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2015 (8) TMI 1085 - AT - Income TaxEligibility for deduction u/s.80P(2)(a)(i) - interest earned on deposit kept with schedule banks - assessee (cooperative society) engaged in the activity of providing credit facilities to its member - Held that - Since in the instant case, two divergent decisions were cited before us and no decision of the Hon ble jurisdictional High Court is available, therefore, following the decision of the Hon ble Supreme Court in the case of CIT Vs. Vegetable products reported in 1973 (1) TMI 1 - SUPREME Court we hold that the view in favour of the assessee, i.e. the decision of the in the case of Tumkur Merchants Souhards Credit Cooperative Ltd. 2015 (2) TMI 995 - KARNATAKA HIGH COURT has to be followed. Accordingly, we hold that the interest income earned by the assessee on short term deposits kept with banks has to be allowed as deduction u/s.80P(2)(a)(i) of the I.T. Act. Decision Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT 2014 (9) TMI 833 - DELHI HIGH COURT rejected - Decided in favour of assessee.
Issues Involved:
1. Eligibility of interest income earned from deposits with banks for deduction under Section 80P(2)(a)(i) of the Income Tax Act. 2. Classification of interest income from deposits as "income from other sources" under Section 56 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Eligibility of Interest Income for Deduction under Section 80P(2)(a)(i): The primary issue in the appeal was whether the interest income of Rs. 25,01,774 earned by the assessee, a credit cooperative society, from short-term deposits with banks qualifies for deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had previously ruled against the assessee, relying on the Supreme Court decision in the case of Totgar's Cooperative Sale Society Ltd. (322 ITR 283), which held that interest earned from surplus funds deposited with banks is not eligible for deduction under Section 80P(2)(a)(i) and should be taxed as "income from other sources" under Section 56. The assessee argued that the interest income should be considered as attributable to its business of providing credit facilities to its members, similar to banking activities, and thus should be eligible for deduction under Section 80P(2)(a)(i). The assessee cited the Karnataka High Court decision in Tumkur Merchants Souharda Credit Cooperative Ltd. (55 taxmann.com 447), which distinguished the Totgar's case and held that interest earned from short-term deposits by cooperative societies engaged in providing credit facilities to their members is eligible for deduction under Section 80P(2)(a)(i). 2. Classification of Interest Income as "Income from Other Sources": The AO and CIT(A) had classified the interest income from deposits with banks as "income from other sources" under Section 56, based on the Supreme Court's ruling in Totgar's Cooperative Sale Society Ltd. They contended that the interest income was not derived from the primary activity of providing credit facilities to members but from surplus funds deposited with banks, and thus should be taxed accordingly. The assessee countered this by referring to the broader interpretation of the term "attributable to" used in Section 80P(2)(a)(i), as explained in the Supreme Court's decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT (113 ITR 84). The term "attributable to" is wider in scope than "derived from," implying that interest income from short-term deposits should be considered as part of the business income of providing credit facilities to members. Tribunal's Decision: The Tribunal considered the arguments and referred to the Karnataka High Court's decision in Tumkur Merchants Souharda Credit Cooperative Ltd., which supported the assessee's view. The Karnataka High Court had held that interest income from short-term deposits by a cooperative society engaged in providing credit facilities to its members is attributable to its business and thus eligible for deduction under Section 80P(2)(a)(i). The Tribunal also acknowledged the contrary decision of the Delhi High Court in Mantola Cooperative Thrift & Credit Society Ltd. (50 taxmann.com 278), which held that such interest income should be classified as "income from other sources." However, the Tribunal followed the principle that when two views are possible, the one in favor of the assessee should be adopted, as established by the Supreme Court in CIT v. Vegetable Products Ltd. (88 ITR 192). Conclusion: The Tribunal concluded that the interest income earned by the assessee on short-term deposits with banks is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act. The order of the CIT(A) was set aside, and the grounds raised by the assessee were allowed. The appeal filed by the assessee was thus allowed. Order Pronouncement: The order was pronounced in the open court on 19-08-2015.
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