2016 (4) TMI 854 - AT - Income Tax

Denial of deduction u/s 80P(2)(a)(i) - Held that - Assessee is eligible for deduction u/s 80P(20(a)(i) of the Act for the interest income earned on unutilized idle funds kept for business purposes of the society being deposited with Banas bank . In the result, the impugned additions of the appeals of assessee are deleted. See TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LIMITED Versus THE INCOME TAX OFFICER, WARD-1, TUMKUR 2015 (2) TMI 995 - KARNATAKA HIGH COURT - Decided in favour of assessee

Summary

Issues:
Denial of deduction u/s 80P(2)(a)(i) for interest income earned from short term deposits with banks.

Analysis:
1. The appeals were against orders of ld. CIT(A) denying deduction u/s 80P(2)(a)(i) of the Act for interest income earned from short term deposits with banks. The Assessing Officer disallowed deductions for both years under scrutiny.

2. The assessee, a credit co-op. society, filed returns showing NIL income for the relevant years. The Assessing Officer assessed income, making significant disallowances under sections 80P(2)(a)(i) and 80P(2)(d) of the Act for both years.

3. The CIT(A) partially allowed the appeals, deleting a portion of the disallowance but confirming deductions of specific amounts. The assessee, aggrieved by the partial relief, appealed before the Tribunal.

4. The assessee argued that the interest income was earned from short term deposits with a co-op. bank, essential for operational funds. The contention was that even if the bank was not a credit co-op. society, deduction u/s 80P(2)(a)(i) should apply, citing relevant case laws.

5. The Departmental Representative supported the lower authorities' orders, opposing the assessee's claim for deductions.

6. The Tribunal considered whether the assessee was eligible for deductions u/s 80P(2)(a)(i) for the interest income. The bye-laws of the co-operative society highlighted the objectives of fund management, including earning interest on unutilized funds by depositing with banks.

7. The Tribunal noted that the interest income was earned from deposits with a co-op. bank, falling under the purview of section 80P(2)(a)(i) as the society engaged in banking activities. The interest income was considered as earned from members, aligning with the society's objectives.

8. Referring to relevant case laws, including decisions by the Karnataka High Court and the Delhi Tribunal, the Tribunal concluded that the interest income from deposits qualified for deduction u/s 80P(2)(a)(i) as it was earned in the course of the society's business activities.

9. Relying on precedents and the nature of the funds and income, the Tribunal allowed the appeals, overturning the disallowances made by the lower authorities.

10. Based on the legal analysis and factual considerations, the Tribunal held that the assessee was eligible for deductions u/s 80P(2)(a)(i) for the interest income earned on unutilized funds deposited with the bank for business purposes, leading to the deletion of the impugned additions and allowing the appeals.