2023 (4) TMI 894 - AT - Income Tax

Disallowance of deduction claimed u/s 80P in respect of bank interest - interest income earned by the assessee is chargeable under the head income from other sources and not the business income of the assessee - HELD THAT - Assessee accepts deposits from its members and provides credit facility to them at the time of their requirement - surplus funds not immediately required for deployment is kept in fixed deposits, which in turn, are pledged to the over draft facility taken by the assessee for transfer of funds to members either as loan or as repayment. Thus, it can be seen that the investment in fixed deposits is to augment the business activity of the assessee. In any case of the matter, as explained the interest income is also utilized for providing credit facility or repayment to members. Thus, interest income being inextricably linked to assessee s business activities as a credit society, would be eligible for deduction under Section 80P(2) - Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the disallowance of deduction claimed under Section 80P of the Income-Tax Act, 1961 for an amount of Rs.32,30,040.

Summary:

Issue 1 - Disallowance of deduction under Section 80P of the Income-Tax Act:
The dispute in the present appeal revolves around the disallowance of deduction claimed under Section 80P of the Income-Tax Act, 1961 for an amount of Rs.32,30,040. The appellant, a registered thrift and credit cooperative society, earned interest on bank deposits which was included in the deduction claimed. However, the Centralized Processing Centre disallowed the deduction, stating that the interest income is chargeable under 'income from other sources' and not 'business income'. The Commissioner (Appeals) upheld this disallowance. The appellant argued that the interest income is connected to its business activities and should be eligible for deduction under Section 80P(2) of the Act. The Tribunal agreed, noting that the interest income is utilized for providing credit facility or repayment to members, and directed the Assessing Officer to allow the deduction.

In conclusion, the Tribunal allowed the appeal, emphasizing that the interest income earned by the appellant, a credit society, is inextricably linked to its business activities and hence eligible for deduction under Section 80P(2) of the Act. The decision was based on the appellant's modus operandi of accepting deposits from members, providing credit facility, and utilizing surplus funds from fixed deposits for business activities. The Tribunal's ruling was supported by legal precedents cited by the appellant's counsel.

The judgment was pronounced on 19th April, 2023, in favor of the appellant, directing the Assessing Officer to allow the deduction under Section 80P(2) of the Act for the amount of Rs.32,30,040.