2019 (1) TMI 851 - AT - Income Tax

Disallowance of interest income earned on fixed deposits with nationalised banks and received from Income tax Department u/s 244A - Held that - Hon ble jurisdictional High Court in the case of CIT Vs. State Bank of India 2016 (7) TMI 516 - GUJARAT HIGH COURT has held that interest earned from investment made in nationalized bank by a cooperative society engaged in providing credit facilities to its members, is not deductible under section 80P(2)(a)(i). In recent past the Tribunal in number of decisions has taken a consistent view on this issue by following above judgment of the Hon ble jurisdictional High Court. In this view of the matter, we do not incline to disturb the orders of the Revenue on this issue, which we uphold. However, any expenditure incurred by the assessee for earning such income could be allowed to it. AO has to determine the net interest income earned by the assessee on such investment with bank, and only thereafter that income has to be excluded from the admissibility of deduction under section 80P(2) of the Act. Earning of interest income u/s 244A since this income is not attributable to the activities of the assessee-society, the same is not an eligible income for exemption. AO has rightly made this addition. As regards charging of interest under section 234A and 234B are concerned, they being mandatory provisions, levy of interest is consequential.

Summary

Issues:
1. Disallowance of interest income earned on fixed deposits with nationalized banks.
2. Disallowance of interest income received from Income Tax Department under section 244A.

Analysis:
1. The appellant, a cooperative society, filed its return of income declaring NIL income and claimed deduction under section 80P(2) of the Income Tax Act for interest income earned on fixed deposits with nationalized banks. The Assessing Officer (AO) rejected the claim, stating that the interest income did not qualify for deduction as it was not derived from the society's main activity of providing credit facilities to its members. The AO made an addition to the appellant's income. The Commissioner of Income Tax (Appeals) upheld the AO's decision, citing a judgment by the Hon'ble jurisdictional High Court. The Tribunal concurred with the lower authorities, stating that interest earned from investments in nationalized banks by a cooperative society is not deductible under section 80P(2)(a)(i). However, the Tribunal allowed any expenditure incurred by the appellant for earning such income to be considered for deduction. The Tribunal upheld the orders of the Revenue on this issue.

2. Regarding the interest income received under section 244A of the Act, the Tribunal held that since this income was not related to the activities of the appellant-society, it was not eligible for exemption. The AO's decision to add this income was deemed appropriate. Additionally, the Tribunal noted that the charging of interest under sections 234A and 234B was mandatory, and the levy of interest was consequential. Consequently, the Tribunal dismissed the appeal of the assessee.

In conclusion, the Tribunal upheld the disallowance of interest income earned on fixed deposits with nationalized banks and interest income received under section 244A. The Tribunal emphasized that interest earned from investments in nationalized banks by a cooperative society does not qualify for deduction under section 80P(2)(a)(i) and that any expenditure incurred for earning such income could be considered for deduction. The decision to levy interest under sections 234A and 234B was deemed appropriate due to their mandatory nature.