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2015 (12) TMI 194 - AT - Income TaxDenial of deduction claimed u/s 80P(2)(a)(i) on the interest income earned on the deposits with Karnataka Bank Limited - Held that - Since the facts in the present case before us is identical to that of the case which is decided by for the assessment year 2009-10, which follows the decision of the Hon ble High Court of Karnataka in the case of CIT Vs Grain Merchants Co-operative Bank Ltd., 2003 (10) TMI 21 - KARNATAKA High Court and Tumkur Merchants Souharda Credit Co-operative Ltd., Vs ITO (2015 (2) TMI 995 - KARNATAKA HIGH COURT ) and we hold that the learned CIT(A) was not correct in denying the assessee s claim of deduction u/s 80P(2)(a)(i) and hold the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act, in respect of interest income earned on fixed deposits, as well as that the said interest income forms art of the business income earned by the assessee and the same is not to be taxed under the head Other Sources - Decided in favour of assessee.
Issues:
1. Denial of deduction claimed u/s 80P(2)(a)(i) on interest income earned on deposits with Karnataka Bank Limited. Analysis: The appeal was against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2010-11. The primary issue revolved around the denial of deduction claimed under section 80P(2)(a)(i) concerning interest income earned on deposits with Karnataka Bank Limited. The original assessment was reopened to tax this interest income under 'Income from other sources,' not eligible for deduction under section 80P, which was not considered in the initial assessment. The Assessing Officer (AO) assessed the interest income and denied the deduction under section 80P based on the analysis of objections raised by the appellant. The CIT(A) referred to the decision of the Hon'ble Supreme Court in a similar case and directed the AO to exclude the interest income from the claim of exemption under section 80P(2)(a)(i) and tax it under 'other sources.' The appellant, aggrieved by this decision, filed an appeal. During the appeal, the appellant argued against the denial of the deduction under section 80P(2)(a)(i) for the interest income earned on fixed deposits. The appellant presented a decision from a Co-ordinate Bench of the Bangalore Bench Tribunal in support of their case. The Co-ordinate Bench's decision highlighted the distinction between cases where interest income was attributable to the business of banking and cases where it was retained from marketing agricultural produce, as in the original Supreme Court case. The Tribunal, following the decision of the Hon'ble High Court of Karnataka in a similar case, held that the appellant was entitled to the deduction claimed under section 80P(2)(a)(i) for the interest income earned on fixed deposits. The Tribunal emphasized that the interest income was part of the business income and not to be taxed under 'other sources.' Consequently, the Tribunal allowed the appellant's appeal, aligning with the decision of the Co-ordinate Bench and the High Court of Karnataka. In conclusion, the Tribunal allowed the appellant's appeal, holding that the interest income earned on fixed deposits was eligible for deduction under section 80P(2)(a)(i) and should not be taxed under 'other sources,' based on the precedent set by the Hon'ble High Court of Karnataka and the Co-ordinate Bench's decision.
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