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2016 (5) TMI 762 - AT - Income TaxEntitlement to the benefit of deduction u/s 80P(2)(a)(i) - Held that - Assessee being a credit coop. society does not fall within the provisions of section 80P(4) of the Act as the assessee society is not required to be registered with Reserve Bank of India because for carrying on banking business it is must. We are therefore of the view that assessee is eligible for deduction u/s 80P(2)(a)(i) of the Act and no interference is called for in the order of ld. CIT(A) relating to this ground - Decided against revenue. Whether interest income on bank deposits is taxable as income from other sources u/s 56 of the Act and is not eligible for deduction u/s 80P(2)(a)(i)? - Held that - Respectfully following the decision of the co-ordinate bench in the case of ITO vs. M/s Jafari Momin Vikas Co-op. Credit Society Ltd.(2014 (1) TMI 481 - ITAT AHMEDABAD ) we are of the view that assessee is eligible for deduction of bank interest.
Issues Involved:
1. Deletion of disallowance of ?35,90,300 under Section 80P(2)(a)(i) of the Income Tax Act. 2. Disallowance of deduction under Section 80P to the extent of ?63,190 by treating the income from interest on bank deposits as taxable under Section 56 of the Income Tax Act. Detailed Analysis: Issue 1: Deletion of Disallowance of ?35,90,300 under Section 80P(2)(a)(i) of the Income Tax Act The Revenue challenged the deletion of the disallowance of ?35,90,300 made by the Assessing Officer (AO) under Section 80P(2)(a)(i) of the Income Tax Act. The AO had denied the deduction on the basis that the assessee, being a co-operative society engaged in banking activities, was not eligible for the deduction due to the insertion of Section 80P(4) from Assessment Year 2007-08. The AO's stance was that the assessee was a co-operative bank, not a credit co-operative society. The CIT(A) reversed the AO's decision, observing that the assessee was a co-operative credit society confined to its members and did not perform banking functions. The CIT(A) concluded that the assessee was not a co-operative bank and thus eligible for the deduction under Section 80P(2)(a)(i). Upon appeal, the Tribunal upheld the CIT(A)'s decision. It noted that the definition of "banking" under Section 5(b) of the Banking Regulation Act did not apply to the assessee, as it did not accept deposits from the public but only from its members. The Tribunal referenced a high-level committee report by the Reserve Bank of India, which distinguished between primary credit societies and co-operative credit societies. The Tribunal concluded that the assessee was not a co-operative bank and thus not excluded from the benefits of Section 80P(2)(a)(i). Therefore, the Tribunal dismissed the Revenue's appeal. Issue 2: Disallowance of Deduction under Section 80P to the extent of ?63,190 by Treating Income from Interest on Bank Deposits as Taxable under Section 56 The assessee filed a Cross Objection against the CIT(A)'s decision to treat interest income of ?63,190 from bank deposits as taxable under Section 56, thereby disallowing the deduction under Section 80P(2)(a)(i). The CIT(A) had relied on the Supreme Court's decision in Totgars Co-op. Sale Society Ltd. vs. ITO, which held that interest on surplus funds invested in short-term deposits was taxable under Section 56. The Tribunal, however, sided with the assessee, referencing a co-ordinate bench decision in ITO vs. M/s Jafari Momin Vikas Co-op. Credit Society Ltd. In that case, it was held that interest from bank deposits maintained for liquidity purposes was eligible for deduction under Section 80P(2)(a)(i). The Tribunal distinguished the facts of the present case from those in Totgars, noting that the assessee's funds were not surplus but operational, and the deposits were made to maintain liquidity for its members. Consequently, the Tribunal allowed the assessee's Cross Objection and granted the deduction for the interest income. Conclusion: In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the deduction of ?35,90,300 under Section 80P(2)(a)(i). It also allowed the assessee's Cross Objection, granting the deduction for the interest income of ?63,190, thereby treating it as eligible for deduction under Section 80P(2)(a)(i). The Tribunal's decision was based on a detailed analysis of the nature of the assessee's activities and the applicable legal provisions, distinguishing the facts from relevant case law.
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