2019 (1) TMI 211 - AT - Income Tax

Benefit of deduction u/s 80P(2)(a)(i) - interest income received on investment of their surplus funds - denial the claim of the Assessee on the ground that interest income earned by making investment of surplus funds has to be assessed under the head income from Other Sources and not income from business - Held that - The claim of the Assessee was that Co-operative Bank is essentially a Co-operative Society and therefore deduction has to be allowed under Clause (d) of Sec.80P(2) of the Act. As decided in the case The Totgars Co-operative Sales Society Ltd. (2017 (7) TMI 1049 - KARNATAKA HIGH COURT) held that interest earned from Schedule bank or co-operative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d)of the Act was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991-92 to 1999-2000 decided by the Hon ble Supreme Court. Therefore whether the source of funds were Assessee s own funds or out of liability was not subject matter of the decision of the Hon ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. 2015 (2) TMI 995 - KARNATAKA HIGH COURT still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examing the facts in the light of these judgment of the Hon ble Apex Court rendered in the case of The Totgars Cooperative Sale Society Ltd. (supra) and of Hon ble Karnataka high Court rendered in the case of Tumukur Merchnts Souharda Cooperative Ltd. 2015 (2) TMI 995 - KARNATAKA HIGH COURT - Assessee s appeal allowed for statistical purposes.

Summary

Issues:
1. Whether the Revenue authorities were justified in not allowing the benefit of deduction u/s 80P(2)(a)(i) of the Income Tax Act to the Assessee on interest income received on investment of surplus funds for Assessment Years 2010-11 and 2013-14.

Analysis:
The primary issue in this case pertains to the eligibility of the Assessee for the deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 on the interest income received on the investment of surplus funds. The Assessing Officer (AO) denied the claim, asserting that interest income earned through surplus fund investments should be categorized under "income from Other Sources" rather than business income, thereby disallowing the deduction. The AO's decision was based on the precedent set by the Hon'ble Supreme Court in The Totgar's Co-operative Sales Society Ltd. case, where it was held that the deduction under section 80P(2)(a)(i) is applicable only to income assessable under the head "income from business." The Assessee appealed against this decision, but the CIT(A) upheld the AO's order, leading to the current appeal before the ITAT Bangalore.

The Assessee raised several grounds in their appeals, challenging the CIT(A)'s decision. They argued that the appellate authority erred in relying on the Totagars case, as it was specific to different facts and circumstances. Additionally, they contended that the interest received on bank deposits should be considered as income earned from the business of credit cooperative, not under section 56 of the IT Act. The Assessee also referred to the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Credit Co-operative Ltd. to support their arguments.

During the proceedings, the ITAT Bangalore considered the subsequent decision of the Hon'ble Karnataka High Court in the case of PCIT Vs. Totgars Co-operative Sale Society Ltd. The High Court's decision clarified that interest earned from scheduled banks or cooperative banks should be assessed under the head "income from other sources," making section 80P(2)(d) of the Act inapplicable to such interest income. The ITAT Bangalore highlighted the consistency in the nature of interest income across different assessment years and emphasized the importance of examining the source of funds for investments. Consequently, the ITAT Bangalore directed the AO to reevaluate the facts in light of the relevant judgments and provide an opportunity for the Assessee to present additional evidence before reaching a fresh decision.

In conclusion, the ITAT Bangalore allowed the Assessee's appeals for Assessment Years 2010-11 and 2013-14 solely for statistical purposes, indicating a need for further assessment based on the clarified legal interpretations provided during the proceedings.