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2018 (1) TMI 602 - AT - Income TaxEntitlement to deduction u/s 80P(2) in respect of interest received on deposits with Sub-Treasuries - whether interest received on investments with sub-treasury is liable to be assessed under the head income from other sources or income from business - Held that - In view of the judgment of the Hon ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Coop Ltd (2015 (2) TMI 995 - KARNATAKA HIGH COURT) and Cochin Bench of the Tribunal in the case of Service Coop Bank Ltd.,(2016 (7) TMI 1405 - ITAT COCHIN), we are of the view that the assessee is entitled to the benefit of deduction u/s 80P(2) of the income-tax Act, with regard to interest received on deposits made by the assessee with sub treasury amounting to ₹ 3,30,866 for assessment year 2007-2008. - Decided in favour of assessee.
Issues Involved:
1. Entitlement to deduction under Section 80P(2) of the Income-tax Act for interest received on deposits with Sub-Treasuries. 2. Eligibility for deduction under Section 80P(2) of the Income-tax Act for income received from the sale of fertilizers amongst agriculturists. Issue-wise Detailed Analysis: 1. Entitlement to Deduction under Section 80P(2) for Interest on Deposits with Sub-Treasuries: The primary issue in ITA No.584/Coch/2017 for the assessment year 2007-2008 was whether the assessee-society is entitled to deduction under Section 80P(2) of the Income-tax Act for interest received on deposits with Sub-Treasuries. The assessee, a primary agricultural credit society, had its claim for deduction under Section 80P(2) denied by the Assessing Officer on the grounds that the society was engaged in banking activities and thus ineligible for the deduction post the insertion of Section 80P(4) effective from 01.04.2007. Upon appeal, the CIT(A) allowed the claim for deduction under Section 80P(2) but denied the benefit for interest income from Sub-Treasuries, categorizing it as 'income from other sources' based on the Supreme Court's judgment in M/s Totgars Cooperative Sales Society Ltd vs ITO (322 ITR 283). The Tribunal, however, found that the assessee did not possess a banking license from the Reserve Bank of India and was not exclusively carrying on banking activities. Instead, it was engaged in lending money to its members, thus falling under Section 80P(2)(a)(i). The Tribunal distinguished the case from Totgars, noting that the interest income in Totgars was from surplus funds retained from marketing agricultural produce, whereas in the present case, the funds were not liabilities but profits not immediately required for lending. This distinction was supported by the Karnataka High Court judgment in Tumkur Merchants Souharda Credit Cooperative Ltd and the Cochin Bench's decision in Kizhathadiyoor Service Coop Bank Ltd. The Tribunal concluded that the interest income from Sub-Treasury deposits should be treated as 'income from business' and thus eligible for deduction under Section 80P(2)(a)(i). 2. Eligibility for Deduction under Section 80P(2) for Income from Sale of Fertilizers: The second issue in ITA No.584/Coch/2017 concerning the eligibility for deduction under Section 80P(2) for income of ?64,925 received from the sale of fertilizers was not pressed by the assessee during the hearing. Consequently, this ground was dismissed. In ITA No.585/Coch/2017 for the assessment year 2013-2014, the sole ground was whether income of ?2,01,617 from the sale of fertilizers was eligible for deduction under Section 80P(2). Similar to the previous case, this ground was also not pressed by the assessee and thus the appeal was dismissed. Conclusion: The appeal in ITA No.584/Coch/2017 was partly allowed, granting the assessee the benefit of deduction under Section 80P(2) for interest received on Sub-Treasury deposits. The appeals concerning the eligibility for deduction for income from the sale of fertilizers in both ITA No.584/Coch/2017 and ITA No.585/Coch/2017 were dismissed as not pressed. Order Pronouncement: The final order was pronounced on January 11, 2018, with ITA No.584/Coch/2017 being partly allowed and ITA No.585/Coch/2017 dismissed.
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