2021 (1) TMI 233 - AT - Income Tax

Deduction u/s 80P - whether the interest income earned by the assessee firm from the deposits in the Savings Bank is eligible for deduction u/s 80P(2)? - HELD THAT - AO and the CIT (A) have relied upon the decision of the Hon ble Supreme Court in the case of M/s Totgar s Co-Operative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT to deny the deduction. As find that the said decision is distinguishable on facts and is not applicable to the facts of the case before this Tribunal. In the case of M/s Totgar s Co-Operative Sale Society Ltd, the interest income was earned on short term bank deposits and securities which were made out of the surplus funds of the members retained by the society and were not immediately necessary for the business of the assessee therein. In the case before this Tribunal, the assessee society had to make the deposits into the Savings Bank A/c held with Kotak Mahindra Bank as a business requirement. Since the assessee s funds were available in the Savings Bank A/c, the assessee has earned certain interest income thereon. Thus, it can be seen that the interest income earned is not on fixed deposits, but it is on the funds which are available and which are required for the business purpose of the assessee. The decision of the Hon ble Supreme Court in the case of M/s Totgar s Co-Operative Sale Society Ltd is clearly not applicable to the case before the Tribunal. In the case of CIT vs. Andhra Pradesh State Coop. Bank Ltd 2011 (6) TMI 215 - ANDHRA PRADESH HIGH COURT has clearly held that the interest income earned on deposits in the Bank is also in the nature of business income which is eligible as deduction u/s 80P(2). Assessee is eligible for deduction u/s 80P(2) of the Act on the interest income earned from the Savings Bank A/c held with the Kotak Mahindra Bank - Assessee s appeal is allowed.

Summary

Issues:
1. Whether interest income earned by the assessee from deposits in the Savings Bank is eligible for deduction u/s 80P(2) of the Income Tax Act.

Analysis:
The appeal pertains to the assessment year 2016-17 where the assessee, a Co-Operative Credit Society, filed its return of income claiming deduction u/s 80P of the Income Tax Act, 1961. The Assessing Officer (AO) observed interest income earned by the assessee from deposits with Kotak Mahindra Bank and held it as "income from other sources," disallowing the deduction u/s 80P. The AO relied on precedents like the Hon'ble Supreme Court's decision in another case. The assessee argued that the interest income should be considered as business income and thus eligible for deduction u/s 80P.

The dispute centered on whether the interest income from the Savings Bank account should be treated as business income eligible for deduction u/s 80P(2) of the Act. The AO and CIT (A) relied on the Supreme Court's decision in a different case to deny the deduction. However, the Tribunal found the Supreme Court's decision distinguishable as the interest income in the present case was on funds necessary for the business, unlike the surplus funds in the precedent case. The Tribunal also cited a High Court decision supporting the treatment of interest income on bank deposits as business income eligible for deduction u/s 80P(2).

Ultimately, the Tribunal held that the interest income earned by the assessee from the Savings Bank account should be considered as business income and allowed the deduction u/s 80P(2) of the Act. The Tribunal disagreed with the AO and CIT (A)'s reliance on the Supreme Court's decision, stating it was not applicable to the current case. Consequently, the assessee's appeal was allowed, and the order was pronounced on 6th January 2021.