2023 (6) TMI 32 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest income on deposits made out of the surplus funds in cooperative bank and scheduled bank - HELD THAT - There is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption u/s. 80P(2)(a)(i). The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit 2018 (12) TMI 1926 - ITAT PUNE taken view in favour of the assessee following the judgment of Tumkur Merchants Souharda Credit Cooperative Ltd 2015 (2) TMI 995 - KARNATAKA HIGH COURT Respectfully following the decision of the Coordinate Bench of the Tribunal, interest income earned on fixed deposits with cooperative/scheduled banks partakes the character of the business income, which is eligible for deduction u/s 80P(2)(a)(i) of the Act. Thus, the grounds of appeal filed by the assessee stand allowed.

Summary

Issues:
The judgment involves the issue of eligibility of exemption under section 80P(2)(a)(i) of the Income Tax Act for interest income earned by a cooperative society from scheduled banks.

Details:
The appellant, a cooperative credit society, filed an appeal against the order of the National Faceless Appeal Centre for the assessment year 2017-18. The assessment was completed by the Assessing Officer, who denied the claim for exemption under section 80P(2)(a)(i) in respect of interest income on deposits made in cooperative and scheduled banks. The NFAC confirmed the addition made by the Assessing Officer. The only issue in the case was the allowability of exemption under section 80P(2)(a)(i) for interest income from scheduled banks.

There was a divergence of judicial opinion among various High Courts on the eligibility of such income for exemption under section 80P(2)(a)(i). Some High Courts held that income from surplus investments in short-term deposits and securities is not eligible for exemption, while others opined that such interest income is attributable to the activities of the society and thus eligible for exemption. The Tribunal, following the decision of a Coordinate Bench and the judgment of the Karnataka High Court, held that interest income earned on fixed deposits with cooperative/scheduled banks qualifies as business income eligible for deduction under section 80P(2)(a)(i). Consequently, the grounds of appeal filed by the assessee were allowed, and the appeal was allowed in favor of the assessee.

The judgment was pronounced on May 29, 2023.