2024 (5) TMI 393 - AT - Income Tax

Exemption u/s 80P(2)(a)(i) or u/s 80P(2)(d) - interest income earned from Nationalised banks/cooperative banks - HELD THAT - We find this issue is no more res integra by virtue of several decisions of the Tribunal as well as the decision of Sai Prerana Gramin Bigarsheti Sahakari Pat Sanstha Maryadit 2019 (7) TMI 1582 - ITAT PUNE allowing deduction u/s. 80P. As relying on M/S. RATNATRAY GRAMIN BIGAR SHETI SAH. PAT SANSTHA MARYADIT 2018 (12) TMI 1926 - ITAT PUNE as following TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LIMITED case 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, we direct the Assessing Officer to allow the exemption u/s. 80P(2)(a)(i) and section 80P(2)(d) of the Act. Thus, the grounds of appeal filed by the assessee stand allowed.

Summary

Issues involved: Appeal against order u/s 143(3) of the Income Tax Act, 1961 for assessment year 2015-16 regarding eligibility of exemption u/s 80P(2)(a)(i) or u/s 80P(2)(d) in respect of interest income earned from Nationalised banks/cooperative banks.

Summary:

Issue 1: Assessment and Eligibility for Exemption u/s 80P(2)(a)(i) or u/s 80P(2)(d)
The appellant, a Credit Cooperative Society, filed a return of income for the assessment year 2015-16 claiming exemption u/s. 80P(2)(a)(i)/u/s.80P(2)(d) of the Income Tax Act, 1961. The Assessing Officer completed the assessment u/s. 143(3) bringing interest income earned on FDs with banks to tax, stating it does not qualify for deduction u/s 80P(2)(a)(i). The Tribunal, considering various decisions, held that interest income on fixed deposits with banks is eligible for deduction u/s 80P(2)(a)(i) as it partakes character of business income. The appeal was allowed, directing the Assessing Officer to grant the exemption u/s. 80P(2)(a)(i) and section 80P(2)(d) of the Act.

Issue 2: Judicial Opinions and High Court Decisions
There is a difference in judicial opinion among High Courts regarding the eligibility of interest income for exemption u/s 80P(2)(a)(i). While some High Courts held that such income is not eligible for exemption, others opined that it is attributable to the activities of the society and hence qualifies for exemption u/s 80P(2)(a)(i). The Tribunal, in line with the decision of the Coordinate Bench and judgments of certain High Courts, concluded that interest income on fixed deposits with banks is indeed eligible for deduction u/s 80P(2)(a)(i) as it is considered as business income.