2018 (12) TMI 1662 - AT - Income Tax

Benefit of deduction u/s 80P(2)((a)(i) - interest income earned on investment in Bagalkot District Central Co-operative Bank and interest earned on savings bank account FD with Jamkhandi Sugars Ltd. - HELD THAT - The claim of the Assessee was that Co-operative Bank is essentially a Co-operative Society and therefore deduction has to be allowed under Clause (d) of Sec.80P(2). The Tumukur Merchants Souharda Credit Cooperative 2015 (2) TMI 995 - KARNATAKA HIGH COURT followed the decision of the supreme Court in The Totgars Co-operative Sales Society Ltd. 2010 (2) TMI 3 - Supreme Court and held that interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d)of the Act was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991-92 to 1999-2000 decided by the Hon ble Supreme Court. Therefore whether the source of funds were Assessee s own funds or out of liability was not subject matter of the decision of the Totagars Co-Operative Sale Society - 2017 (7) TMI 1049 - KARNATAKA HIGH COURT in the decision cited by the learned DR. To this extent the decision of the Hon ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra) still holds good. Hence on this aspect the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon ble Karnataka high Court rendered in the case of Tumukur Merchnts Souharda Co-operative Ltd. (supra). Appeal by the Assessee is treated as allowed for statistical purpose.

Summary

Issues:
- Eligibility of deduction u/s.80P(2)(a)(i) of the Income Tax Act, 1961 for interest income earned on investments in a cooperative bank and savings bank account.

Analysis:

The appeal before the Tribunal revolves around the eligibility of the Assessee to claim a deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for interest income earned on investments in Bagalkot District Central Co-operative Bank and interest earned on savings bank account, FD with Jamkhandi Sugars Ltd. The Assessing Officer had denied the claim, stating that interest income from surplus funds investments should be assessed under "Income from other Sources" and not as business income, hence not eligible for the deduction. The AO relied on a Supreme Court decision that specified the deduction under section 80P(2)(a)(i) is only applicable to income assessable under the head of income from business. The CIT(A) allowed the deduction, but the AO confirmed the denial, leading to the Assessee's appeal before the Tribunal.

The Assessee contended that the lower authorities erred in denying the deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The argument hinged on the nature of the interest income and its classification as business income or income from other sources. The Tribunal examined precedents, including a decision of the Hon'ble Karnataka High Court, to determine the treatment of interest income from cooperative banks. The High Court held that interest earned from scheduled banks or cooperative banks is assessable under income from other sources, not falling under the purview of section 80P(2)(d) of the Act. The Tribunal noted that the source of funds for investments remained consistent across different assessment years, emphasizing the need for a fresh examination by the AO based on relevant judgments.

In light of the analysis and legal precedents, the Tribunal directed the AO to reevaluate the issue, affording the Assessee an opportunity to present additional evidence if necessary. The appeal by the Assessee was treated as allowed for statistical purposes, indicating a partial success in challenging the denial of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.

In conclusion, the judgment highlights the intricate interpretation of tax laws concerning the eligibility of deductions for specific types of income, emphasizing the importance of consistent application of legal principles across different assessment periods and the need for a thorough review of facts in contentious tax matters.