2018 (11) TMI 436 - AT - Income Tax

Eligibility for deduction u/s 80P(2)(a)(i) - interest earned on fixed deposits placed with banks - Held that - Identical issue arose in the case of Chandraprabhu Gramin Bigar Sheti Sahkari Patsantha Maryadit 2016 (7) TMI 1485 - ITAT PUNE wherein after considering the decisions of Hon ble Apex Court in the case of Totgars Co-operative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT and the decision of Hon ble Delhi High Court in the case of Mantola Co-operative Thrift & Credit Society Ltd., 2014 (9) TMI 833 - DELHI HIGH COURT and other decisions has decided the issue in favour of the assessee as hold that assessee is entitled to deduction u/s 80P(2)(a)(i) of the Act on the interest income on fixed deposits kept with nationalized banks and private sector banks. Thus, the ground of the assessee is allowed.

Summary

Issues Involved:
1. Whether the interest earned on investments made with nationalized banks should be classified as "income from other sources" and taxed under section 56 of the Income Tax Act, 1961.
2. Whether the interest income is eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.

Detailed Analysis:

1. Classification of Interest Income:
The primary issue was whether the interest earned by the assessee, a Co-operative Society, on fixed deposits with nationalized banks should be classified as "income from other sources" and taxed under section 56 of the Income Tax Act, 1961. The Assessing Officer (AO) observed that the interest income of ?4,39,469/- was not from the assessee’s primary business activity of providing credit facilities to its members but was instead "income from other sources." Consequently, the AO denied the deduction claimed under section 80P(2)(a)(i) of the Act. This decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], who relied on the Supreme Court's decision in the case of Totgar’s Co-operative Sale Society Ltd., which held that interest on surplus funds not required for business purposes should be taxed as "income from other sources."

2. Eligibility for Deduction under Section 80P(2)(a)(i):
The assessee contended that the interest income should be treated as business income and thus eligible for deduction under section 80P(2)(a)(i) of the Act. The assessee cited the Pune Tribunal's decision in the case of Chandraprabhu Gramin Bigar Sheti Sahkari Patsantha Maryadit, which allowed such deductions. The Tribunal considered various precedents, including the decisions of the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. and the Delhi High Court in Mantola Co-operative Thrift & Credit Society Ltd.

Tribunal's Decision:
The Tribunal analyzed the facts and the legal precedents. It noted that the issue of whether interest income from fixed deposits with banks is eligible for deduction under section 80P(2)(a)(i) had been decided in favor of the assessee in similar cases. Specifically, the Tribunal referenced its own decision in the case of Chandraprabhu Gramin Bigar Sheti Sahkari Patsantha Maryadit, where it was held that the interest income earned on fixed deposits kept with banks other than cooperative banks/societies was eligible for deduction under section 80P(2)(a)(i). The Tribunal emphasized that the decision of the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. supported the view that such interest income is attributable to the business of providing credit facilities to members and thus eligible for deduction.

The Tribunal also addressed the Revenue's contention that the amendment to section 80P w.e.f. A.Y. 2007-08 had not been considered in the earlier decision. It found no material evidence from the Revenue to demonstrate that the decision had been overturned or stayed by a higher judicial forum. Consequently, the Tribunal followed the principle that when two views are possible, the view favorable to the assessee should be adopted, as per the Supreme Court's decision in CIT vs. Vegetable Products Ltd.

Conclusion:
The Tribunal held that the interest income earned by the assessee on fixed deposits with nationalized banks and private sector banks was eligible for deduction under section 80P(2)(a)(i) of the Act. The appeals for both assessment years 2012-13 and 2013-14 were allowed, and the grounds raised by the assessee were upheld. The Tribunal's decision reinforced the principle that interest income on fixed deposits, when attributable to the business of providing credit facilities to members, qualifies for deduction under section 80P(2)(a)(i).