2015 (12) TMI 287 - AT - Income Tax

Eligibility for deduction u/s 80P(2)(a)(i) - interest income earned on the deposits kept with banks - whether is liable to be assessed as income from other sources? - Held that - Consistent with the view taken in the case of M/s Jaoli Taluka ahakari Patpedhi Maryadit (2015 (9) TMI 170 - ITAT MUMBAI ) hold that the interest income is assessable as profit and gains of business in the hands of the assessee and accordingly, it is liable for deduction u/s 80P(2)(a)(i) of the Act. Accordingly, set aside the order of the ld. CIT(A) on this issue and direct the AO to allow deduction u/s 80P - Decided in favour of assessee

Summary

Issues:
1. Eligibility of interest income earned on deposits for deduction u/s 80P(2)(a)(i) of the Act.
2. Classification of the assessee as a cooperative bank.
3. Applicability of sec. 80P(4) to the assessee's case.
4. Assessment of interest income from fixed deposits under the head "Income from other sources."

Issue 1: Eligibility of interest income for deduction u/s 80P(2)(a)(i) of the Act:
The assessee, a cooperative credit society, challenged the decision of ld CIT(A) regarding the interest income earned on deposits with banks. The assessing officer rejected the claim for deduction u/s 80P of the Act, citing sec. 80P(4) and the Banking Regulation Act. However, in the appellate proceedings, it was held that the assessee is not a cooperative bank, allowing for the deduction u/s 80P(2)(a)(i). The ld CIT(A) determined that the interest income from fixed deposits is not generated from business activities and should be assessed under "Income from other sources," thus disallowing the deduction u/s 80P(2)(a)(i).

Issue 2: Classification of the assessee as a cooperative bank:
The assessing officer initially classified the assessee as a bank under sec. 80P(4), thereby denying the deduction. However, in the appellate proceedings, it was established that the assessee does not qualify as a cooperative bank, leading to the reversal of the original denial of deduction u/s 80P(2)(a)(i).

Issue 3: Applicability of sec. 80P(4) to the assessee's case:
The provisions of sec. 80P(4) were invoked by the assessing officer based on the Banking Regulation Act to disallow the deduction for the assessee. The ld CIT(A)'s finding that the assessee is not a cooperative bank negated the application of sec. 80P(4), allowing for the deduction u/s 80P(2)(a)(i).

Issue 4: Assessment of interest income from fixed deposits:
The ld CIT(A) determined that the interest income from fixed deposits with banks is not considered income generated from business activities, leading to its assessment under the head "Income from other sources." The assessee argued that the interest income is derived from its business activities and thus should be exempt u/s 80P(2)(a)(i) or u/s 80P(2)(d). The Tribunal, referring to a previous judgment, held that the interest income is attributable to the business of providing credit facilities, making it eligible for deduction u/s 80P(2)(a)(i).

In conclusion, the Tribunal allowed the appeal, holding that the interest income is assessable as profits and gains of business, making it eligible for deduction u/s 80P(2)(a)(i) of the Act. The decision was based on the interpretation that the interest income is attributable to the business activities of providing credit facilities, aligning with relevant legal precedents.