2015 (7) TMI 946 - AT - Income Tax

Deduction u/s.80P(2)(a)(i) - interest earned on the FDs placed by with banks - Held that - In view of the judgement of in the case of CIT v. Tumkur Merchants Souharda Credit Cooperative Ltd. 2015 (2) TMI 995 - KARNATAKA HIGH COURT it has been clearly mentioned that the money meant for lending, remaining surplus, there being no takers, if deposited in banks for earning interest, such interest income would be attributable to the business of banking carried out by the assessee. We are of the opinion that the facts of the case here fit perfectly well with the facts in the judgment mentioned above. We, therefore, hold that assessee was eligible for claiming deduction u/s.80P(2)(a)(i) of the Act, on the interest earned on the FDs placed by it with banks, this being a part of its business income. We do not find it necessary to interfere with the order of the CIT (A). - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 80P(2)(a)(i) of the Income-tax Act, 1961.
2. Eligibility of a cooperative society for deduction under Section 80P(2)(a)(i).
3. Treatment of interest income earned on fixed deposits (FDs) by a cooperative society providing credit facilities to its members.

Analysis:
1. The appeal addressed the interpretation of Section 80P(2)(a)(i) of the Income-tax Act, 1961, focusing on whether a cooperative society is eligible for deduction under this provision.

2. The Assessing Officer contended that the cooperative society in question fell under the definition of a cooperative bank as per the Banking Regulations Act, 1949, and thus, was not eligible for the deduction under Section 80P(2)(a)(i). The society's primary object was perceived as transacting in banking business, leading to the denial of the deduction by the Assessing Officer.

3. The cooperative society argued that the interest income earned on FDs had a direct nexus with the amounts received as deposits from its members. It highlighted that these deposits were essential for fulfilling its obligation to pay interest to members and were a routine feature of its business operations.

4. The CIT (A) relied on a judgment by the Hon'ble High Court of Karnataka to allow the deduction under Section 80P(2)(a)(i) for the cooperative society. The CIT (A) found merit in the society's explanation regarding the utilization of funds and the direct relationship between deposits and interest income.

5. The Tribunal analyzed the case, emphasizing that the cooperative society's actions were in line with the business of providing credit facilities to its members. It referenced a judgment by the Hon'ble jurisdictional High Court, which clarified that interest income earned by depositing surplus funds in banks for earning interest was attributable to the business of banking.

6. The Tribunal concluded that the cooperative society was eligible for claiming the deduction under Section 80P(2)(a)(i) for the interest earned on FDs. It aligned its decision with the precedent set by the Hon'ble jurisdictional High Court, supporting the society's position regarding the treatment of interest income in the context of its business activities.

7. Ultimately, the Tribunal dismissed the appeal by the Revenue, affirming the cooperative society's eligibility for the deduction under Section 80P(2)(a)(i) based on the specific circumstances and the legal interpretations provided by relevant judgments.

This detailed analysis of the judgment showcases the thorough consideration given to the legal provisions and precedents in determining the eligibility of the cooperative society for the deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961.