2020 (9) TMI 964 - AT - Income Tax

Revision u/s 263 - Deduction u/s 80P(2) denied - interest earned from co-operative banks - Assessee received interest from a co-operative bank and not a co-operative society - As per assessee he is eligible for deduction on such interest u/s.80P(2)(a)(i) of the Act inasmuch as the assessee was engaged in providing credit facility to its members - HELD THAT - The term profits and gains of business attributable to providing credit facilities has a wider connotation. So long as there exists a live link, not necessarily direct, between the income and carrying on of the business of providing credit facilities, the resultant income qualifies for deduction. If a particular amount is received by a co-operative society from its members as deposits and a part of the same has been provided as a credit facility to its members, the unspent amount for the time being not required by the members as loan, if utilised elsewhere, will nonetheless lead to generation of profits and gains of business of providing credit facilities to its members. The thread of link between income and business of providing credit facilities to the members will be broken if despite there being the members wanting to avail credit facilities, the cooperative society chooses to prefer making deposits with banks etc. rather than advancing sums to its members. CIT has not returned any contrary finding. In such a scenario, the entire interest income - not only the one derived from its members by providing credit facilities but also that earned by utilizing the surplus available funds for the time being at some places like investment in FDR etc. Exercise of such a power u/s 263 is ousted in case of a debatable issue. An assessment order can be termed as erroneous and prejudicial to the interest of the Revenue if the AO has taken a view which is not legally sustainable. Per contra , if two views are available on a particular issue and the AO adopts one of such possible views, the case goes outside the purview of revisional power to be exercised by the Pr.CIT u/s.263 of the Act. So many decisions relied on by the AR amply go to prove that the view taken by the AO, cannot by any standard, be construed as not a possible view. CIT was not justified in exercising the revisional power anent to interest income earned on investments made with co-operative banks. - Decided in favour of assessee. Interest income received by the assessee on refunds u/s.244A - HELD THAT - This issue is fully and directly covered by the Special Bench order passed in the case of Maharashtra State Cooperative Bank Ltd. Vs. ACIT 2010 (1) TMI 851 - ITAT, MUMBAI holding that interest on income-tax refund u/s.244A is covered within the expression profits and gains of business occurring in section 80P(2)(a) and ergo eligible for deduction u/s.80P(2)(a)(i) of the Act. Albeit interest received u/s.244A of the Act is chargeable to tax but at the same time the same is also deductible in full u/s.80P(2)(a)(i) of the Act. The assessment order in not adding such interest to the total income, cannot be construed as prejudicial to the interest of revenue because such interest income is tax-neutral in the context of the assessee due to the simultaneous availability of deduction u/s.80P(2)(a)(i) on such amount. CIT was not justified in revising the assessment order on this point also. - Decided in favour of assessee.

Summary

Issues:
1. Eligibility of deduction u/s 80P(2)(d) on interest income from investments made with co-operative banks.
2. Eligibility of deduction u/s 80P(2)(a)(i) on interest income received on refunds u/s 244A of the Income-tax Act.

Analysis:

Issue 1:
The appeal concerned the eligibility of deduction u/s 80P(2)(d) on interest income earned from investments made with co-operative banks. The Principal Commissioner of Income-tax (Pr. CIT) held that such deduction was not available as the interest received from co-operative banks did not fall under the purview of a co-operative society. The contention was that only interest derived by a co-operative society from its investments with another co-operative society is eligible for deduction under clause (d) of sub-clause (2) of section 80P. The Tribunal noted that the assessee was engaged in providing credit facilities to its members and held that the interest income from co-operative banks also qualified for deduction under clause (a)(i) of section 80P(2), as it was attributable to the business of providing credit facilities. The Tribunal emphasized that the link between income and the business of providing credit facilities must be maintained for the income to qualify for deduction.

Issue 2:
The second issue involved the interest income of &8377; 2,334/- received on refunds u/s 244A of the Act. The Tribunal referred to a Special Bench order which held that such interest income is covered within the expression "profits and gains of business" in section 80P(2)(a) and is eligible for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal concluded that although the interest amount was chargeable to tax, it was also deductible in full u/s 80P(2)(a)(i). Therefore, the assessment order not including this interest income in the total income was not prejudicial to the interest of revenue. The Tribunal held that the Pr. CIT was not justified in revising the assessment order on both counts and set aside the impugned order, allowing the appeal.

In conclusion, the Tribunal ruled in favor of the assessee on both issues, emphasizing the eligibility of deductions under specific sections of the Income-tax Act based on the nature of income and business activities conducted by the co-operative society.