2018 (4) TMI 446 - AT - Income Tax

Eligibility for exemption u/s. 80P(2)(a)(i) - gross interest income received by the assessee on fixed deposits kept with the cooperative banks - Held that - As decided in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO 2015 (2) TMI 995 - KARNATAKA HIGH COURT the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. The order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. - Decided in favour of assessee.

Summary

Issues:
1. Eligibility of gross interest income from fixed deposits for exemption u/s. 80P(2)(a)(i) of the Act.

Analysis:
The appeal was against the order holding that gross interest income of ?23.32 lakhs from fixed deposits with cooperative banks is not eligible for exemption u/s. 80P(2)(a)(i) of the Act. The Assessing Officer disallowed the deduction under section 80P(4) as the assessee is a credit cooperative society. The learned CIT(A) allowed the deduction for income from loans to members but disallowed it for interest income from fixed deposits. The assessee relied on a Tribunal decision and the Hon'ble Karnataka High Court's judgment to support the eligibility for deduction on interest income from fixed deposits.

The learned CIT(A) relied on a Coordinate Bench order to disallow the deduction for interest income from fixed deposits. However, the Tribunal referred to the Hon'ble Karnataka High Court's judgment, emphasizing that interest income is attributable to the business of providing credit facilities to members and hence eligible for deduction u/s. 80P(2)(a)(i) of the Act. The Tribunal followed the decision in a similar case and set aside the CIT(A)'s order, directing the Assessing Officer to allow the deduction for interest income.

In conclusion, the Tribunal allowed the appeal, directing the Assessing Officer to permit the deduction for interest income u/s. 80P(2)(a)(i) of the Act. The alternative grounds raised by the assessee were not addressed due to the favorable decision on the main issue. The judgment was pronounced on 3.4.2018.