2018 (5) TMI 1634 - AT - Income Tax

Disallowance of deduction of interest receipt from banks u/s 80P(2)(a)(i) - Held that - interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest - such interest is attributable to the business of providing credit facilities to its members - Decided in favor of assessee.

Summary

Issues:
Interpretation of section 80P(2)(a)(i) of the IT Act for deduction of interest income from banks received by a Cooperative Society.

Detailed Analysis:

Issue 1: Deduction under section 80P(2)(a)(i) for interest income from banks
The case involved the question of whether a Cooperative Society could claim a deduction under section 80P(2)(a)(i) of the IT Act for interest income received from banks. The Assessing Officer (AO) disallowed the claim, stating that interest income from banks other than cooperative banks is not eligible for deduction under section 80P of the Act. The ld. CIT (A) upheld the disallowance. The appellant argued that the interest earned from savings bank accounts was part of its normal business activity of providing credit facilities to members and should be eligible for deduction. The appellant relied on the decision of the Hon’ble Karnataka High Court in a similar case. The Tribunal noted that the interest income was earned on funds maintained with scheduled banks for the purpose of providing credit facilities to members. Referring to the Karnataka High Court decision, the Tribunal held that the interest income from the savings bank account was attributable to the business of providing credit facilities to members and thus eligible for deduction under section 80P(2)(a)(i) of the Act.

Key Points:
- AO disallowed deduction for interest income from banks.
- Ld. CIT (A) confirmed the disallowance.
- Appellant argued interest was earned in the normal course of business.
- Tribunal held interest income from savings bank account eligible for deduction under section 80P(2)(a)(i).

Conclusion:
The Tribunal allowed both appeals, emphasizing that the interest income earned by the Cooperative Society from its savings bank account was eligible for deduction under section 80P(2)(a)(i) of the IT Act. The decision was based on the interpretation of the term ‘attributable to’ in the context of the business activities of the Cooperative Society, as established by the Hon’ble Karnataka High Court in a similar case.