2024 (11) TMI 75 - AT - Income Tax

Disallowance of deduction u/s. 80P(2)(a)(i) - income from interest earned on bank deposits treated the income from banking activities as income from other source instead of its true nature of business income - whether or not the interest income on the surplus funds of a co-operative society, i.e. the funds for which there were no takers? - HELD THAT - Whether or not the interest income on the surplus funds of a co-operative society, i.e. the funds for which there were no takers would be eligible for deduction u/s. 80P(2)(a)(i) of the Act, had been deliberated upon and is squarely covered by the order passed in the case of Gramin Sewa Sahakari Samiti Maryadit 2022 (3) TMI 75 - ITAT RAIPUR follow the same and set-aside the disallowance made by the A.O of the assessee s claim for deduction u/s. 80P(2)(a)(i).

Issues Involved:

1. Condonation of delay in filing the appeal.
2. Entitlement of the assessee society to claim deduction under Section 80P(2)(a)(i) for interest income earned on bank deposits.

Detailed Analysis:

1. Condonation of Delay:

The appeal filed by the assessee society involved a delay of 12 days. The assessee provided justifiable reasons for this delay through an application and affidavit. After hearing the representatives of both parties, the Tribunal found the delay to be not inordinate and condoned it, allowing the appeal to be heard on merits.

2. Entitlement to Deduction under Section 80P(2)(a)(i):

The primary issue was whether the interest income earned by the assessee society, a co-operative society, on its bank deposits was eligible for deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961. The assessee claimed this deduction on interest income of Rs. 8,97,362/-, arguing that it was business income. However, the Assessing Officer (A.O.) and the Commissioner of Income-Tax (Appeals) [CIT(A)] treated this income as "other income" and disallowed the deduction based on the Supreme Court's decision in Totgars Co-operative Sale Society Ltd.

The CIT(A) upheld the A.O.'s decision, stating that the interest income was not operational income but fell under "other income," taxable under Section 56. The CIT(A) relied on the Supreme Court's ruling which emphasized that only operational income is eligible for deduction under Section 80P(2)(a)(i).

Upon appeal to the Tribunal, the assessee argued that the interest income was inextricably linked with its business activities and cited previous Tribunal rulings in similar cases, particularly Gramin Sewa Sahakari Samiti Maryadit Vs. ITO, which supported the deduction claim. The Tribunal noted that the facts and issues in the present case were similar to those in the Gramin Sewa Sahakari Samiti case, where it was held that interest income on surplus funds, when deposited as part of the business of providing credit facilities, was eligible for deduction under Section 80P(2)(a)(i).

The Tribunal observed that the Supreme Court's decision in Totgars was confined to its specific facts, where the interest income was from funds retained as liabilities. In contrast, the present case involved surplus funds not immediately required for business, thus interlinked with the society's primary business activity. The Tribunal cited the Karnataka High Court's judgment in Tumkur Merchants Souharda Cooperative Ltd., which supported the view that such interest income is attributable to the business of providing credit facilities and eligible for deduction.

Consequently, the Tribunal allowed the assessee's claim for deduction under Section 80P(2)(a)(i), setting aside the disallowance made by the A.O. and CIT(A). The Tribunal directed the A.O. to allow the deduction on the interest income earned by the assessee society.

Conclusion:

The appeal was allowed, with the Tribunal ruling in favor of the assessee society, granting the deduction under Section 80P(2)(a)(i) for the interest income earned on bank deposits, in line with previous judicial pronouncements.

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