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2016 (12) TMI 453 - AT - Income TaxDeduction u/s 80P(2)(d) - interest income earned from investments made in other banks / from non-members - Held that - The amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. See Tumkur Merchants Souharda Credit Cooperative Society Ltd v. ITO 2015 (2) TMI 995 - KARNATAKA HIGH COURT - Decided in favour of assessee
Issues Involved:
1. Legality of the order passed by the Ld. CIT(A). 2. Treatment of interest income earned from investments in banks and non-members under Section 80P(2)(d) of the Income-tax Act, 1961. 3. Application of Section 80P(2)(a)(i) to interest income earned from investments in Nationalized and Scheduled Banks. 4. Relevance of the Supreme Court decision in Totgar’s Co-op. Sale Society Ltd. v. ITO to the present case. Detailed Analysis: 1. Legality of the order passed by the Ld. CIT(A): The Revenue contended that the order of the Ld. CIT(A) was against the law and facts of the case. The Ld. CIT(A) had allowed the assessee's appeal, directing the AO to treat the interest income as business income and allowing the deduction under Section 80P(2)(a)(i). The Ld. CIT(A) based its decision on several precedents from the Jurisdictional High Court and ITAT, which supported the assessee's claim. 2. Treatment of interest income earned from investments in banks and non-members under Section 80P(2)(d) of the Income-tax Act, 1961: The AO disallowed the deduction claimed by the assessee under Section 80P(2)(d) on the grounds that the interest income was earned from banks and not from cooperative societies, thus not qualifying for the deduction. The Ld. CIT(A) reversed this decision, referencing multiple cases where similar interest income was considered attributable to the business of providing credit facilities to members, thus qualifying for deduction under Section 80P(2)(a)(i). 3. Application of Section 80P(2)(a)(i) to interest income earned from investments in Nationalized and Scheduled Banks: The Ld. CIT(A) held that the interest income earned from investments in banks was attributable to the business of providing credit facilities to members. The term "attributable to" was interpreted to have a wider import than "derived from," thus including interest income from bank deposits as part of the cooperative society's business income. This interpretation was supported by decisions from the Karnataka High Court and ITAT, which held that such interest income is attributable to the cooperative society's business activities and qualifies for deduction under Section 80P(2)(a)(i). 4. Relevance of the Supreme Court decision in Totgar’s Co-op. Sale Society Ltd. v. ITO to the present case: The Revenue relied on the Supreme Court decision in Totgar’s Co-op. Sale Society Ltd. v. ITO, where it was held that interest income from investments retained from marketing agricultural produce did not qualify for deduction under Section 80P(2)(a)(i). However, the Ld. AR distinguished this case, arguing that the assessee in the present case was solely engaged in providing credit facilities to its members, unlike Totgar's, which was also involved in marketing agricultural produce. The Tribunal agreed with this distinction, noting that the interest income in the present case was from surplus funds not immediately required for lending to members and was thus attributable to the business of providing credit facilities. Conclusion: The Tribunal upheld the order of the Ld. CIT(A), confirming that the interest income earned from investments in banks was attributable to the business of providing credit facilities to members and thus qualified for deduction under Section 80P(2)(a)(i). The appeal of the Revenue was dismissed, and the Tribunal's decision was pronounced in court on November 21, 2016, at Goa.
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