2024 (4) TMI 1112 - AT - Income Tax

Eligibility of exemption u/s 80P(2)(a)(i) or u/s 80P(2)(d) - interest income earned from cooperative banks - cleavage of judicial opinion among several High Courts on the issue of eligibility - HELD THAT - Referring to various contradictory judgments as following the case of 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 .the interest income earned on fixed deposits with cooperative bank/scheduled bank partakes character of the business income, which is eligible for deduction u/s 80P(2)(a)(i) of the Act. Therefore, direct the Assessing Officer to allow the exemption u/s. 80P(2)(a)(i) and section 80P(2)(d) of the Act. Decided in favour of assessee.

Summary

Issues Involved:
The appeal challenges the order of the National Faceless Appeal Centre regarding the eligibility of the assessee for exemption u/s 80P(2)(a)(i) or u/s 80P(2)(d) of the Income Tax Act, 1961, in relation to interest income earned from cooperative banks.

Details of the Judgment:

Issue 1: Eligibility for Exemption u/s 80P(2)(a)(i) or u/s 80P(2)(d) of the Act
The Tribunal considered the conflicting judicial opinions on whether interest income earned by a cooperative society from cooperative banks qualifies for exemption u/s 80P(2)(a)(i) of the Act. Various High Courts had differing views on this matter. The Tribunal noted that the income arising from surplus invested in short-term deposits and securities may not be eligible for exemption u/s 80P(2)(a)(i) according to some courts. However, other courts held that such interest income is attributable to the activities of the society and is eligible for exemption u/s 80P(2)(a)(i) of the Act. Citing relevant case laws, the Tribunal concluded that interest income earned on fixed deposits with cooperative banks/scheduled banks qualifies as business income eligible for deduction u/s 80P(2)(a)(i) of the Act. Consequently, the Tribunal directed the Assessing Officer to allow the exemption u/s 80P(2)(a)(i) and section 80P(2)(d) of the Act. As a result, the grounds of appeal filed by the assessee were upheld, and the appeal was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal and directing the Assessing Officer to grant the exemption under the relevant sections of the Income Tax Act, 1961.