2024 (8) TMI 360 - AT - Income Tax

Exemption u/s 80P(d)(a)(i) - interest income earned from cooperative banks/commercial banks - HELD THAT - Referring to cleavage of judicial opinion among 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 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:
Eligibility of the assessee for exemption u/s 80P(2)(a)(i) of the Income Tax Act, 1961 in respect of interest income earned from cooperative banks.

Analysis:

The appellant, a Cooperative society, filed an appeal against the order of the National Faceless Appeal Centre, Delhi for the assessment year 2020-21. The Assessing Officer had brought to tax the interest income earned on FDs with other co-operative banks/commercial banks and other financial institutions, stating that it does not qualify for deduction u/s 80P(2)(a)(i) of the Act. The CIT(A)/NFAC confirmed this action, relying on previous court decisions. The issue in the present appeal concerned the eligibility of the assessee for exemption u/s 80P(2)(a)(i) of the Act in relation to interest income earned from cooperative banks.

Regarding the eligibility of exemption under section 80P(2)(a)(i) for interest income earned by a cooperative society from cooperative/commercial banks, there was a divergence of judicial opinion among various High Courts. Several High Courts held that such interest income is not eligible for exemption under section 80P(2)(a)(i) as it cannot be attributed to the activities of the society. However, other High Courts, including Karnataka, Telangana, Andhra Pradesh, Calcutta, and Madras, opined that such interest income is attributable to the activities of the society and hence qualifies for exemption. The Pune Benches, following the Karnataka High Court's judgment, concluded that interest income earned on fixed deposits with cooperative/scheduled banks is 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 under section 80P(2)(a)(i) and section 80P(2)(d) of the Act, thereby allowing the grounds of appeal filed by the assessee.

In conclusion, the appeal filed by the assessee was allowed, and the Tribunal pronounced the order on August 5th, 2024.