2015 (9) TMI 170 - AT - Income Tax

Entitlement to deduction u/s 80P - interest income earned on the deposits kept with banks - whether is not eligible for deduction u/s 80P(2)(a)(i) of the Act and hence liable to be assessed as income from other sources as held by CIT(A)? - Held that - As decided TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LIMITED case 2015 (2) TMI 995 - KARNATAKA HIGH COURT in the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. See Totagars Co-operative Sale Society Ltd. (2010 (2) TMI 3 - SUPREME COURT) - Decided in favour of assessee.

Summary

Issues Involved:
- Whether interest income earned on deposits kept with banks is eligible for deduction u/s 80P(2)(a)(i) of the Act.
- Whether the delay in filing the appeal should be condoned.

Analysis:
1. Delay in Filing Appeal:
The appellant challenged the order passed by the ld CIT(A) regarding the interest income earned on deposits with banks not being eligible for deduction u/s 80P(2)(a)(i) of the Act. The appeal was initially barred by a 47-day delay, but the appellant provided a bonafide reason for the delay, which the tribunal accepted, thereby condoning the delay and admitting the appeal for hearing.

2. Eligibility for Deduction u/s 80P(2)(a)(i):
The appellant, a co-operative credit society, claimed deduction u/s 80P(2)(a)(i) for interest income earned on deposits with banks. However, the assessing officer considered the appellant as a bank under sec. 80P(4) of the Act, denying the deduction initially. In the appellate proceedings, the ld CIT(A) reversed this decision, concluding that the appellant is not a bank, and therefore, sec. 80P(4) does not apply. However, the ld CIT(A) held that the interest income is assessable under the head "Income from other sources," disallowing the deduction u/s 80P(2)(a)(i).

3. Judicial Interpretation:
The ld CIT(A) relied on a Supreme Court judgment in Totgars Co-operative Sale Society Ltd case to disallow the deduction. The appellant argued that this judgment was misapplied and cited a Karnataka High Court decision in Tumkur Merchants Souharda Credit Cooperative Ltd case, which supported the deduction claim. The tribunal agreed with the appellant, following the Karnataka High Court's reasoning that interest income from deposits with banks is attributable to the business of providing credit facilities, making it eligible for deduction u/s 80P(2)(a)(i).

4. Decision and Conclusion:
Based on the Karnataka High Court's decision and reasoning, the tribunal set aside the ld CIT(A)'s order and directed the AO to allow the deduction u/s 80P of the Act. Consequently, the appeal filed by the appellant was allowed, emphasizing that the interest income earned from deposits with banks is indeed eligible for deduction under the specified provision of the Income Tax Act.

In conclusion, the tribunal's judgment favored the appellant, emphasizing the eligibility of interest income from deposits with banks for deduction u/s 80P(2)(a)(i) of the Act, based on judicial interpretations and legal principles.