2019 (7) TMI 1219 - AT - Income Tax

Deduction u/s 80P(2) - benefit of deduction u/s 80P(2)(a)(i) on interest income earned and u/s 80P(2)(d) in respect of interest received from Co-operative institutions - AO assessed under the head Income from Other Sources and not income from business - HELD THAT - Hon ble Supreme Court in 2010 (2) TMI 3 - SUPREME COURT has held that the benefit of deduction u/s 80P(2)(a)(i) is only on income which is assessable under the head Income from Business . Interest earned on investment of surplus funds not immediately required in short term deposits and securities by a Co-operative Society providing credit facilities to members or marketing agricultural produce to members is not business income but income from other sources and the society is not entitled to special deduction. Therefore whether the source of funds were Assessee s own funds or out of liability was not subject matter of the decision of the Hon ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. ( 2015 (2) TMI 995 - KARNATAKA HIGH COURT still holds good. Hence on this aspect the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd.(supra) and of Hon ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co-operative Ltd.(supra) - appeal allowed for statistical purposes

Summary

Issues:
1. Entitlement to deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 on interest income earned.
2. Entitlement to deduction under section 80P(2)(d) of the Act in respect of interest received from Co-operative institutions.

Analysis:
1. The primary issue in this appeal was whether the assessee was entitled to the benefit of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 on interest income earned. The Assessing Officer (AO) disallowed the claim of the assessee, stating that interest income earned from surplus funds must be assessed under "Income from Other Sources" and not as business income. The CIT(A) upheld this decision, citing the Supreme Court's ruling that only income assessable under "Income from Business" qualifies for the deduction under section 80P(2)(a)(i). The tribunal noted conflicting decisions by the Karnataka High Court but ultimately directed the AO to re-examine the issue in light of relevant judgments.

2. The second issue revolved around the entitlement to deduction under section 80P(2)(d) of the Act for interest received from Co-operative institutions. The assessee argued that investments in Co-operative Banks should qualify for this deduction as per section 80P(2)(d). The tribunal observed that the nature of interest income remained consistent across different assessment years, and the source of funds for investments was crucial. While the High Court's decision seemed to support the assessee's claim, the tribunal emphasized the need for a fresh assessment by the AO, considering the Supreme Court's ruling on similar cases.

In conclusion, the tribunal allowed the assessee's appeal for Assessment Year 2014-15 for statistical purposes, instructing the AO to re-evaluate the deductions under sections 80P(2)(a)(i) and 80P(2)(d) in accordance with relevant legal precedents.