2019 (8) TMI 1878 - AT - Income Tax

Deduction u/s. 80P - interest income on deposits with non co-operative bank - HELD THAT - As decided in own case 2018 (3) TMI 1562 - ITAT PUNE assessee before us, in line with statutory obligation of maintaining its status of Co-operative society and as per the regulations of Maharashtra State Co-operative Societies Act, was duty bound to transfer 25% of its profits to reserve funds, which it has done. There is no dispute to the same. For utilization of funds in reserve funds by way of making FDRs with Scheduled bank u/s 70 of the said Act. The assessee has received permission of the Registrar of Maharashtra Co-operative Societies Act to make such investment with Bank of Maharashtra and also in order to carry on the business activities of providing credit facilities to its employees, it is mandatory upon the assessee to invest 25% of its profits in the reserve funds, which in turn, are parked in FDRs with Bank of Maharashtra, then interest income earned by the assessee is from carrying on its business activities. Once it is so, then the said income is assessable as Income from business and the assessee is entitled to claim deduction under section 80P(2)(a)(i) - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for deduction under section 80P of the Income Tax Act for interest income on deposits with non-cooperative banks.
2. Consideration of the Hon'ble Apex Court's decision in Totgar's Co-operative Sale Society Ltd. vs. ITO.
3. Validity of the CIT(A)'s order and the restoration of the Assessing Officer's order.

Detailed Analysis:

1. Eligibility for Deduction under Section 80P of the Income Tax Act:
The primary issue revolves around whether the assessee society is eligible for deduction under section 80P of the Income Tax Act for interest income earned on deposits with non-cooperative banks. The Tribunal found that a similar issue had already been adjudicated in the assessee's favor in previous assessment years (2007-08, 2008-09, and 2010-11). The Tribunal cited various judgments to support its decision, including the Pune Bench's decision in ITO vs. M/s. Kundalika Nagari Sah. Patsanstha Maryadit, where it was held that interest income earned on investments mandated by the Maharashtra Co-operative Societies Act is eligible for deduction under section 80P(2)(a)(i) of the Act. The Tribunal emphasized that the funds invested were not surplus funds but were mandatory reserves as per statutory requirements, thus making the interest income attributable to the business activities of the assessee society.

2. Consideration of the Hon'ble Apex Court's Decision in Totgar's Co-operative Sale Society Ltd. vs. ITO:
The Tribunal distinguished the facts of the current case from the Totgar's case. In Totgar's, the Supreme Court held that interest income from surplus funds invested in short-term deposits and securities was taxable under section 56 of the Act and not eligible for deduction under section 80P(2)(a)(i). However, the Tribunal noted that in the present case, the funds were not surplus but were statutory reserves required to be maintained under the Maharashtra Co-operative Societies Act. Therefore, the interest income earned from these statutory investments was considered part of the business income and eligible for deduction under section 80P(2)(a)(i).

3. Validity of the CIT(A)'s Order and the Restoration of the Assessing Officer's Order:
The Revenue argued that the CIT(A) erred in allowing the deduction and requested the restoration of the Assessing Officer's order. However, the Tribunal upheld the CIT(A)'s decision, stating that the facts and issues in the current assessment year were identical to those in the preceding years, which had already been decided in favor of the assessee. The Tribunal found no new material or evidence from the Revenue to challenge the findings of the previous judgments. Consequently, the Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order allowing the deduction under section 80P(2)(a)(i).

Conclusion:
The Tribunal concluded that the assessee society is eligible for deduction under section 80P(2)(a)(i) for interest income earned on statutory reserve funds deposited with non-cooperative banks. The decision was based on the consistency of facts with previous assessment years and the distinction from the Totgar's case. The Revenue's appeal was dismissed, and the CIT(A)'s order was upheld.