2017 (12) TMI 1596 - HC - Income Tax

Stay petition - claim of the petitioner for deduction made under Section 80P(2)(a)(i) - Held that - It appears prima facie to this Court, in the light of the provision contained in Section 80 P (2) (d) of the Act that the interest income of the petitioner is not liable to tax. In the said view of the matter, according to me, the petitioner is entitled to an absolute stay in the matter. Writ petition is allowed. The impugned order is modified granting the petitioner absolute stay for realisation of the amount covered

Summary

Issues:
1. Rejection of deduction claim under Section 80P(2)(a)(i) of the Income Tax Act.
2. Treatment of interest income earned by the petitioner from surplus funds.
3. Challenge to the order of stay on tax demand.

Analysis:
1. The petitioner, a Primary Agricultural Credit Society, challenged the assessment completed by the first respondent under Section 143 of the Income Tax Act for the year 2013-2014, which determined the income at ?1,22,36,746/- and raised a tax demand of ?51,00,400/-. The petitioner contended that they were entitled to deduction under Section 80P(2)(a)(i) of the Act, citing a previous court decision. The second respondent accepted the deduction claim under Section 80P(2)(a)(i) but rejected the deduction claim for interest income earned from surplus funds. The petitioner sought a stay on the tax demand pending appeal, which was partially granted by the second respondent. The High Court, prima facie, found that the interest income of the petitioner may not be liable to tax under Section 80P(2)(d) of the Act, leading to the grant of an absolute stay on the tax demand.

2. The Assessing Officer had treated a portion of the interest income earned by the petitioner from surplus funds deposited by District Co-operative Banks, Treasuries, etc., as income from other sources. The petitioner argued that this interest income was also eligible for deduction under Section 80P(2)(d) of the Act. The second respondent upheld the deduction claim under Section 80P(2)(a)(i) but rejected the claim regarding the interest income. The High Court, upon examining Section 80P(2)(d) of the Act, concluded that the interest income of the petitioner may not be taxable. Consequently, the court granted an absolute stay on the realization of the tax amount specified in the assessment order.

3. The writ petition challenging the order of stay on the tax demand was allowed by the High Court. The impugned order was modified to grant the petitioner an absolute stay on the realization of the tax amount determined in the assessment order until the appeal process, for which the stay was sought, was concluded. The court's decision was based on the interpretation of relevant provisions of the Income Tax Act and the petitioner's entitlement to deductions under specific sections of the Act.