2015 (10) TMI 1408 - AT - Income Tax

Deduction under section 80P(2)(a)(i) denied - such amount was interest from investments, which income fell under the head Income from other sources - Held that - In the case of Renukadevi Urban Credit Co-operative Society Ltd. 2011 (4) TMI 1313 - KARNATAKA HIGH COURT held that a reading of the Section 80P provision specifies that the assessee is entitled for deduction on the interest earned from the business of banking. The word banking is not defined in the Income-tax Act. Therefore, it is necessary for us to take into consideration the definition clause in the Banking Regulation Act, 1949 wherein section 5(b) defines banking as under (b) banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft order or otherwise. From this definition, it is manifest that deposit of money which earns interest falls under the definition of banking . In the instant case, the assessee had the excess money with them which was not taken by its shareholders. Instead of keeping money idle with the assessee, they have deposited the same in a private limited company so that it can earn interest. In the instant case, the appellant-assessee deposited the same in a private limited company namely M/s. Renuka Sugars Ltd. This court in identical circumstances, in CIT v. Grain Merchants Co-operative Bank Ltd. 2003 (10) TMI 21 - KARNATAKA High Court held that the interest earned on the deposits made by the assessee in any banking activity is exempted under section 80P of the Income-tax Act. Therefore, for the reasons stated above, we answer the quantum of law framed above in favour of the assessee/appellant and against the Revenue.

Summary

Issues:
Denial of deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 for interest income from investments categorized as "Income from other sources."

Analysis:
The appellant contested the Assessing Officer's denial of deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, amounting to &8377; 9,24,543, arguing that the interest income from deposits with a bank was attributable to its credit business, not falling under "Income from other sources." The appellant relied on the business nature of providing credits to members, emphasizing that the deposits with the bank were sourced from members, not profits or surplus.

The Departmental representative, however, cited the Supreme Court's judgment in Totgar's Co-operative Sale Society Ltd., asserting that interest income from bank deposits should be classified as "Income from other sources" unless falling under specific clauses of section 80P(2)(a)(i). The lower authorities' decision to deny the deduction was supported based on this interpretation.

The appellant referred to a judgment by the jurisdictional High Court in a similar case, emphasizing that the issue had been previously settled. The Tribunal examined the arguments and referred to the judgment in the case of Renukadevi Urban Credit Co-operative Society Ltd., where it was established that interest earned from banking activities, as defined in the Banking Regulation Act, qualified for deduction under section 80P. The Tribunal noted that the appellant's deposits with a private limited company for earning interest aligned with the definition of banking, as per the Act.

Relying on the precedent set by the jurisdictional High Court and the interpretation of banking activities under section 80P, the Tribunal ruled in favor of the appellant, allowing the appeal and granting the deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

In conclusion, the Tribunal found that the appellant met the criteria for deduction under section 80P(2)(a)(i) based on the relevant legal interpretations and precedents. The appeal was allowed, and the decision was pronounced in favor of the appellant on February 20, 2015.