2021 (4) TMI 806 - AT - Income Tax

Deduction u/s 80P(2)(a) - assessee has earned interest from surplus funds, which are not required immediately for business purposes and were invested in short term deposits and securities - As held that such an interest is not attributable to the business of the assessee in carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members and is therefore, assessable as income from other sources and not as its business profit. Observing that the deduction u/s 80P(2)(a) is allowable only from its business income and not from income from other sources - HELD THAT - This issue of interest income being business income or income from other sources was considered by various Benches of the Tribunal and also the jurisdictional High Court wherein the jurisdictional High Court has distinguished the decision of the Hon'ble Supreme Court in the case of Totgar s Cooperative Sale Society vs. ITO 2010 (2) TMI 3 - SUPREME COURT that the facts of the case before them and have held that the interest income from fixed deposits made out of surplus funds available with the assessee is also attributable to the business of the assessee and is accordingly allowable as a deduction u/s 80P of the Act As relying on THE VAVVERU CO-OPERATIVE RURAL BANK LTD. VERSUS THE CHIEF COMMISSIONER OF INCOME TAX, VIJAYAWADA 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT the appeal of the assessee is allowed.

Summary

Issues:
Appeal against disallowance of deduction u/s 80P(2)(a) for interest income earned by a cooperative society from surplus funds invested in short term deposits and securities.

Analysis:
The assessee, a cooperative society, filed its return for A.Y 2016-17 declaring total income as 'Nil' after claiming deduction u/s 80P(2)(a) of the Act for interest earned from surplus funds. The Assessing Officer disallowed the deduction, treating the interest income as income from other sources, not business profit, and brought it to tax. The CIT (A) upheld this decision, citing the Supreme Court case of Totgar's Cooperative Sale Society vs. ITO. The assessee appealed to the Tribunal, challenging the disallowance of the deduction.

The assessee argued that interest income from fixed deposits made from surplus funds is attributable to its business and should be allowed as a deduction u/s 80P. The jurisdictional High Court had distinguished the Totgar's case, holding that such interest income is business income. The Tribunal noted this distinction and allowed the appeal, following the High Court's decision. The Tribunal emphasized that the income derived from activities listed in u/s 80P(a) should be considered for deduction under 80P(2)(a).

In summary, the Tribunal allowed the appeal, holding that interest income earned by the cooperative society from surplus funds invested in short term deposits and securities is attributable to its business activities, in line with the jurisdictional High Court's decision. The Tribunal's decision was based on the interpretation that income derived from activities listed in u/s 80P(a) should be eligible for deduction u/s 80P(2)(a), contrary to treating it as income from other sources.