2017 (5) TMI 722 - AT - Income Tax

Deduction u/s. 80P - eligibility to co-operative bank for deduction u/s 80P - interest income as fixed deposit - Held that - We noticed that the assessee was not operating u/s. 5(b) of the Banking Regulation Act as the assessee was not allowed to accept deposit of money from the public and do other banking activities as defined in the section 5(b) of the Banking Regulation Act. We further noticed that the assessee was a co-operative society registered under Registrar of Co-operative Society Mehsana, Mehsana, Gujarat State engaged in taking deposits from its members and providing advances to its members with the object of promotion and development of its members. In view of the above facts and the detailed findings provided by the ld. CIT(A) in his findings as supra we considered that the assessee is not a co-operative bank u/s. 80P(4) of the act. No merit in the contentions of the ld. counsel for considering the interest income as fixed deposit as business income. We find that it is to be considered as income from other sources as held in the case of Totgors Co-operative society Ltd. Vs. ITO Karnataka 2010 (2) TMI 3 - SUPREME COURT wherein it was held that investing surplus funds in short term deposits would fall under the head income from other sources taxable u/s. 56 of the Act and it cannot be attributable to the activities of the society, therefore, the interest as fixed deposit received would not qualify for deduction u/s. 80P(2)(5)(a)(i) of the act. We also do not find any merit in the ground of the assessee to allow expenditure out of interest income from fixed deposit as after perusal of paper book, and order of the lower authorities we find that the assessee has not substantiated that there was any particular expenditure incurred on earning interest income from the fixed deposit kept with the bank as elaborated above in this order. Accordingly, the appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Whether the interest income of ?13,88,824 received on Fixed Deposit qualifies for deduction under section 80P of the Income Tax Act.
2. Whether the interest income earned from keeping surplus funds in banks or other investments is taxable under section 56 and not eligible for deduction under section 80P.

Analysis:

Issue 1:
The assessee contended that the interest income of ?13,88,824 should not be considered as interest received on Fixed Deposit under section 56 and should be eligible for deduction under section 80P. The assessing officer rejected this claim based on section 80P(4), stating that deduction under section 80P is not available to any cooperative bank. The CIT(A) partially allowed the claim, ruling that the interest income would be taxable under section 56 and not qualify for deduction under section 80P. The CIT(A) referred to relevant legal provisions and precedents, emphasizing that the interest income from fixed deposits would not qualify for deduction under section 80P.

Issue 2:
The Revenue challenged the CIT(A)'s decision to allow the assessee's claim of deduction under section 80P(2)(a)(i) and deleting the addition made by the AO under section 80P(4). The Revenue also contested the direction to tax the interest income of ?13,88,824 received on Fixed Deposits under section 56. However, the Tribunal found that this issue was interconnected with the assessee's appeal, which had already been decided. The Tribunal dismissed the Revenue's appeal based on the facts and findings provided by the CIT(A) in the order.

In conclusion, both the assessee's and the Revenue's appeals were dismissed based on the detailed analysis of the provisions of the Income Tax Act, relevant legal precedents, and the specific circumstances of the case. The Tribunal upheld the CIT(A)'s decision regarding the taxation of interest income and the eligibility for deduction under section 80P, emphasizing the distinction between income from fixed deposits and operational income for cooperative societies.