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2022 (10) TMI 280 - AT - Income TaxDeduction u/s 80P(2)(a)(i) for interest earned from the Nationalized (SBI) Bank - HELD THAT - We note that before us, Ld. Counsel submitted bye-laws of the assessee-society which is placed at Pg-20 of the paper book, wherein the English translation from Guajarati language of sub-clause of above Credit Society is placed at Pg-20 of the paper book, wherein it is mentioned that assessee is a credit society and as per clause-6, the assessee can make investment of its surplus. Thus, it is evidently clear that assessee-society is engaged in facilities to its members and the assessee-society deposits excess amount for short term in a Nationalized Bank as per section 71 of the Gujarat Co-operate Society Act, 1962. Therefore, the assessee-society claims deduction u/s 80P(2)(a)(i) of the Act. We note that assessee s claim is covered by the order of Mahidharpura Urban Co-Op Credit Society Ltd. 2016 (4) TMI 1001 - ITAT AHMEDABAD as held amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) - Decided in favour of assessee.
Issues Involved:
1. Disqualification of deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 for interest earned from a nationalized bank (SBI). Detailed Analysis: Issue 1: Disqualification of Deduction under Section 80P(2)(a)(i) for Interest Earned from SBI The main issue revolves around whether the interest income earned by the assessee, a credit society, from deposits in a nationalized bank (SBI) qualifies for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. Facts and Proceedings: 1. Assessment Years and Appeals: The appeals pertain to AY 2014-15 and 2015-16, filed against the orders of the Commissioner of Income Tax (Appeals)-1, Surat. 2. Nature of the Assessee: The assessee is a credit society governed by the Gujarat Co-Operative Societies Act, filing returns declaring total income at Rs. Nil. 3. Scrutiny and Notices: The case was selected for scrutiny, and notices under Sections 143(2) and 142(1) were issued. During scrutiny, the Assessing Officer (AO) observed that the assessee earned interest income from various sources, including SBI. 4. Bifurcation of Interest Income: The interest income was bifurcated as follows: - Interest from members' advances: Rs. 6,02,539/- - Interest from SBI savings account: Rs. 4,371/- - Interest from Surat Dist. Co-Op. Bank Ltd. savings account: Rs. 4,331/- - Interest from SBI FDR: Rs. 13,26,116/- - Interest from Surat Dist. Co-Op. Bank Ltd. FDR: Rs. 5,16,439/- - Total: Rs. 24,53,796/- Assessment Officer's Findings: 1. Utilization of Funds: It was noted that only 22% of the funds received from members were used for providing credit facilities, while the surplus was invested in bank deposits. 2. Business Activity: The AO determined that investing surplus funds in bank deposits does not constitute a business activity attributable to providing credit facilities to members. 3. Interest Income Classification: Consequently, the interest income from SBI (Rs. 13,30,487/-) was classified as "income from other sources" under Section 56 of the Act, not qualifying for deduction under Section 80P(2)(a)(i). CIT(A) Findings: 1. Net Interest Income: The CIT(A) partially allowed the appeal, holding that only the net interest income after deducting proportionate expenses is taxable. The amounts were restricted to Rs. 9,57,950/- for AY 2014-15 and Rs. 5,68,652/- for AY 2015-16. Assessee's Arguments: 1. Eligibility for Deduction: The assessee argued that the interest income from SBI qualifies for deduction under Section 80P(2)(a)(i) as it is attributable to the business of providing credit facilities to its members. 2. Legal Precedents: The assessee relied on the Karnataka High Court judgment in Tumkur Merchants Souharda Credit Co-Operative Ltd. vs. ITO, which held that interest income from bank deposits is attributable to the business of providing credit facilities and qualifies for deduction under Section 80P(2)(a)(i). Tribunal's Analysis and Judgment: 1. Legal Precedents Considered: The Tribunal considered various judgments, including those of the Karnataka High Court and the ITAT Ahmedabad Bench, which supported the assessee's claim for deduction under Section 80P(2)(a)(i). 2. Bye-Laws and Investment of Surplus Funds: The Tribunal noted that the assessee's bye-laws allowed the investment of surplus funds, and such investments were made in compliance with Section 71 of the Gujarat Co-Operative Society Act, 1962. 3. Attributable Income: The Tribunal concluded that the interest income from SBI is attributable to the business of providing credit facilities and thus qualifies for deduction under Section 80P(2)(a)(i). Conclusion: The Tribunal allowed the appeals for both AY 2014-15 and 2015-16, holding that the interest income from SBI qualifies for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The appeals were allowed, and the additions made by the AO were deleted. Order Pronouncement: The order was pronounced in the open court on 06/10/2022, with the result placed on the Notice Board.
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