2018 (10) TMI 1918 - AT - Income Tax

Deduction u/s.80P(2)(a)(i) - assessee is a Co-operative Society registered under Gujarat Co-operative Societies Act, 1961 with the main object of providing credit to its members out of funds collected from members - HELD THAT - As decided in ANDHRA PRADESH STATE COOPERATIVE BANK LTD. 2011 (6) TMI 215 - ANDHRA PRADESH HIGH COURT Investment of funds by banks including the nonreserve is part of banking activities since no bank would like its reserve funds to remain ideal and not earn any interest. Therefore, the interest earned on such deposits is directly attributable to the business of banking and therefore exemption u/s.80P(2)(a)(i) of the Act. Similarly,in the case of CIT vs. Baroda Peoples Co-operative Bank Ltd. 2005 (7) TMI 33 - GUJARAT HIGH COURT has held that on a plain reading of the Gujarat Cooperative Societies Act 1961, the claim which unfolds is that in the case of a society carrying on a business of banking, it would be permissible to make investment or deposits in any of the specified investments as provided in section 71 of the Gujarat Co-operative Societies Act including in any of the modes specified in section 20 of Indian Trust Act 1882, without there being any upper limit as to the amount that can be invested, once the statutory requirement of reserve fund as stipulated in section 67(2) of the Gujarat Cooperative Societies Act is satisfied. Therefore, it was held that the assessee would be eligible for deduction in terms of section 80P(2)(a)(i) of the Act. We are of the view that interest earned on FD s placed with SBI is eligible for deduction u/s.80P(2)(a)(i) of the Act, accordingly we direct the AO to allow the same - Decided in favour of assessee.

Summary

Issues:
1. Eligibility of deduction u/s.80P(2)(a)(i) of the Income Tax Act.
2. Entitlement to deduction u/s.80P(2)(d) of the Act.

Analysis:

Issue 1: Eligibility of deduction u/s.80P(2)(a)(i) of the Income Tax Act:

The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of interest income under section 80P(2)(a)(i) of the Act. The Assessee, a cooperative society providing credit facility to members, had earned interest income from fixed deposits with State Bank of India. The Assessing Officer disallowed this interest income, stating it was not directly related to the society's activities of providing credit facilities. The Commissioner upheld this decision, referring to the Supreme Court's judgment in Totgars CSS Ltd. case. However, the Assessee argued that the Totgars CSS Ltd. case was not applicable as their society was solely engaged in providing credit facilities, unlike the agricultural marketing activities in the Totgars case. The Tribunal agreed with the Assessee, emphasizing that the interest earned on fixed deposits with SBI was directly connected to the society's banking business, making it eligible for deduction u/s.80P(2)(a)(i) of the Act. The Tribunal cited various High Court decisions supporting this view and allowed the appeal.

Issue 2: Entitlement to deduction u/s.80P(2)(d) of the Act:

The Assessee also claimed deduction u/s.80P(2)(d) of the Act, which was not addressed by the Commissioner in the appellate order. The Tribunal noted that this issue was raised in the appeal before the Commissioner but remained unaddressed. Therefore, the Tribunal set aside this issue to the file of the Commissioner for adjudication, allowing the ground of appeal for statistical purposes.

In conclusion, the Tribunal allowed the Assessee's appeal, directing the Assessing Officer to allow the interest income on fixed deposits with SBI for deduction u/s.80P(2)(a)(i) of the Act. The issue of deduction u/s.80P(2)(d) was remanded to the Commissioner for proper adjudication.