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2022 (4) TMI 1384 - AT - Income TaxDisallowance of deduction u/s 80P(2)(d) - Consideration of interest income received from Axis Bank - income from other sources OR income from business or profession - HELD THAT - There is no dispute at the end of the assessee that interest income has been earned from term deposit/other deposits with scheduled banks or other banks other than cooperative banks. There is no iota of evidence which could show that the interest income has any connection with the income from its members. As relying on M/S. PANDITPUR SAMABAY KRISHI UNNAYAN SAMITY LTD 2022 (4) TMI 1347 - ITAT KOLKATA clearly states that such interest income which is earned from other banks and not earned from members of the Society or from deposits with any other cooperative Society no deduction is allowable u/s 80P(2) of the Act. Only any expenditure incurred to earn such income not eligible for deduction u/s 80P(2) of the Act can be claimed. In the instant case, the interest income from banks other than cooperative banks/cooperative Societies/members is ₹ 23,00,239/-. The net profit shown in the profit loss account is only ₹ 6,96,233/-. Though details of profit loss account have not been placed on record but even otherwise against the interest income from banks, deduction of ₹ 16,04,006/- has already been claimed by the assessee, there hardly remains any case for the assessee to claim any other benefit. AO has already allowed deduction of ₹ 50,000/- against the net profit of ₹ 6,96,233/-. The alternative submission of the assessee is that the disallowance should be restricted only to 3.12% being the net profit rate to be applied on the interest income of ₹ 23,00,239/- cannot stand for as the assessee has already claimed an expenditure of ₹ 16,04,006/- against the interest income of ₹ 23,00,239/-. We, therefore, confirm the finding of the ld. CIT(A) sustaining the addition made by the AO and dismiss the ground nos. 2 3 raised by the assessee. CIT(A) rightly dismissed the claim of deduction u/s 80P interest income received from Axis Bank, Kalna Branch by the appellant. We, therefore, confirmed the finding of the ld. CIT(A) sustaining the addition - Decided against assessee.
Issues Involved:
1. Classification of interest income from Axis Bank as "income from other sources" instead of "income from business or profession." 2. Denial of deduction under section 80P of the Income Tax Act 1961 for interest income received from Axis Bank. 3. Applicability of case laws cited by the assessee. 4. Consideration of special provisions applicable to cooperative credit structure entities. 5. Ignoring provisions of section 80P(4) of the Income Tax Act 1961. 6. Allowance of ?50,000 under section 80P(2)(c) for engagement in other activities. Detailed Analysis: 1. Classification of Interest Income: The primary issue revolves around whether the interest income of ?1,16,615 received from Axis Bank should be classified as "income from other sources" or "income from business or profession." The assessee argued that since it is engaged in banking activities, the interest received from deposits related to these activities should be considered as profits and gains of business or profession. However, the Income Tax Officer (ITO) and the Commissioner of Income Tax (Appeals) [CIT(A)] classified it as income from other sources, leading to the denial of the deduction under section 80P of the Income Tax Act 1961. 2. Denial of Deduction under Section 80P: The assessee claimed that the interest income should be eligible for deduction under section 80P(2)(a)(i) as it pertains to the business of providing credit facilities to its members. The ITO and CIT(A) denied this deduction, arguing that the interest income was not attributable to activities specified in section 80P(2)(a). The Tribunal upheld this view, citing the Supreme Court's decision in Totgars Co-operative Sale Society Limited v. ITO, which held that interest income from surplus funds not required for business purposes falls under "income from other sources" and is taxable under section 56 of the Act. 3. Applicability of Case Laws: The assessee cited several judgments to support its claim, including Mavilayi Service Co-operative Bank Ltd. v. Commissioner of Income Tax and others, which emphasized a liberal interpretation of section 80P. However, the Tribunal found that the jurisdictional High Court's decisions in South Eastern Railway Employees Cooperative Credit Society Ltd. and Electro Urban Cooperative Society Ltd. were more relevant. These cases established that interest income from investments not immediately required for business purposes does not qualify for deduction under section 80P. 4. Special Provisions for Cooperative Credit Structure Entities: The assessee argued that special provisions applicable to cooperative credit structure entities, particularly section 134B(6), should be considered. This section allows cooperative societies to invest or deposit funds in financial institutions regulated by the Reserve Bank of India. However, the Tribunal did not find this argument compelling enough to overturn the lower authorities' decisions. 5. Ignoring Provisions of Section 80P(4): The assessee contended that the ITO ignored the provisions of section 80P(4), which acts as a proviso to section 80P, allowing deductions for profits and gains. The Tribunal, however, upheld the lower authorities' view that the interest income in question did not fall under the activities specified in section 80P(2)(a) and thus was not eligible for deduction. 6. Allowance under Section 80P(2)(c): The assessee also claimed that ?50,000 should be allowed under section 80P(2)(c) for engagement in other activities. The Tribunal did not address this issue in detail, as the primary contention regarding the classification of interest income and its eligibility for deduction under section 80P was not in favor of the assessee. Conclusion: The Tribunal dismissed the appeal, confirming the lower authorities' decision to classify the interest income from Axis Bank as "income from other sources" and denying the deduction under section 80P. The Tribunal relied on the jurisdictional High Court's decisions and the Supreme Court's ruling in Totgars Co-operative Sale Society Limited v. ITO to support its conclusion. Order Pronounced: The appeal of the assessee was dismissed, and the order was pronounced in the open court on 27.04.2022.
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