2016 (10) TMI 585 - AT - Income Tax

Section 80P deduction eligibility - Held that - Interest income and dividend earned on deposits with other co operative banks/societies are fully deductible u/s. 80P (2)(a)(1) from the income liable to tax though the assessee has claimed the same as exempt u/s. 80P (2)(d) of the Act. See M/s. The Totgars Cooperative Sale Society Limited Versus Income Tax Officer. Karnataka 2010 (2) TMI 3 - SUPREME COURT

Issues Involved:
1. Eligibility for deduction under Section 80P of the Income Tax Act, 1961.
2. Interpretation of interest income earned from deposits with cooperative societies.
3. Applicability of various judicial precedents, including decisions of the Supreme Court and High Courts.

Detailed Analysis:

1. Eligibility for Deduction under Section 80P of the Income Tax Act, 1961:
The primary issue revolves around whether the assessee, a Rural Cooperative Bank, is eligible for deductions under Section 80P of the Income Tax Act, 1961. The assessee claimed deductions for the Assessment Years (A.Ys) 2010-11 and 2012-13 under Section 80P(2)(d) for interest income earned from deposits with cooperative societies. The Assessing Officer (A.O) disallowed these claims, citing the Supreme Court decision in Totagar’s Cooperative Sale Society Ltd. vs. ITO, which held that such interest income was taxable under Section 56 of the Act.

2. Interpretation of Interest Income Earned from Deposits with Cooperative Societies:
The CIT(A) accepted the assessee's claim, relying on the judgment of the Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Society. The CIT(A) observed that the interest income earned from deposits was attributable to the business activities of the cooperative society and therefore eligible for deduction under Section 80P(2)(a)(i). The CIT(A) noted that the interest income was inextricably linked to the activity of providing credit facilities to its members, making it eligible for deduction.

3. Applicability of Various Judicial Precedents:
The CIT(A) considered several judicial precedents while making its decision. The CIT(A) distinguished the facts of the present case from those in the Totagar’s Cooperative Sale Society case, emphasizing that the latter was confined to its specific facts and did not lay down a general principle. The CIT(A) also referred to other High Court decisions, including the Andhra Pradesh High Court in CIT III Hyderabad vs. A.P Cooperative Bank Ltd., and several Karnataka High Court decisions, which supported the assessee's claim for deductions under Section 80P.

The Tribunal, upon examining the orders of the lower authorities and rival submissions, found that the CIT(A) had appropriately considered the relevant judgments, including those of the Supreme Court and various High Courts. The Tribunal upheld the CIT(A)'s decision, confirming that the interest income earned from deposits with cooperative banks/societies is fully deductible under Section 80P(2)(a)(i) of the Act. The Tribunal noted that the CIT(A) had correctly interpreted the term "attributable to" as used in Section 80P, which has a wider meaning compared to "derived from," thus covering the interest income earned from deposits made for liquidity purposes.

Conclusion:
The Tribunal concluded that the CIT(A) had correctly followed the jurisdictional High Court's judgment and other relevant judicial precedents. The appeals for both assessment years, 2010-11 and 2012-13, were allowed in favor of the assessee, and the additions and disallowances made by the A.O were deleted. The Tribunal dismissed the revenue's appeals, finding no infirmity in the CIT(A)'s order.

The order was pronounced in the open court on August 26, 2016.

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