2024 (6) TMI 1402 - AT - Income Tax

Deduction u/s 80(P)(2) - interest earned on fixed deposits with State Bank of India - importance of word 'attributable' used - assessee is a co-operative society registered under the Maharashtra State cooperative societies act, 1961 collecting deposits from members under various scheme and major source of income is on account of interest on loan to its members and interest from fixed deposits - reasons for disallowance of deduction is that the interest income is received from the bank, therefore assessee is not eligible for deduction of interest income HELD THAT - On plain reading of the provisions of section 80P(2) (a) (i) the assessee is eligible for deduction of the whole of the sum attributable to carrying on business of credit to its members. Therefore only such income which has been attributable to business from its member is eligible for deduction under this section. Identical issue has been decided in case of Tumkur Merchants Souharda Credit Cooperative Ltd. 2015 (2) TMI 995 - KARNATAKA HIGH COURT wherein the interest accrued in a sum is from the deposits made by the assessee in a nationalized bank out of the amounts which was used by the assessee for providing credit facilities to its members considering the decision in case of Toatagarh 2010 (2) TMI 3 - SUPREME COURT as held amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) We hold that assessee is entitled to deduction u/s 80P(2)(a)(i) of the act on interest income received by the assessee from state bank of India of funds which are not immediately required for its utilisation in case of assessee being a members credit cooperative society. Assessee appeal allowed.

Summary

Issues:
1. Dispute regarding deduction claimed under section 80P(2) of the Income Tax Act.
2. Eligibility of the assessee for deduction under section 80P(2)(a)(i) of the act.
3. Interpretation of the term "attributable to" in section 80P(2)(a)(i).
4. Comparison with relevant case laws to determine eligibility for deduction.

Analysis:

The appeal was filed by the NPC Employees Cooperative Credit Society Ltd, Mumbai, against the appellate order passed by the National Faceless Appeal Centre (NFAC), Delhi, wherein the appeal against the assessment order was dismissed. The dispute revolved around the assessee's claim for deduction under section 80P(2) of the Income Tax Act, which was denied by the assessing officer.

The assessee, a cooperative society registered under the Maharashtra State Cooperative Societies Act, collected deposits from members and earned income primarily from interest on loans to members and fixed deposits. The assessing officer disallowed the deduction under section 80P, stating that interest income from the bank rendered the assessee ineligible for the deduction.

The assessee contended that based on a Supreme Court decision, they were eligible for the deduction. The CIT-A, however, dismissed the appeal, stating that interest income from the bank was not eligible for deduction under section 80P(2) of the act.

The Tribunal analyzed the provisions of section 80P(2)(a)(i) and referred to a Karnataka High Court case to interpret the term "attributable to." The Tribunal highlighted that the word "attributable to" is wider than "derived from," indicating that interest income from fixed deposits with banks can be considered attributable to the business of providing credit facilities to members.

Referring to the Supreme Court's decision in a similar case, the Tribunal held that the interest income earned by the assessee from fixed deposits with State Bank of India was indeed attributable to the business of providing credit facilities to members. Therefore, the Tribunal allowed the solitary ground of appeal raised by the assessee, granting them the deduction under section 80P(2)(a)(i) of the act.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the deduction under section 80P(2)(a)(i) for the interest income received from State Bank of India, as it was not immediately required for utilization by the cooperative society.