2018 (5) TMI 2158 - AT - Income Tax

Deduction u/s 80P - interest and dividend income earned From surplus fund parked in short term deposits with co-operative banks and nationalized banks - HELD THAT - The assessee is a co-operative society engaged in the business of providing credit facilities to its members. We have perused the order in the assessee s own case for A.Y 2012-13 as allowed assessee claim as relying on GOA VERSUS JAYALAKSHMI MAHILA VIVIDODESHAGALA SOUHARDA SAHAKARI LTD. AND DWARKA SOUHARDA CREDIT SAHAKARI LTD. 2012 (8) TMI 185 - ITAT PANAJI and BULDANA URBAN CO-OPERATIVE CREDIT SOCIETY LTD. 2013 (12) TMI 237 - ITAT NAGPUR appellant cannot be held as a cooperative bank hence deduction claimed u/s 80P(2)(a)(i) cannot be denied to it I find that the A.O in the present AY has nowhere led any facts to show that banking facilities such as cheque books drafts have been provided. Neither is it the case of the A.O that facilities have been provided to members of the general public without restricting on/v to its own members. On facts therefore the A.O has not demonstrated as to how the appellant qualifies to be a bank. Thus hold that the appellant is a cooperative society and not a cooperative bank and is therefore eligible for deduction u/s 80P(2)(a)(i). A.O is accordingly directed to allow the deduction claimed by the appellant - Decided against revenue.

Summary

Issues Involved:
1. Whether interest and dividend income earned from surplus funds parked in short-term deposits with cooperative and nationalized banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Whether such income is attributable to the activity of banking and thus eligible for deduction under Section 80P of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

Issue 1: Deduction Eligibility under Section 80P(2)(a)(i)
The primary issue revolves around whether the interest and dividend income earned from surplus funds parked in short-term deposits with cooperative and nationalized banks qualify for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee, a cooperative society engaged in providing credit facilities to its members, claimed a deduction under Section 80P(2)(a)(i) for interest income earned from fixed deposits. The Assessing Officer (A.O) contested this claim, arguing that the interest income should be assessed under "Income from other sources" as it was derived from surplus funds, not directly from the business of providing credit facilities. The A.O relied on the Supreme Court judgment in Totgars Co-operative Sales Society Ltd. Vs. ITO, which held that interest income from surplus funds invested in short-term deposits falls under "Income from other sources" and is not eligible for deduction under Section 80P(2)(a)(i).

Issue 2: Attributable to Banking Activity
The second issue is whether the income earned from these deposits is attributable to the activity of banking and thus eligible for deduction under Section 80P. The CIT(A) observed that the term "attributable to" used in Section 80P(2)(a)(i) is broader than "derived from" and includes receipts from activities related to the business of banking. The CIT(A) distinguished the case from the Totgars Co-operative Sales Society Ltd., noting that the assessee was engaged in the business of banking, unlike Totgars, which was a credit society. The CIT(A) concluded that the interest income from fixed deposits was directly attributable to the banking activities of the assessee and thus eligible for deduction under Section 80P(2)(a)(i).

Tribunal's Findings:
The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by a previous order in the assessee's own case for A.Y. 2012-13, where it was held that the interest and dividend income earned by the cooperative society on short-term deposits with cooperative and nationalized banks was eligible for deduction under Section 80P(2)(a)(i). The Tribunal found no reason to deviate from this view and dismissed the revenue's appeal, affirming that the interest income was attributable to the banking activities of the cooperative society and thus eligible for the claimed deduction.

Conclusion:
The Tribunal concluded that the interest and dividend income earned from surplus funds parked in short-term deposits with cooperative and nationalized banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, as it is attributable to the banking activities of the cooperative society. The appeal filed by the revenue was dismissed, and the order of the CIT(A) was upheld.