2024 (10) TMI 653 - AT - Income Tax

Exemption u/s. 80P(2)(a)(i) - interest income earned from Nationalised Banks - HELD THAT - Interest income earned on Fixed Deposits with Nationalised Banks partakes character of the business income, which is eligible for deduction u/s 80P(2)(a)(i) of the Act. Therefore, direct the AO to allow the exemption u/s. 80P(2)(a)(i) of the Act. Appeal filed by the assessee is allowed.

Summary

Issues:
Eligibility of the assessee for exemption u/s. 80P(2)(a)(i) of the Income Tax Act in respect of interest income earned from Nationalised Banks.

Detailed Analysis:
The appellant, a Cooperative Society governed by the Maharashtra Cooperative Societies Act, filed an appeal against the order of the Addl./JCIT(A) for the assessment year 2017-18. The appellant's income tax return disclosed total income at Nil after claiming a deduction u/s. 80P(2)(a)(i) of the Act. The Assessing Officer added interest income earned on fixed deposits with Nationalised Banks to the total income, holding that it does not qualify for deduction u/s. 80P(2)(a)(i). The Addl./JCIT(A) confirmed the Assessing Officer's action, leading the appellant to appeal before the Tribunal (ITAT Pune).

During the appeal hearing, the appellant's representative argued that the issue was decided in favor of the assessee in previous decisions by the Co-ordinate Benches of the Tribunal. On the contrary, the Senior DR representing the revenue authorities contended that no interference by the Tribunal was warranted.

The main issue in the appeal was the eligibility of the assessee for exemption u/s. 80P(2)(a)(i) of the Act concerning interest income earned from Nationalised Banks. There was a divergence of judicial opinion among various High Courts on whether such income qualified for exemption under this provision. Several High Courts held that interest income from surplus investments in short-term deposits and securities was not attributable to the society's activities and thus not eligible for exemption u/s. 80P(2)(a)(i). However, other High Courts opined that such interest income was attributable to the society's activities and therefore eligible for exemption.

In this case, the ITAT Pune, following the decision of the Co-ordinate Bench and the judgment of the Karnataka High Court, held that the interest income earned on Fixed Deposits with Nationalised Banks was akin to business income and thus eligible for deduction u/s. 80P(2)(a)(i) of the Act. Consequently, the Tribunal directed the Assessing Officer to allow the exemption, thereby allowing the appeal filed by the appellant society.

In conclusion, the Tribunal allowed the appeal filed by the assessee, ruling in favor of the appellant society regarding the eligibility for exemption u/s. 80P(2)(a)(i) of the Act in relation to interest income earned from Nationalised Banks.