2018 (5) TMI 1545 - AT - Income Tax

Deduction u/s 80P(2)(d) - interest received on investments with sub-treasuries and co-operative banks - Held that - deduction of interest receipts from the total income that are received on investment made with co-operative societies and not to co-operative banks - thus interest cannot be allowed as a deduction u/s 80P(2)(d) - decided against the assessee. Deduction u/s 80P(2)(a)(i) - Held that - In order to get the benefit of section 80P(2)(a)(i), the assessee has to prove that the investments with sub treasuries and co-operative banks are done in the normal course of its business of providing credit facilities to its members - in the interest of justice and equity, the matter is restored to the A.O. for fresh consideration - appeal allowed for statistical purposes.

Summary

Issues involved:
Appeal against CIT(A) orders denying deduction u/s 80P(2) of the Income-tax Act for interest received on investments made with sub-treasuries and co-operative banks.

Detailed Analysis:

1. Issue of Deduction u/s 80P(2)(d):
The Assessing Officer denied the deduction u/s 80P(2) of the I.T. Act, stating that the assessee was mainly engaged in banking activities and not entitled to the deduction due to the insertion of sub-section (4) of section 80(P) of the I.T. Act. The interest received on investments with sub-treasuries and co-operative banks was treated as 'income from other sources,' thus denying the benefit of section 80P(2)(a)(i) and 80P(2)(d) of the I.T. Act. The CIT(A) confirmed this view, rejecting the alternative plea of the assessee. The Tribunal upheld this decision, stating that interest receipts from investments with sub-treasuries and co-operative banks do not qualify for deduction u/s 80P(2)(d) as they are not from co-operative societies.

2. Issue of Deduction u/s 80P(2)(a)(i):
The Tribunal further analyzed whether the interest income received could be allowed as a deduction u/s 80P(2)(a)(i) of the I.T. Act. It was noted that for such a deduction, the assessee must prove that investments with sub-treasuries and co-operative banks are part of its normal business of providing credit facilities to members. The Tribunal referred to previous cases and circulars, highlighting that interest income from such investments could be eligible for deduction u/s 80P(2)(a)(i). The Tribunal, considering subsequent favorable orders, directed a fresh examination by the Assessing Officer to determine if the investments were made in the course of the business of providing credit facilities to members.

3. Conclusion:
The Tribunal allowed the appeals for statistical purposes, emphasizing the need for a fresh assessment by the Assessing Officer in light of relevant Tribunal orders. The decision highlighted the importance of considering the nature of investments and their connection to the primary business activities of the assessee for determining eligibility for deductions under the Income-tax Act.