2015 (2) TMI 5 - AT - Income Tax

Treatment the interest income received by the assessee Co-operative Society - income from other sources or business income - CIT(A) allowed the claim of the assessee on the ground that the assessee is entitled to deduction u/s.80P(2)(a)(i) on account of interest from banks other than cooperative banks, interest on mutual funds long term and short term capital gain on mutual funds etc - Held that - Following the decision in the case of Niphad Nagari Sahakari Patshanshta Ltd., Nashik (2015 (1) TMI 1004 - ITAT PUNE ) hold that the interest income earned by the assessee credit society on the fixed deposits from the bank other than Co- operative Society is a part of its business income. Same way the interest earned on Saving Bank A/c. with the Sindhudurg District Central Co-operative Bank Ltd. is also part of its business income. Also the dividend income is deductible u/s. 80P(2)(d) of the Act. - Decided in favour of the assessee.

Summary

Issues Involved:

1. Treatment of interest income as "income from other sources" versus "business income."
2. Eligibility of dividend income for deduction under Section 80P(2)(d) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Treatment of Interest Income:

The primary issue in this appeal concerns the treatment of interest income amounting to Rs. 30,84,097/- and Rs. 32,077/- received by the assessee, a Co-operative Credit Society, from the State Bank of India (SBI) and Sindhudurg District Central Co-operative Bank Ltd. (SDCCL) respectively. The Assessing Officer (AO) classified this interest income as "income from other sources" rather than "business income," thereby disallowing the deduction under Section 80P(2)(a)(i) of the Income-tax Act. The AO's decision was based on the Supreme Court ruling in Totgar's Co-operative Sale Society Vs. ITO, which held that interest earned from short-term deposits and securities not required for business purposes should be taxed as income from other sources.

The assessee contended that its primary activity was providing credit facilities to its members, which should qualify the interest income for deduction under Section 80P(2)(a)(i). The assessee argued that the decision in Totgar's case was not applicable as it involved surplus funds from the sale of agricultural produce, whereas in this case, the funds were operational and used for providing credit facilities.

The Tribunal examined the facts and previous rulings, including the ITAT Pune decision in ITO Vs. Niphad Nagari Sahakari Patshanshta Ltd., which distinguished the Totgar's case based on the nature of funds and their usage. The Tribunal noted that the funds in the present case were not surplus but operational, used for the society's primary business of providing credit facilities. It was concluded that the interest income earned from fixed deposits and savings accounts should be treated as "business income" and thus eligible for deduction under Section 80P(2)(a)(i). Consequently, Ground Nos. 1, 2, and 3 were allowed in favor of the assessee.

2. Dividend Income Deduction:

The second issue pertains to the eligibility of dividend income received from shares of Sindhudurg District Central Co-operative Bank Ltd. for deduction under Section 80P(2)(d) of the Income-tax Act. The Tribunal referenced its earlier decision in the case of Veejmandal's Workers Federation Sahakari Patsanstha Maryadit, Sindhudurg, where it was held that dividend income is deductible under Section 80P(2)(d). Following this precedent, the Tribunal allowed the respective ground and decided the issue in favor of the assessee.

Conclusion:

In conclusion, the Tribunal allowed the appeal of the assessee, holding that the interest income should be treated as "business income" eligible for deduction under Section 80P(2)(a)(i) and that the dividend income is deductible under Section 80P(2)(d). The appeal was thus decided in favor of the assessee.