2023 (6) TMI 1032 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest derived by the assessee on the deposits in the State Bank of Hyderabad on the credit balance available therein - HELD THAT - Undisputedly, the interest arose on the credit balances with reference to the regular course of business of the assessee. As decided in Vavveru Co-operative Rural Bank Ltd. 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT held that, if the original source of the investments made by the petitioners in nationalized banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a), then the character of such income may not be lost, especially when the statute uses the expression attributable to and not any one of the two expressions, namely, derived from or directly attributable to . Interest credited by the State Bank of Hyderabad to the account of the assessee on the credit balances does not lose its character as the income derived from the activities of the assessee covered by 80P(2)(a)(i) - Thus disallowed interest in this matter, as a matter of fact is eligible for deduction under section 80P(2)(a)(i) - Decided in favour of assessee.

Summary

Issues:
The judgment deals with the allowability of interest under section 80P(2)(a)(i) of the Income Tax Act, 1961, derived by the assessee on the deposits in the State Bank of Hyderabad on the credit balance available therein.

Comprehensive Details:

Issue 1: Allowability of Interest under Section 80P(2)(a)(i) of the Income Tax Act, 1961
The assessee, an Employees Co-operative Credit Society, argued that the interest accrued on credit balances with the State Bank of Hyderabad should be considered as part of business transactions and thus eligible for deduction under section 80P(2)(a)(i) of the Act. However, the Assessing Officer categorized the interest income as income from other sources, not from the profits and gains of the business. The CIT(A) upheld this decision, relying on the Totgars Co-operative Sale Society Ltd. case. The AR contended that in this case, no investment was made in any bank, but the interest arose from regular business transactions involving bank accounts. The Tribunal, after considering the facts and legal precedents, concluded that the interest credited by the bank does not lose its character as income derived from the activities covered by section 80P(2)(a)(i) of the Act. Therefore, the disallowed interest was deemed eligible for deduction under the said provision, and the Assessing Officer was directed to delete the disallowance.

Conclusion:
The Tribunal allowed the appeal of the assessee, emphasizing the eligibility of the interest for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.