2017 (2) TMI 1500 - AT - Income Tax

Disallowance of claim of Section 80P - interest on Fixed Deposits with the Bank - assessee is a co-operative society which provides credit facilities to the farmers. The assessee earned interest on fixed deposits from SBI, Agriculture Development Bank, Station Road Branch, Bellary - AO denied the claim under Section 80P in view of the decision of the Hon'ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. 2010 (2) TMI 3 - SUPREME COURT - HELD THAT - Hon'ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. Vs. ITO 2010 (2) TMI 3 - SUPREME COURT and held that when the society has surplus funds which were made fixed deposit in the bank to earn interest, the same is eligible for deduction under Section 80P of the Act. When the amount which was deposited in the bank was not an amount due to members and it was not the liability of the society to the members then the interest earned from the deposits in the bank was held to be eligible for deduction under Section 80P (1) as well as 80P(2)(a)(i) of the Act. In the case on hand, the assessees are co-operative societies providing the credit facilities to its members. The Assessing Officer has noted that the assessee has earned interest on funds which are not required for the business deposited in the fixed deposit in the bank. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of claim of Section 80P of the Income Tax Act, 1961 regarding interest on Fixed Deposits with the Bank.

Analysis:
1. The appeals involved a challenge against the disallowance of the claim of Section 80P of the Income Tax Act, specifically concerning the interest earned on fixed deposits with the bank by a cooperative society providing credit facilities to farmers for the Assessment Year 2013-14.

2. The Assessing Officer initially denied the claim under Section 80P based on a Supreme Court decision, which was also upheld by the CIT (Appeals). However, the Tribunal noted that subsequent judgments by the jurisdictional High Court clarified the interpretation of Section 80P in similar cases, emphasizing that interest income from surplus funds deposited in banks for earning interest is eligible for deduction under Section 80P.

3. The Tribunal considered the word "attributable" in Section 80P(2)(a)(i) as crucial, highlighting that the interest income earned by a cooperative society providing credit facilities to its members and deposited in banks for short durations is indeed attributable to the business of providing credit facilities. The Tribunal referenced the wider import of "attributable to" compared to "derived from," as established in relevant case law.

4. Drawing on the judgments of the jurisdictional High Court, the Tribunal concluded that when the interest earned from bank deposits is not a liability to members and is related to the business activities of the cooperative society, it qualifies for deduction under Section 80P. The Tribunal found that the interest income in question was not immediately required for lending to members, leading to its deposit in banks to earn interest, aligning with the provisions of Section 80P(1) and 80P(2)(a)(i) of the Act.

5. Ultimately, the Tribunal allowed the appeals of the assessees, setting aside the orders of the lower authorities based on the binding precedent established by the jurisdictional High Court. The decision emphasized the eligibility of interest income from surplus funds deposited in banks by cooperative societies providing credit facilities to members for deduction under Section 80P of the Income Tax Act.

6. The judgment provided a comprehensive analysis of the legal provisions, case law interpretations, and factual considerations to support the allowance of the appeals and the favorable outcome for the assessees regarding the claim under Section 80P of the Income Tax Act for the relevant assessment year.