2016 (7) TMI 1498 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) in respect of bank interest income - Held that - An identical issue of claim of deduction under section 80P(2)(a)(i) of the Act in respect of interest income earned by a credit co-operative society had arisen before the Tribunal in ITO Vs. M/s. Kundalika Nagari Sahakari Patsanstha Maryadit (2016 (2) TMI 879 - ITAT PUNE) and the Tribunal after considering the ratio laid down by the Hon ble Supreme Court in Totgars Co -op. Sale Society Ltd. Vs. ITO 2010 (2) TMI 3 - SUPREME COURT held assessee is entitled to the claim of deduction under section 80P(2)(a)(i) of the Act. The additional interest income of ₹ 33,810/- is also arising on account of interest due on FDs and on the said amount also, the assessee is entitled to claim the deduction under section 80P(2)(a)(i) of the Act. Accordingly, the Assessing Officer is directed to allow the same. The grounds of appeal raised by the assessee are thus, allowed.

Issues Involved:
1. Assessment of income against the return income.
2. Classification of rent income as "Income from House Property" versus "Income from Business."
3. Classification of interest income from Fixed Deposits (FDs) as "Income from Other Sources" versus "Business Income."
4. Deduction eligibility under section 80P(2)(a)(i) of the Income-tax Act, 1961.
5. Cancellation of interest charged under section 234B.

Detailed Analysis:

1. Assessment of Income Against the Return Income:
The appellant contested the CIT(A)'s confirmation of the Assessing Officer's order assessing an income of ?3,80,660 against a declared return income of NIL. The appellant sought the deletion of this addition. The Tribunal noted that the appellant had consented to an addition of ?33,810, which was initially undisclosed due to late intimation by the bank. The Tribunal upheld the addition but allowed the deduction under section 80P(2)(a)(i) for the interest income.

2. Classification of Rent Income:
The CIT(A) confirmed the Assessing Officer's classification of rent income as "Income from House Property" instead of "Income from Business." Consequently, depreciation and municipal taxes were disallowed, and the deduction under section 80P(2) was rejected. The Tribunal did not provide a detailed discussion on this issue in the judgment, focusing primarily on the interest income and its eligibility for deduction under section 80P(2)(a)(i).

3. Classification of Interest Income from FDs:
The appellant's interest income from FDs with the State Bank of India, amounting to ?3,08,810, was assessed as "Income from Other Sources" by the Assessing Officer, relying on the Supreme Court's decision in Totgars Co-op. Sale Society Ltd. vs. ITO. The Tribunal, however, referred to its own previous decisions and the Karnataka High Court's decision in Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO, distinguishing the facts of the present case from Totgars. The Tribunal held that since the interest income was derived from surplus funds not immediately required for business purposes, it was attributable to the business of providing credit facilities and thus eligible for deduction under section 80P(2)(a)(i).

4. Deduction Eligibility Under Section 80P(2)(a)(i):
The core issue was whether the interest income from FDs was eligible for deduction under section 80P(2)(a)(i). The Tribunal concluded that the interest income earned by the co-operative credit society from its investments in FDs was indeed eligible for the deduction, as these funds were surplus funds not immediately required for its business operations. This decision was based on the Tribunal's previous rulings and the Karnataka High Court's distinction from the Totgars case.

5. Cancellation of Interest Charged Under Section 234B:
The appellant sought the cancellation of interest charged under section 234B on the additional income. The Tribunal's decision to allow the deduction under section 80P(2)(a)(i) effectively reduced the taxable income, which would impact the interest calculation under section 234B. However, the judgment did not explicitly address the cancellation of interest under section 234B.

Conclusion:
The Tribunal allowed the appeals, directing the Assessing Officer to grant the deduction under section 80P(2)(a)(i) for the interest income from FDs. The grounds of appeal raised by the assessee were thus allowed, and the decision applied mutatis mutandis to the other appeals with identical facts and issues. The judgment emphasized the eligibility of the co-operative credit society for the deduction under section 80P(2)(a)(i), distinguishing the facts from the Totgars case and aligning with the Tribunal's and the Karnataka High Court's previous rulings.

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