2019 (1) TMI 1010 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest income received by the assessee on investments made with Sub-Treasuries, Banks etc. - Held that - Appeals is squarely covered in favour of the assessee by the consolidated order of the Cochin Bench of the Tribunal, in assessee s own case 2018 (9) TMI 1463 - ITAT COCHIN in the instant case the assessee had made investments with sub-treasuries and banks in the course of its business of banking / providing credit facilities to its members. Therefore, it was entitled to deduction u/s 80P(2)(a)(i) in respect of interest income that was received on such investments. It is ordered accordingly. - decided in favour of assessee.

Summary

Issues Involved:
1. Whether the CIT(A) is justified in directing the Assessing Officer to grant deduction u/s 80P(2)(a)(i) of the I.T. Act in respect of interest income received by the assessees on investments made with Sub-Treasuries, Banks, etc.

Issue-wise Detailed Analysis:

1. Deduction u/s 80P(2)(a)(i) for Interest Income:
The core issue in these appeals is whether the CIT(A) was correct in directing the Assessing Officer to allow deductions under section 80P(2)(a)(i) of the I.T. Act for the interest income earned on investments made by the assessees with sub-treasuries and banks. This issue has been previously adjudicated in favor of the assessees by the Cochin Bench of the Tribunal in cases with similar facts, such as The Ithithanam Janatha Service Co-operative Bank Ltd. and The Azhikode Service Co-operative Bank Ltd.

Tribunal's Findings:
The Tribunal reviewed the relevant judicial precedents and found that the interest income received from investments in sub-treasuries and banks should be assessed under the head "income from business" rather than "income from other sources." Consequently, such income qualifies for deduction under section 80P(2)(a)(i) of the I.T. Act. The Tribunal referenced the Karnataka High Court's ruling in Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamamitha vs ITO, which clarified that a cooperative society not holding a banking license from the Reserve Bank of India and not exclusively carrying on banking business is eligible for the said deduction.

Distinguishing from Totgars Cooperative Sales Society Ltd.:
The Tribunal distinguished the Supreme Court's decision in Totgars Cooperative Sales Society Ltd., where the interest income was derived from surplus funds retained from marketing agricultural produce and shown as liabilities. In contrast, the interest income in the present case was from investments made by cooperative societies in the normal course of providing credit facilities to their members.

Support from Other Judicial Pronouncements:
The Tribunal also cited the Karnataka High Court's decision in Tumkur Merchants Souharda Credit Cooperative Ltd., which supported the view that interest income from short-term deposits made in the course of business activities is eligible for deduction under section 80P(2)(a)(i). The Tribunal further noted the consistent stance taken by the Cochin Bench in similar cases, such as Kizhathadiyoor Service Co-operative Bank Ltd. and Muttom Service Cooperative Bank Ltd.

Circular No. 18/2015 and Jurisdictional High Court's Guidance:
The Tribunal referred to Circular No. 18/2015 issued by the CBDT, which aligns with the Supreme Court's decision in Nawanshahar Central Cooperative Bank Ltd., affirming that interest income from investments made by banking concerns should be considered as business income. The Tribunal also took into account the remand order from the Hon'ble High Court in the case of Mutholy SCB Ltd., which directed the Tribunal to consider this circular and the judgment in Chirakkal Service Co-operative Bank Ltd.

Conclusion:
Based on the above judicial precedents and consistent Tribunal decisions, the Tribunal concluded that the assessees are entitled to the deduction under section 80P(2)(a)(i) for the interest income received from investments with sub-treasuries and banks. The Tribunal upheld the CIT(A)'s orders and dismissed the Revenue's appeals. The Cross Objections filed by the assessees, being supportive of the CIT(A)'s orders, were dismissed as infructuous.

Final Order:
The appeals filed by the Revenue were dismissed, and the Cross Objections filed by the assessees were also dismissed as infructuous. The Tribunal pronounced the order on January 17, 2019.