2016 (5) TMI 1486 - AT - Income Tax

Disallowance of claim of deduction under section 80P(2)(a)(i) on interest income received from the banks - assessee was a co-operative society engaged in providing credit facilities to its members - Held that - For the year under consideration the assessee had received interest income on the deposits with the banks other than co-operative societies or co-operative banks which admittedly was received on the surplus available with the assessee which was deposited in the said banks. As relying on ITO Vs. M/s. Kundalika Nagari Sahakari Patsanstha Maryadit & Another 2016 (2) TMI 879 - ITAT PUNE The assessee is entitled to claim the aforesaid deduction. However no such deduction is available on the interest arising on MSEB deposits - decided partly in favour of assessee.

Summary

Issues:
Allowability of deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 for interest income from bank deposits and other income activities.

Analysis:

1. Interest Income from Bank Deposits:
The appellant, a co-operative society, received interest income from deposits with banks other than co-operative societies. The Assessing Officer disallowed the deduction under section 80P(2)(a)(i) for this interest income. The CIT(A) upheld this decision. The appellant contended that the interest income from banks, except for MSEB deposits, should be eligible for the deduction. The Tribunal referred to a similar case and held that the appellant is entitled to claim the deduction for interest earned on bank deposits, except for MSEB deposits. Thus, the appellant was granted relief of the total interest income amount minus the interest from MSEB deposits.

2. Other Income Activities:
Apart from interest income, the appellant earned income from various activities such as bank charges, MSEB commission, water bill commission, and fees from members. The Assessing Officer treated this income as 'Income from other sources' and allowed a deduction of &8377;50,000 under section 80P(2)(c) of the Act. The CIT(A) upheld this decision. The appellant accepted that no deduction under section 80P(2)(a)(i) is allowable for this other income. Consequently, the Tribunal partly allowed the appeal, stating that no deduction is available for this other income under section 80P(2)(a)(i) of the Act.

In conclusion, the Tribunal partially allowed the appeal by granting the deduction for interest income from bank deposits, except for MSEB deposits, and denying the deduction for other income activities under section 80P(2)(a)(i) of the Act.