2020 (9) TMI 67 - AT - Income Tax

Deduction u/s. 80P(2)(a)(i) or 2(d) - interest earned by the assessee on surplus funds - HELD THAT - Following the decision of the ITAT Bangalore Bench in the case of The Jayangar Co-operative Society Ltd. 2020 (2) TMI 1324 - ITAT BANGALORE remand the question of allowing deduction u/s. 80P(2)(a)(i) as well as 80P(2)(d) of the Act to the AO for fresh consideration as per directions contained in the order of Tribunal in the case of The Jayangar Co-operative Society Ltd. (supra). - Appeal by the assessee is treated as allowed for statistical purposes

Summary

Issues:
1. Eligibility of interest income for deduction u/s. 80P(2)(a)(i) or 2(d) of the Act.

Analysis:
The appeal revolved around determining whether a sum of interest earned by the assessee on surplus funds is eligible for deduction under section 80P(2)(a)(i) or 2(d) of the Act. The assessee, a credit cooperative society, received interest income from various cooperative banks. The AO denied the deduction u/s. 80P(2)(a)(i) by categorizing the interest income as from 'other sources,' citing a Supreme Court decision. Additionally, the AO rejected the deduction u/s. 80P(2)(d) since the interest income was from investments with cooperative banks, not cooperative societies.

The CIT(Appeals) upheld the AO's decision, leading to the appeal before the Tribunal. The Tribunal noted conflicting judgments by the Hon'ble High Court of Karnataka on similar issues. Referring to a previous Tribunal order, the Tribunal remanded the matter to the AO for fresh consideration in light of relevant judgments. Notably, the Hon'ble High Court of Karnataka had previously allowed deduction u/s. 80P(2)(d) on interest income from investments in a cooperative bank, contrary to a subsequent judgment.

The Tribunal disagreed with the CIT(Appeals)' assumption regarding the availability of deduction u/s. 80P(2)(d) for interest income earned on deposits with cooperative banks. Following the precedent set by the ITAT Bangalore Bench, the Tribunal remanded the question of allowing deductions u/s. 80P(2)(a)(i) and 80P(2)(d) to the AO for fresh consideration, aligning with the directions in a previous Tribunal order. Consequently, the appeal by the assessee was treated as allowed for statistical purposes.

In conclusion, the judgment highlighted the complex interpretation of provisions under sections 80P(2)(a)(i) and 80P(2)(d) of the Act concerning the eligibility of interest income for deduction based on the nature of investments and source of income. The Tribunal's decision to remand the matter for fresh consideration emphasized the importance of aligning with relevant judicial precedents to determine the applicability of deductions under the Income Tax Act.