2016 (3) TMI 1481 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) in respect of interest on reserve funds, bad debt funds, PF loan etc. as well as subsidy and guest house income - HELD THAT - The issue is squarely covered in assessee's own case for assessment year 2008-09 2012 (4) TMI 832 - 13-04-2012 wherein similar issue has been decided by the Tribunal in favour of the assessee. Thus we uphold the impugned orders of the ld. CIT(A) deleting the disallowance made by the AO under section 80P(2)(a)(i) in respect of interest on reserve fund, bad debt fund, PF loan etc. as well as subsidy and guest house income for all the three years under consideration and dismiss the appeals of the Revenue for the said years. Assessee's claim for deduction u/s 80P(2)(a)(i) in respect of interest on bank fixed deposits (general) - We set aside the impugned orders of the CIT(A) on this issue and restore this matter to the file of the AO for deciding the same afresh as per the same direction as given in the case of Baksara Cooperative Credit Society Ltd. 2016 (1) TMI 409 - ITAT KOLKATA wherein held the issue as to whether the relevant investment is made by the assessee out of its own surplus funds or out of the amount payable to its members, which represent its liability, requires verification in order to determine the exact head of income under which the interest on such investment is chargeable to tax in the hands of the assessee by applying the relevant case laws. We, therefore, set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the AO for deciding the same afresh - The Cross objections filed by the assessee thus are treated as allowed for statistical purposes.

Summary

Issues:
- Disallowance of deduction under section 80P(2)(a)(i) by AO for interest on various receipts.
- Appeal by assessee before CIT(A) against AO's orders.
- Tribunal's decision in assessee's favor for assessment year 2008-09.
- Disallowance of interest on bank fixed deposits.
- Distinction in judgments by Supreme Court and Karnataka High Court.
- Restoration of issue to AO for fresh decision.

Analysis:
1. The Revenue appealed against three orders by CIT(A) disallowing deduction under section 80P(2)(a)(i) for interest on various receipts. The AO disallowed the deduction based on a Supreme Court decision but allowed it for earlier years. The Tribunal upheld CIT(A)'s decision for all three years, relying on its own judgment for assessment year 2008-09 in favor of the assessee.

2. The Tribunal confirmed the disallowance for interest on bank fixed deposits but allowed deductions for other income. It cited the Supreme Court's decision that interest income must be operational income to qualify for deduction under section 80P(2)(a)(i). The Tribunal found that income from reserve funds, bad debt funds, PF loan, subsidy, and guest house was related to the main activity of the assessee, thus eligible for deduction.

3. The assessee's Cross Objections related to interest on bank fixed deposits were allowed for reconsideration by the AO based on a High Court's distinction from the Supreme Court's decision. The Tribunal directed the AO to verify if the investment was made from surplus funds or liabilities to determine the taxability of interest income.

4. Following the decision in a similar case, the Tribunal restored the issue of interest on bank fixed deposits to the AO for fresh consideration. The Revenue's appeals were dismissed, and the assessee's Cross Objections were allowed for statistical purposes. The matter was to be decided afresh by the AO in line with the Tribunal's directions.

This detailed analysis covers the issues, decisions, and legal principles involved in the judgment, providing a comprehensive understanding of the case and its implications.