from banking, had claimed a deduction of Rs. 15,41,19,431 under S.80P(2)(a)(i) of the Act in the return of income for the assessment year 2012-13. However, the Assessing Officer disallowed this claim and completed the assessment on a total income of Rs. 15,43,19,431. The CIT(A), based on a previous Tribunal decision, upheld the disallowance, leading to the assessee filing a second appeal before the ITAT Hyderabad.

Interpretation of statutory provisions:
The ITAT Hyderabad considered the decision of the Tribunal in the assessee's own case for previous assessment years, where it was held that the assessee was not eligible for deduction under S.80P(2)(a)(i) of the Act. However, the ITAT noted that this previous decision did not consider the judgment of the Andhra Pradesh High Court in a similar case, which favored the assessee. Referring to the High Court's decision, the ITAT concluded that all income from banking business under S.80P(2)(a)(i) qualifies for deduction, including interest earned on deposits. The ITAT emphasized that there is no distinction between interest earned on statutory deposits and other deposits, as long as they are part of banking activities. Relying on this interpretation, the ITAT allowed the appeal, holding that the assessee was eligible for deduction under S.80P(2)(a)(i) of the Act.

Judicial precedents:
The ITAT's decision was influenced by judicial precedents, particularly the judgment of the Andhra Pradesh High Court and a previous decision of the coordinate bench of the Tribunal. The ITAT highlighted the High Court's ruling that income earned by a cooperative bank through various banking activities, including interest on deposits, is attributable to the business of banking and qualifies for deduction under S.80P(2)(a)(i) of the Act. By following the precedent set by the High Court and the Tribunal, the ITAT allowed the appeal and confirmed that the assessee was entitled to the deduction under S.80P(2)(a)(i) of the Act.

In conclusion, the ITAT Hyderabad allowed the assessee's appeal, emphasizing the broad interpretation of statutory provisions and the significance of judicial precedents in determining the eligibility for deductions under S.80P(2)(a)(i) of the Income Tax Act, 1961.