2016 (4) TMI 1367 - AT - Income Tax

Denying the deduction claimed u/s 80P(2)(a)(i) in respect of the interest earned from banks - HELD THAT - For the year under consideration as noted hereinabove both the AO as well as the ld. CIT(A) have made specific note of the activities of the assessee Society as per which the assessee Society is carrying on the business of providing credit facilities to its members. Therefore the order dated 18.03.2014 passed by the Tribunal in assessee s case for the assessment year 2007-08 is of no detriment to the assessee for the year presently under consideration. Action of the AO as confirmed by the CIT(A) in denying the deduction claimed and allowable u/s 80P(2)(a)(i) of the Act in respect of interest of 8, 52, 314/- earned from the banks is erroneous. The same is reversed. The claim is allowed.

Summary

Issues involved:
- Appeal against orders of the ld. CIT(A) for the assessment years 2009-10 & 2010-11 regarding the denial of deduction claimed under section 80P(2)(a)(i) for interest income earned from banks.

Comprehensive analysis:
1. Assessment year 2009-10:
- The assessee, a cooperative society, claimed exemption under section 80P for interest income earned from banks. The AO disallowed the deduction, stating it was not earned from another cooperative society. The ld. CIT(A) upheld this disallowance citing the Supreme Court decision in 'Totgars Co-operative Sale Society Ltd. vs. ITO'. The assessee challenged this decision.
- The counsel argued that 'Tumkur Merchants Souharda Credit Co-operative Ltd.' considered the same issue differently. The Karnataka High Court in that case held that interest income from banks is attributable to the business of banking and eligible for deduction under section 80P(1). The High Court clarified that the Supreme Court judgment was confined to the specific case.
- The activities of the assessee were similar to 'Tumkur Merchants Souharda Credit Co-operative Ltd.' as it provided credit facilities and earned interest from banks. The interest income was treated as profits and gains of business attributable to providing credit facilities, making it eligible for deduction under section 80P.
- The Tribunal noted that the assessee failed to establish a banking or credit facility business in a previous year, but the current activities clearly fell under the scope of section 80P. Therefore, the disallowance was reversed, and the deduction was allowed.

2. Assessment year 2010-11:
- The issue was similar to the previous year, with the assessee claiming deduction under section 80P for interest income. Following the decision in the 2009-10 assessment, the Tribunal accepted the grounds raised by the assessee for the current year as well.
- The Tribunal allowed the appeals partly, reversing the disallowance of the deduction for interest income earned from banks in both assessment years.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the deduction claimed under section 80P(2)(a)(i) for interest income earned from banks in both assessment years, based on the nature of the activities carried out by the cooperative society and the applicability of relevant legal precedents.