2023 (11) TMI 1207 - AT - Income Tax

Deduction u/s 80P - interest earned on deposits pertaining to reserve fund with DCC Bank, which is a cooperative bank - HELD THAT - It is an admitted fact that the assessee has claimed deduction u/s 80P. The contention of the AO is that interest accrued on Reserve Fund Deposits is not eligible for deduction u/s 80P. He relied on the decision of CIT Vs. Jilla Jahakan Kendriya Bank Maryadit 1996 (8) TMI 72 - MADHYA PRADESH HIGH COURT that income from interest on securities ear marked to reserve fund has been held not eligible for deduction u/s 80P. He has also placed relied on the decision of in the case of M/s Totgars Cooperative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT which held that investment of surplus on hand not immediately required in Short Term deposits and securities by a co-operative society providing credit facilities to members or marketing agriculture produce to member . However, in the instant case, the facts are distinguishable and hence, in my view, the ratio laid down in the case of M/s Totgars Cooperative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT shall not be applied. On similar set of facts, coordinate bench of this Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society held in favour of the assessee 2023 (9) TMI 211 - ITAT VISAKHAPATNAM assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore by respectfully following the jurisdictional High Court are of the view that interest income should be allowed as deduction u/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A) - NFAC has rightly held by deleting the addition made by the Ld. AO and hence we find no infirmity in the order of the Ld. CIT(A) -NFAC. Respectfully following the decision of Vavveru Cooperative Rural Bank Ltd. 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT and in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society Limited 2023 (9) TMI 211 - ITAT VISAKHAPATNAM we are inclined to quash the order passed by the Ld.CIT(A) and allow the appeal of the assessee.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80P of the Income Tax Act on interest earned from deposits in cooperative banks.
2. Interpretation of Section 80P(2)(a) and 80P(2)(d) regarding business income and income from other sources.

Summary:

Issue 1: Eligibility for Deduction under Section 80P
The assessee, an agricultural cooperative society, filed its return for A.Y. 2017-18, claiming a deduction under Section 80P of Rs. 70,73,619/-. The Assessing Officer (AO) disallowed the deduction, citing the Supreme Court's decision in M/s Totgars Co-operative Sale Society Ltd., which held that interest on deposits not immediately required for business is not business income but income from other sources. The AO concluded that interest on Reserve Fund deposits is not eligible for deduction under Section 80P.

Issue 2: Interpretation of Section 80P(2)(a) and 80P(2)(d)
The CIT(A) upheld the AO's decision, relying on the Supreme Court's rulings in Mavilayi Service Co-Operative Bank Ltd. and Totgars Co-operative Sale Society Ltd., affirming that interest income from fixed deposits in cooperative banks is not eligible for deduction under Section 80P(2)(a) and 80P(2)(d).

Appellant's Argument:
The assessee argued that the deposits were made in the regular course of business without the intention to gain extra benefits, thus qualifying for deduction under Section 80P. They contended that the facts in Totgars were different and should not apply to their case.

Respondent's Argument:
The Department argued that the CIT(A) correctly upheld the AO's addition, asserting that the interest income is not eligible for deduction under Section 80P.

Tribunal's Decision:
The Tribunal examined whether the assessee is eligible for deduction under Section 80P on interest earned from deposits in cooperative banks. It distinguished the facts from the Totgars case, noting that the original source of investments was the income derived from activities listed in Section 80P(2)(a). The Tribunal cited the Andhra Pradesh High Court's decision in Vavveru Cooperative Rural Bank Ltd., which allowed similar deductions, and the coordinate bench's decision in Kakateeya Mutually Aided Thrift and Credit Co-op Society Limited, which supported the assessee's claim.

Conclusion:
Respecting the Andhra Pradesh High Court's ruling and the Tribunal's previous decisions, the Tribunal quashed the CIT(A)'s order and allowed the assessee's appeal, granting the deduction under Section 80P.

Result:
The appeal of the assessee is allowed.