2018 (12) TMI 1078 - AT - Income Tax

Eligible for deduction u/s. 80P(2)(a)(i) in respect of interest income on deposits with non co-operative banks - Held that - We hold that the interest income received on FDRs with Bank of Maharashtra are eligible for deduction u/s 80P(2)(a)(i). The saving fund interest received by the assessee society is not eligible for the aforesaid deduction. AO assessment order relating to assessment year 2009-10 had mentioned that the interest income received by the assessee on FDRs with Bank of Maharashtra amounted to ₹ 1,03,72,581/-, on which the assessee is entitled to the aforesaid deduction, but the assessee is not entitled to claim the said deduction on interest on saving account with Bank of Maharashtra amounting to ₹ 878/-. In assessment year 2012-13, the AO has mentioned similar disallowance of the assessment order and accordingly, we hold that the assessee is entitled to claim the aforesaid deduction on interest income on fixed deposit with Bank of Maharashtra amounting to ₹ 2,02,33,008/-; however, the interest on saving account with Bank of Maharashtra amounting to ₹ 2,27,008/- is not entitled to the aforesaid deduction - Appeals of Revenue are partly allowed.

Summary

Issues Involved:
1. Jurisdiction and legality of reopening the assessment under section 147 of the Income-tax Act, 1961.
2. Eligibility for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, on interest income from deposits with non-cooperative banks.
3. Applicability of the Supreme Court decision in Totgar's Co-operative Sale Society Ltd. vs. ITO.

Issue-wise Detailed Analysis:

1. Jurisdiction and Legality of Reopening the Assessment:
The Revenue contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in holding that the reopening of the assessment under section 147 was without jurisdiction, void, and illegal. The Tribunal did not provide a detailed analysis on this issue in the judgment, focusing instead on the substantive issue of the eligibility for deductions under section 80P(2)(a)(i).

2. Eligibility for Deduction under Section 80P(2)(a)(i) on Interest Income:
The primary issue was whether the assessee society was eligible for deduction under section 80P(2)(a)(i) on interest income from deposits with non-cooperative banks. The Tribunal noted that this issue had already been settled in the assessee's favor in previous years (2007-08, 2008-09, and 2010-11) by the Pune Bench of the Tribunal. The Tribunal reiterated that the interest income earned from Fixed Deposit Receipts (FDRs) with the Bank of Maharashtra, a non-cooperative bank, was eligible for deduction under section 80P(2)(a)(i). The Tribunal emphasized that the funds invested in FDRs were not surplus or idle funds but were statutory reserve funds required under the Maharashtra Co-operative Societies Act, 1960.

The Tribunal referenced several key judgments:
- CIT vs. Karnataka State Co-operative Apex Bank: Interest income from statutory reserve funds invested to carry on banking business is exempt under section 80P(2)(a)(i).
- ITO vs. M/s. Kundalika Nagari Sah. Patsanstha Maryadit: Interest income from investments mandated by the Maharashtra Co-operative Societies Act is deductible under section 80P(2)(a)(i).
- CIT vs. Nawanshahar Central Co-operative Bank Ltd.: Statutory investments made as per cooperative society laws are eligible for deduction under section 80P(2)(a)(i).

The Tribunal concluded that the interest income from FDRs with the Bank of Maharashtra was part of the business income of the assessee society and thus eligible for deduction under section 80P(2)(a)(i). However, interest income from savings accounts with the same bank was not eligible for this deduction.

3. Applicability of the Supreme Court Decision in Totgar's Co-operative Sale Society Ltd. vs. ITO:
The Revenue argued that the CIT(A) ignored the Supreme Court's decision in Totgar's Co-operative Sale Society Ltd. vs. ITO, which held that interest income from surplus funds not immediately required for business purposes is taxable under "income from other sources" and not eligible for deduction under section 80P(2)(a)(i). The Tribunal distinguished the facts of the present case from Totgar's case, noting that the funds in question were statutory reserve funds, not surplus or idle funds. The Tribunal also referenced other judgments that supported the view that statutory reserve funds invested as required by cooperative society laws are eligible for deduction under section 80P(2)(a)(i).

Conclusion:
The Tribunal upheld the CIT(A)'s decision, allowing the deduction under section 80P(2)(a)(i) for interest income from FDRs with the Bank of Maharashtra but denying it for interest income from savings accounts. The appeals by the Revenue were partly allowed, affirming the CIT(A)'s order in favor of the assessee on the primary issue of deduction eligibility while addressing the specific amounts involved for the respective assessment years.