2018 (1) TMI 1154 - AT - Income Tax

Eligible for deduction u/s. 80P (2) - amount deposited by assessee in bank and interest earned thereon - Held that - As decided in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO 2015 (2) TMI 995 - KARNATAKA HIGH COURT 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. As the facts in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. are tallying with the present case we decide the issue in favour of the assessee in both years. - Decided in favour of assessee

Summary

Issues:
1. Interpretation of provisions under section 80P(2)(a)(i) of the Income Tax Act.
2. Applicability of judgments by Hon'ble Karnataka High Court in similar cases.
3. Eligibility of interest income for deduction under section 80P(2)(a)(i) based on the source of funds.

Analysis:

Issue 1: Interpretation of provisions under section 80P(2)(a)(i) of the Income Tax Act.
The appellant, a co-operative society providing credit facilities to its members, contended that the interest income derived from investments in co-operative societies and banks should be considered as part of its business profits and qualifies for a deduction under section 80P(2)(a)(i) of the Act. The Assessing Officer and the Appellate authority had denied this deduction, citing the precedent of Totgars Co-operative Sale Society Ltd. The appellant argued that the cited case was not applicable as it involved different activities. The Tribunal examined the provisions of section 80P(2)(a)(i) and the nature of the appellant's business activities to determine the eligibility of the interest income for the deduction.

Issue 2: Applicability of judgments by Hon'ble Karnataka High Court in similar cases.
The Tribunal considered the judgments of the Hon'ble Karnataka High Court in the cases of PCIT and Another Vs. Totagars Co-operative Sale Society and Tumkur Merchants Souharda Credit Cooperative Ltd. to assess their relevance to the present case. The appellant emphasized the differences in facts between the cited cases and the current scenario to support their claim for deduction under section 80P(2)(a)(i). The Tribunal analyzed the key findings and interpretations of these judgments to determine their applicability in the context of the appellant's case.

Issue 3: Eligibility of interest income for deduction under section 80P(2)(a)(i) based on the source of funds.
The Tribunal examined the source of funds used for investments by the appellant, particularly focusing on whether the funds were surplus and reserve funds created from accumulated profits of the society. It compared the facts of the present case with the judgments of the Hon'ble Karnataka High Court to ascertain whether the interest income derived from such investments was eligible for deduction under section 80P(2)(a)(i) of the Act. By analyzing the nature of the funds and the business activities of the society, the Tribunal concluded that the interest income was indeed eligible for deduction as per the provisions of the Act and the relevant judgments.

In conclusion, the Tribunal allowed both appeals filed by the assessee, highlighting the eligibility of the interest income for deduction under section 80P(2)(a)(i) based on the specific circumstances and source of funds involved in the investments made by the co-operative society.