2021 (12) TMI 806 - AT - Income Tax

Deduction claimed u/s 80P(2)(a)(i) - interest on the deposits from non-members - AO computed the proportionate amount of interest on the deposits from non-members which was not eligible for deduction under section 80P(2)(a)(i) - HELD THAT - The provisions of section 80P(2)(a)(i) of the Act provides the deduction to a co-operative society engaged in the business of banking or providing credit facilities to its members. The provisions of the section are without any ambiguity. In other words, the income from the activity of financing from the members is only eligible for deduction under section 80P(2)(a)(i) of the Act. If there is any income arising to the co-operative society from the non-members that will not be subject to deduction under section 80P(2)(a)(i) of the Act As relying on STATE BANK OF INDIA (SBI) VERSUS COMMISSIONER OF INCOME TAX 2016 (7) TMI 516 - GUJARAT HIGH COURT it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India is not being attributable to the business as envisaged under the provisions of the Act. Thus the same cannot be deducted under section 80P(2)(a)(i) of the Act. Thus there remains no ambiguity that income received by the assessee for ₹ 9,43,170.00 on the money deposited with the bank is not eligible for deduction under section 80P(2)(a)(i). As decided in THE MAVILAYI SERVICE COOPERATIVE BANK LTD. 2021 (1) TMI 488 - SUPREME COURT absolute denial of deduction under Section 80P(2)(a)(i) of the Act to the assessee's (cooperative societies) engaged in the providing credit facilities to the non-members along with its members is not warranted under the Act and only that part of profit and gains that is attributable and/or pertains to the non-members shall not be allowed as deduction under Section 80P(2)(a)(i) of the Act Thus the profits and gains attributable to non-members arising as a result of advancement of loans was held to be not an allowable deduction under Section 80P(2)(a)(i) of the Act. Thus, we hold that there is no infirmity in the order of the learned CIT (A), requiring any interference. Hence, we uphold the same. Hence, the ground of appeal of the assessee is dismissed.

Summary

Issues:
1. Interpretation of Section 80P(2)(a)(i) of the Income Tax Act regarding deduction eligibility for interest income earned from Nationalized Bank.

Detailed Analysis:
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) regarding the assessment order passed under section 143(3) of the Income Tax Act for the Assessment Year 2016-17. The main issue revolved around the exclusion of interest income earned from a Nationalized Bank for claiming a deduction under section 80P(2) of the Act. The Commissioner had confirmed the disallowances based on a judgment of the Jurisdictional High Court in the case of SBI. Despite a request for adjournment, the appeal was heard ex-parte due to lack of detailed discussion by the First Appellate Authority.

The primary contention raised by the Assessee was that the Commissioner erred in confirming the addition of a specific amount by disallowing the deduction claimed under section 80P(2)(a)(i) of the Act. The Assessee, a cooperative society providing credit facilities to members, had surplus funds deposited in banks to earn interest income and maintain liquidity. The Assessing Officer disallowed a proportionate amount of interest earned on deposits from non-members, which was not eligible for deduction under section 80P(2)(a)(i) of the Act.

The Tribunal analyzed the provisions of section 80P(2)(a)(i) which provide deduction to cooperative societies engaged in banking or providing credit facilities to members. It was emphasized that only income from financing activities with members qualifies for deduction under this section. Citing a judgment of the Gujarat High Court, it was established that interest income from surplus funds deposited with a bank did not qualify for deduction under section 80P(2)(a)(i) of the Act. The Tribunal further referred to a Supreme Court decision emphasizing that profits attributable to loans given to non-members are not eligible for deduction under the same section.

Consequently, the Tribunal upheld the order of the Commissioner, dismissing the appeal by the Assessee. The judgment highlighted that only income derived from credit provided to members is deductible under section 80P(2)(a)(i) of the Act, while profits attributable to non-members are not eligible for deduction. The decision was based on a clear interpretation of the relevant provisions and judicial precedents, leading to the dismissal of the appeal.