2016 (4) TMI 1091 - AT - Income Tax

Deduction u/s. 80P(2)(a)(i) - Held that - Assessee is entitled to deduction u/s. 80P(2)(a)(i) of the Act in respect of the interest income.

Summary

Issues:
1. Interpretation of Section 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Whether interest income from investments qualifies for deduction under Section 80P(2)(a)(i).
3. Application of the doctrine of mutuality to tax exemption on interest income.
4. Consistency in judicial decisions on the treatment of interest income.

Issue 1: Interpretation of Section 80P(2)(a)(i) of the Income Tax Act, 1961:
The case involved appeals by the Revenue against orders of the Commissioner of Income Tax (Appeals) regarding the interpretation of Section 80P(2)(a)(i) of the Income Tax Act, 1961 for assessment years 2008-09 and 2009-10. The Assessing Officer had disallowed interest income claimed as exemption by the assessee under this section. The issue revolved around whether the income derived from carrying on the business of banking for providing credit facilities to members was eligible for deduction under the Act.

Issue 2: Qualification of Interest Income for Deduction:
The core dispute was whether interest income earned from investments made in securities and term deposits out of surplus funds by a Co-operative Society should be considered as income from business or from other sources. The Assessing Officer contended that such income was chargeable to tax under Section 56 of the Act. However, the Commissioner of Income Tax (Appeals) allowed the deduction under Section 80P(2)(a)(i) based on previous judgments and the nature of the investments made by the assessee.

Issue 3: Application of Doctrine of Mutuality:
The Revenue relied on a recent judgment of the Apex Court to argue that interest income from fixed deposits placed by the club with banks did not qualify for tax exemption due to the doctrine of mutuality. However, the Tribunal distinguished this case by emphasizing that the interest income in question was earned by a Co-operative Society from non-compulsory investments, which, according to previous decisions and the principle of consistency, qualified for exemption under Section 80P(2)(a)(i).

Issue 4: Consistency in Judicial Decisions:
The Tribunal referred to various decisions, including those by the jurisdictional High Court, to establish a consistent interpretation regarding the treatment of interest income earned by Co-operative Societies. The Tribunal highlighted the importance of following precedent and ensuring uniformity in applying tax laws. By relying on past judgments and distinguishing relevant cases, the Tribunal upheld the allowance of deduction under Section 80P(2)(a)(i) for the interest income in question.

In conclusion, the Tribunal dismissed the Revenue's appeals, affirming the decision of the Commissioner of Income Tax (Appeals) to allow the deduction of interest income under Section 80P(2)(a)(i) for both assessment years. The judgment emphasized the significance of consistent judicial interpretation, precedent, and the specific nature of the investments made by the Co-operative Society in determining the eligibility for tax exemption.