2024 (8) TMI 544 - AT - Income Tax

Deduction u/s. 80P received from State bank of India and Tamilnadu Industrial Co-Op.Bank - assessee is a co-operative society formed and managed by the Govt. of Tamilnadu through the department of Social welfare - HELD THAT - As observed that the interest income earned by the society is in its regular course of its operations and does forms part of the revenue attributable to the operations of the society as a cottage industry and in our considered view the assessee is eligible for deduction 80P(2)(a)(ii) itself. On perusal of the decision in the case Tumkur Merchants Souharda credit Co-Op. Ltd 2015 (2) TMI 995 - KARNATAKA HIGH COURT relied by the Ld.AR is clearly explained that, the interest earned from the deposits made out of the idle funds of the assessee, the said interest income is attributable to the profits and gains of the business only. Therefore, we are of the view that the lower authorities have grossly erred in disallowing the said deduction u/s. 80P(2)(d), without appreciating the fact that, the claim of the assessee as a cottage industry and the entire Income was claimed as deduction u/s. 80P(2)(a)(ii). Therefore, we are of the view that, the assessee is a cottage industry and the entire income is attributable to business of the society and hence eligible to claim Interest earned on deposit also as deduction u/s. 80P(2)(a)(ii) - Appeal of the Assessee is allowed.

Summary

Issues:
- Disallowance of deduction u/s. 80P for interest income received from banks
- Interpretation of provisions related to deduction for a cooperative society engaged in a cottage industry

Analysis:
1. The appeal was filed against the order disallowing the deduction u/s. 80P for interest income received by the assessee from State Bank of India and Tamilnadu Industrial Co-Op.Bank. The assessee, a cooperative society formed by the Govt. of Tamilnadu, claimed the interest income as part of its business operations under section 80P(2)(a)(ii) of the Income Tax Act, 1961.

2. The Assessing Officer disallowed the interest income, stating that cooperative banks are not cooperative societies, and the interest income from banks is not eligible for deduction u/s. 80P. The Commissioner of Income Tax (Appeals) upheld this decision, leading to the appeal before the Appellate Tribunal ITAT Chennai.

3. The Appellate Tribunal considered the criteria for availing benefits under section 80P(2)(a)(ii) for a 'cottage industry' as specified by Circular No.722 of the CBDT. The Tribunal found that the interest income earned by the society was attributable to its business operations as a cottage industry, making it eligible for deduction under section 80P(2)(a)(ii).

4. Relying on a decision of the Hon'ble High Court of Karnataka, the Tribunal emphasized that interest income earned from deposits made out of idle funds is attributable to the profits and gains of the business. The Tribunal concluded that the lower authorities erred in disallowing the deduction under section 80P(2)(d) without considering the claim of the assessee as a cottage industry eligible for deduction u/s. 80P(2)(a)(ii).

5. Ultimately, the Appellate Tribunal allowed the appeal of the assessee, stating that the entire income of the cooperative society was attributable to its business and therefore eligible to claim interest earned on deposits as a deduction u/s. 80P(2)(a)(ii) of the Act. The decision was pronounced on 7th August, 2024, in Chennai.