2020 (3) TMI 1111 - AT - Income Tax

Disallowance of deduction u/s 80P - whether the assessee being a co-operative society is eligible for deduction under section 80P of the Income Tax Act with respect to the income earned by the assessee on bank interest on fixed deposit receipts and savings bank accounts? - HELD THAT - The above issue is covered by the decision in case of Totgar s Co-operative Sale Society Ltd. v. ITO 2010 (2) TMI 3 - SUPREME COURT wherein it has been considered and held that assessee is not eligible for deduction under section 80P of the Act on the bank interest received on fixed deposit receipts and savings bank accounts. Such interest income falls in the category of Other income which has been rightly taxed by the Department under section 56 - Decided against assessee.

Summary

Issues:
Whether the assessee is eligible for deduction under section 80P of the Income Tax Act for interest income earned from fixed deposit receipts and savings bank accounts.

Analysis:
The appeal was filed by a cooperative society against the order of the Commissioner of Income Tax (Appeals) challenging the disallowance of deduction under section 80P of the Income Tax Act for the assessment year 2014-15. The society claimed that the interest income from fixed deposit receipts and savings bank accounts should be fully deductible under section 80P. However, the Assessing Officer rejected this claim, stating that the interest income earned was not from members but from bank deposits, hence not eligible for deduction. The society argued that as its main objective was to accept deposits from members, the interest income should be deductible. The CIT(A) upheld the Assessing Officer's decision, citing a High Court judgment. The society then appealed to the ITAT Delhi.

The ITAT Delhi noted that the main issue was whether the cooperative society was eligible for deduction under section 80P for the interest income from bank deposits. Referring to a Supreme Court judgment, the ITAT held that interest income earned on surplus investments not required for immediate business purposes cannot be considered as "profits and gains of business" eligible for deduction under section 80P. The ITAT emphasized that the interest income in question did not arise from providing credit facilities to members but from surplus investments, making it taxable under section 56 of the Act. The ITAT dismissed the appeal based on the Supreme Court's decision, stating that the interest income falls under "other income" and not operational income, hence not eligible for deduction under section 80P.

In conclusion, the ITAT Delhi dismissed the appeal of the cooperative society, upholding the decision that the interest income from fixed deposit receipts and savings bank accounts was not eligible for deduction under section 80P of the Income Tax Act. The judgment was based on the interpretation of relevant provisions and precedents, emphasizing the distinction between operational income and other income for cooperative societies.