2016 (7) TMI 1665 - AT - Income Tax

Deduction u/s. 80P(2)(a)(i) - interest income on bank deposits with various banks other than cooperative banks/societies - CIT-A allowed the deduction - HELD THAT - Tribunal in 2015 (8) TMI 1085 - ITAT PUNE has elaborately discussed the issue and held that interest income earned by the assessee on short term deposits kept with banks has to be allowed as deduction u/s.80P(2)(a)(i) of the Act. Since the facts of the impugned assessment year are identical to the facts in A.Y. 2010-11 therefore following the decision of the Coordinate Bench of the Tribunal in assessee s own case and in absence of any contrary material brought to my notice uphold the order of the CIT(A) on this issue and the grounds raised by the Revenue are dismissed.

Summary

Issues Involved:
1. Allowability of deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961, in respect of interest income on bank deposits with banks other than cooperative banks/societies.
2. Distinguishing the applicability of the Hon'ble Supreme Court's decision in Totgar’s Cooperative Sale Society Ltd. vs. ITO.
3. Consideration of previous Tribunal decisions on similar issues.

Issue-wise Detailed Analysis:

1. Allowability of Deduction u/s 80P(2)(a)(i):
The primary issue revolves around whether the interest income earned by the assessee, a cooperative society, from deposits made with scheduled and nationalized banks qualifies for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The Assessing Officer (AO) argued that such interest income should be classified as "income from other sources" under section 56 of the Act, as it was not derived from transactions with members of the cooperative society. The AO relied on the Supreme Court's decision in Totgar’s Cooperative Sale Society Ltd. vs. ITO, which held that interest income from investments with non-cooperative entities does not qualify for deduction under section 80P(2)(a)(i).

2. Distinguishing the Supreme Court's Decision in Totgar’s Case:
The CIT(A) allowed the assessee's claim for deduction, distinguishing the facts from the Totgar’s case. The CIT(A) referred to the Tribunal's decision in the assessee's own case for the assessment year 2010-11, which had allowed the deduction under similar circumstances. The CIT(A) observed that the interest income earned on short-term deposits with banks was attributable to the business of providing credit facilities to its members. The CIT(A) emphasized the broader interpretation of the term "attributable" as used in section 80P(2)(a)(i), which is more inclusive than "derived from."

3. Consideration of Previous Tribunal Decisions:
The Tribunal, in its analysis, noted that the issue had been previously decided in favor of the assessee for the assessment year 2010-11. The Tribunal had elaborately discussed the applicability of section 80P(2)(a)(i) and concluded that the interest income earned from short-term deposits with banks should be allowed as a deduction. The Tribunal also considered the Karnataka High Court's decision in Tumkur Merchants Souharda Credit Cooperative Ltd., which supported the assessee's position. The Tribunal highlighted that when two divergent views exist, the view favoring the assessee should be followed, as per the Supreme Court's decision in CIT vs. Vegetable Products.

Conclusion:
The Tribunal upheld the CIT(A)'s order, allowing the deduction under section 80P(2)(a)(i) for the interest income earned from deposits with banks other than cooperative banks. The Tribunal dismissed the Revenue's appeal, reaffirming that the interest income was attributable to the business of providing credit facilities to members and thus eligible for deduction. The decision was pronounced in the open court on 22-07-2016, emphasizing the consistency with previous rulings and the broader interpretation of the relevant tax provisions.