2021 (9) TMI 401 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest income earned on deposits - HELD THAT - The ratio laid down by the Hon ble Karnataka High Court in the case of Totgars Cooperative Sales Society 2017 (7) TMI 1049 - KARNATAKA HIGH COURT is that in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society 2010 (2) TMI 3 - SUPREME COURT in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in cooperative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act - interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(a)(i).

Summary

Issues involved:
Rectification of order seeking adjudication of a ground not addressed in the original judgment related to the eligibility of interest income for deduction u/s 80P(2)(a)(i) of the Income Tax Act.

Analysis:

Issue 1: Rectification of Order
The assessee filed a miscellaneous petition seeking rectification of the Tribunal's order dated 9th April 2021. The petition highlighted that one ground related to the eligibility of interest income for deduction under section 80P(2)(a)(i) was inadvertently left unadjudicated. The Appellant requested the Tribunal to adjudicate this ground for the sake of justice, as per the procedure prescribed under Rule-34A, Income-tax (Appellate Tribunal) Rules, 1963.

Issue 2: Eligibility of Interest Income for Deduction
The dispute revolved around whether the interest income earned by the assessee was eligible for deduction under section 80P(2)(a)(i) of the Act. The Departmental Representative contended that the interest on deposits was not relatable to the business of the assessee, citing the Supreme Court judgment in Totgars Co-operative Sales Society case. In contrast, the Authorized Representative argued that the interest was received on deposits related to the business of the assessee, hence qualifying for the deduction under section 80P(2)(a)(i) of the Act.

Issue 3: Judicial Precedents and Interpretation
The Tribunal examined the legal precedents, including the Supreme Court's decision in Totagar's Co-operative Sales Society case and the Karnataka High Court's ruling in Principal Commissioner of Income Tax Vs. Totgars Co-Operative Sale Society. The High Court held that interest income earned on deposits, even with a cooperative bank, falls under income from other sources and not business income. The Court emphasized the legislative intent behind Section 80P(4) to exclude cooperative banks from the deduction provisions. The judgment highlighted the distinction between interest earned from cooperative societies and banks, emphasizing that interest from banks is not deductible under section 80P(2)(a)(i) of the Act.

Issue 4: Modification of Order
Based on the legal analysis and precedents, the Tribunal modified the original order, allowing one appeal and partly allowing another for statistical purposes. The revised decision clarified the ineligibility of interest income from investments made in banks, except cooperative societies, for deduction under section 80P(2)(a)(i) of the Act.

In conclusion, the Tribunal disposed of the miscellaneous petition by the assessee, pronouncing the revised decision on 6th September 2021, in line with the legal interpretations and precedents discussed during the proceedings.