2024 (7) TMI 222 - AT - Income Tax

Deduction u/s. 80P(2)(d)/80P(2)(a)(i) - deduction of interest income earned out of deposits made with Cooperative banks/Nationalised banks - HELD THAT - Allowability of exemption under the provisions of section 80P(2)(a)(i) in respect of interest income earned by a cooperative society from the cooperative banks/scheduled banks, there is a cleavage of judicial opinion amongst several High Courts on the issue of eligibility of this kind of income for exemption u/s. 80P(2)(a)(i) of the Act. The Coordinate Bench of Pune Benches in the case of M/s. 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 Thus we are of the considered opinion that 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) even though not eligible for deduction u/s. 80P(2)(d) of the Act. Thus, the grounds of appeal filed by the assessee stand allowed.

Summary

Issues:
1. Whether the appellant society is eligible for deduction of interest income earned from deposits made with Cooperative banks/Nationalised banks under section 80P(2)(d)/80P(2)(a)(i) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1:
The appellant, a Co-operative Credit Society, filed an appeal against the order of the Assessing Officer denying exemption under section 80P(2)(d) for interest income earned from deposits with Cooperative banks and Nationalised banks. The CIT(A)/NFAC upheld the Assessing Officer's decision. The Tribunal considered whether the appellant is eligible for deduction under section 80P(2)(d)/80P(2)(a)(i) of the Act. There was a divergence of judicial opinion on this issue among various High Courts. While some courts held that such income is not eligible for exemption, others opined that it is attributable to the activities of the society and hence eligible for exemption. The Tribunal, following the decision of the Coordinate Bench and judgments of certain High Courts, concluded that interest income earned on fixed deposits with cooperative banks/scheduled banks qualifies as business income eligible for deduction under section 80P(2)(a)(i) of the Act. The Tribunal directed the Assessing Officer to allow the exemption under section 80P(2)(a)(i) even though not eligible for deduction under section 80P(2)(d) of the Act. Consequently, the grounds of appeal filed by the assessee were allowed.

Final Decision:
The Tribunal allowed both appeals filed by the assessee, directing the Assessing Officer to allow the exemption under section 80P(2)(a)(i) for interest income earned from deposits made with Cooperative banks/Nationalised banks. The appeals were allowed, and the order was pronounced on July 2nd, 2024.