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2018 (9) TMI 284 - AT - Income TaxDeduction u/ s 80P(2)(a)(i) - interest income received by the assessee on investments made with Sub -Treasuries, Banks etc. - whether interest income received by the assessee on investments with sub -treasuries and banks was liable to be assessed under the head income from ot her sources or income from business - Held that - Co-operative societies engaged in providing credit facilities to its members had in course of business made investments with treasury, bank etc. and earned interest income, such income was eligible for deduction u/ s 80P(2)(a) (i). See Vaveru Co -operative Rural Bank Ltd. v CIT 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT In the instant case the assessee had made investments with sub -treasuries and banks in the course of its business of banking / providing credit facilities to its members. Therefore, it was entitled to deduction u/ s 80P(2)(a)(i) in respect of interest income that was received on such investments in view of the above judicial pronouncements. - Decided in favour of assessee.
Issues Involved:
1. Whether the CIT(A) is justified in directing the Assessing Officer to grant deduction u/s 80P(2)(a)(i) of the I.T. Act in respect of interest income received by the assessee on investments made with Sub-Treasuries, Banks, etc. Issue-wise Detailed Analysis: 1. Justification of Deduction u/s 80P(2)(a)(i): The primary issue in these appeals is whether the CIT(A) was correct in directing the Assessing Officer to grant deduction under section 80P(2)(a)(i) of the Income Tax Act for interest income received by the assessee from investments made with sub-treasuries and banks. Facts of the Case: The assessee, a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969, provides banking and credit facilities to its members. For the assessment years in question, the Assessing Officer treated the interest income from investments with treasury and banks as "income from other sources," thereby denying the deduction under section 80P(2)(a)(i). CIT(A) Ruling: The CIT(A) ruled in favor of the assessee, following the precedent set by the Cochin Bench of the Tribunal in the case of Kizhathadiyoor Service Co-operative Bank Ltd. The CIT(A) held that the interest income earned on investments with Treasury and Banks is part of the banking activity and thus eligible for deduction under section 80P(2)(a)(i). Revenue's Argument: The Revenue contended that the CIT(A) erred in its decision, relying on the Supreme Court's ruling in Totgar's Co-operative Sale Society Ltd., which categorized such interest income as "income from other sources" taxable under section 56 and not eligible for deduction as business income under section 80P(2)(a)(i). The Revenue also noted that the department had not challenged the decision in Kizhathadiyoor Service Co-operative Bank Ltd. due to the low tax effect. Assessee's Argument: The assessee argued that the issue is covered in their favor by several judicial pronouncements, including CIT v. Karnataka State Co-operative Bank, Vaveru Co-operative Rural Bank Ltd. v CIT, Muttom Service Co-operative Bank Ltd., Mundakkayam Service Co-operative Bank Ltd., and The Mangalam Service Co-operative Bank Ltd. v. ITO. Tribunal's Analysis: The Tribunal considered whether the interest income should be assessed under "income from other sources" or "income from business." If assessed under "income from business," the assessee would be entitled to the deduction under section 80P(2)(a)(i). Judicial Precedents: - Karnataka High Court in Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamamitha vs ITO: The court held that a primary agricultural credit society or a primary cooperative agricultural and rural development bank that does not have an RBI license to carry on banking business is not a cooperative bank and is eligible for deduction under section 80P(2)(a)(i). - Cochin Bench of the Tribunal in The Azhikode Service Co-operative Bank Ltd. & Others: The Tribunal ruled that interest income from investments with sub-treasuries and banks is part of the banking activity and eligible for deduction under section 80P(2)(a)(i). - Kizhathadiyoor Service Co-operative Bank Ltd.: The Tribunal distinguished the Totgar's case, noting that the interest income in Totgar's was from surplus funds not required for immediate business needs, whereas in the present case, the funds were part of the banking activity. Conclusion: The Tribunal upheld the CIT(A)'s decision, affirming that the interest income received by the assessee on investments with sub-treasuries and banks is part of the banking activity and thus eligible for deduction under section 80P(2)(a)(i). The appeals filed by the Revenue were dismissed. Final Order: The appeals filed by the Revenue are dismissed, and the assessee is entitled to the deduction under section 80P(2)(a)(i) for the interest income received on investments with sub-treasuries and banks. The order was pronounced on the 03rd day of September, 2018.
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