2023 (5) TMI 794 - AT - Income Tax

Deduction u/s. 80P(2)(a)(i) - AO concluded that interest received from cooperative bank and commercial banks do not qualify for deduction u/s. 80P(2)(d) - HELD THAT - Hon ble jurisdictional High Court in the case of PCIT v. Totagars Co-operative Sale Society 2017 (1) TMI 1100 - KARNATAKA HIGH COURT has decided in the issue in favour of the revenue wherein it is held that the person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible for deduction under Section 80P - The case in hand is also similar and the character of income will not change. Accordingly interest received on investments with cooperative bank as well as other banks shall be treated as income from other sources and it is not the business income of the assessee, therefore does not quality for deduction u/s. 80P(2)(d) of the Act. Since the entire interest received has been taxed as income from other source, fundamental principle under Income-tax Act being that only net income has to be taxed and not the gross income, especially in the light of the judgment of Totagars Sale Cooperative Society 2015 (4) TMI 829 - KARNATAKA HIGH COURT Accordingly, the case is restored to the file of the A.O. with a direction to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head income from other sources . If so, the same shall be allowed as deduction u/s 57 - AO is directed to decide the issue as per law. The assessee is directed to co-operate with the department and furnish the necessary evidence for expeditious disposal of the matter. It is ordered accordingly. This ground is partly allowed for statistical purpose. Deduction u/s. 80P(2)(a)(i) on other receipts under different heads in the Profit Loss account - AO has not considered the nature of receipts and whether it is part and parcel of the business income of the assessee or not. CIT(Appeals) has also not discussed this issue. Therefore, this issue should go back to the AO for examining the nature of receipts and whether it is connected to the regular business activity carried on by the assessee. This issue is accordingly remitted to the AO for fresh consideration. Assessee is directed to substantiate its case before the AO. If the AO finds the receipts are part and parcel of the business income of the assessee, the AO is directed to allow deduction u/s. 80P(2)(a)(i) to that extent. Accordingly this issue is allowed for statistical purposes.

Summary

Issues Involved:
1. Deduction under section 80P(2)(d) of the Income Tax Act, 1961 for interest received from deposits held with cooperative banks.
2. Deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 for other receipts incidental to business activities.
3. Computation of total tax liability by overlooking deduction under section 80P(2) in the assessment order.

Summary of Judgment:

1. Deduction under section 80P(2)(d) for Interest from Cooperative Banks:
The assessee claimed a deduction of Rs. 8,45,161 under section 80P(2)(d) for interest received from deposits held with cooperative banks. The Assessing Officer (AO) denied this deduction, stating that interest from cooperative banks and commercial banks does not qualify for deduction under section 80P(2)(d). The CIT(Appeals) upheld the AO's decision, and the Tribunal agreed, citing the jurisdictional High Court's judgment in the case of PCIT v. Totagars Co-operative Sale Society, which clarified that interest income from cooperative banks is not eligible for deduction under section 80P(2)(d) as it is considered income from other sources, not business income.

2. Deduction under section 80P(2)(a)(i) for Other Receipts:
The assessee also claimed a deduction of Rs. 2,62,834 under section 80P(2)(a)(i) for other receipts incidental to business activities. The AO and CIT(Appeals) denied this deduction, stating that these receipts do not qualify under section 80P(2)(a)(i). The Tribunal remitted this issue back to the AO for fresh consideration, directing the AO to examine the nature of these receipts and determine if they are part and parcel of the business income. If found to be business income, the AO is directed to allow the deduction under section 80P(2)(a)(i).

3. Computation of Total Tax Liability:
The assessee argued that the lower authorities erred in computing the total tax liability by overlooking the deduction allowed under section 80P(2). The Tribunal did not directly address this issue but implied that proper computation should follow the determination of the eligibility of deductions under sections 80P(2)(d) and 80P(2)(a)(i).

Conclusion:
The appeal by the assessee was partly allowed for statistical purposes, with the Tribunal remitting the issue of other receipts back to the AO for fresh consideration. The Tribunal upheld the denial of deduction under section 80P(2)(d) for interest received from cooperative banks, following the jurisdictional High Court's precedent.