2021 (12) TMI 983 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - assessee is a co-operative society and engaged in the activity of providing credit facilities to the members - HELD THAT - In the year under consideration there was the surplus fund available with the assessee which was deposited with the banks in order to generate the interest income as well as to maintain the liquidity for the repayment of the deposits accepted from the members. The assessee on such funds has earned gross amount of interest income only. As per the AO, the impugned amount of interest was not arising to the assessee from the activities of financing to the members. AO computed the proportionate amount of interest on the deposits from non-members which was not eligible for deduction under section 80P(2)(a)(i). Both the parties and perused the materials available on record including the case law cited the assessee. The provisions of section 80P(2)(a)(i) provides the deduction to a co-operative society engaged in the business of banking or providing credit facilities to its members. The provisions of the section are without any ambiguity. In other words, the income from the activity of financing from the members is only eligible for deduction under section 80P(2)(a)(i) of the Act. If there is any income arising to the co-operative society from the non-members that will not be subject to deduction under section 80P(2)(a)(i). It is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India is not being attributable to the business as envisaged under the provisions of the Act. Thus the same cannot be deducted under section 80P(2)(a)(i) of the Act. There remains no ambiguity that income received by the assessee on the money deposited with the bank is not eligible for deduction under section 80P(2)(a)(i). The profits and gains attributable to non-members arising as a result of advancement of loans was held to be not an allowable deduction under Section 80P(2)(a)(i) - No merits in the argument advanced by the learned counsel for the assessee - we hold that there is no infirmity in the order of the learned CIT (A), requiring any interference. Hence, we uphold the same. Hence, the ground of appeal of the assessee is dismissed.

Summary

Issues:
Disallowance of deduction claimed under section 80P(2)(a)(i) of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) confirming the addition of ?9,43,169.00 by disallowing the deduction claimed under section 80P(2)(a)(i) of the Act for the Assessment Year 2014-15. The Assessee, a cooperative society, deposited surplus funds with banks to generate interest income and maintain liquidity for member deposits. The Assessing Officer (AO) disallowed a portion of the interest income, amounting to ?9,43,170.00, earned from non-members, stating it was not eligible for deduction under section 80P(2)(a)(i) of the Act. The Assessee's appeal to the CIT (A) was unsuccessful, leading to the current appeal.

The main contention revolved around whether interest income from non-members was eligible for deduction under section 80P(2)(a)(i) of the Act. The Assessee argued citing a Supreme Court judgment, while the Revenue supported the lower authorities' decision. The Tribunal analyzed the provisions of section 80P(2)(a)(i) which allow deduction for income arising from providing credit facilities to members only. Referring to a Gujarat High Court judgment, the Tribunal held that income from non-members was not eligible for deduction under this section.

The Tribunal reiterated that only interest derived from providing credit to members was deductible under section 80P(2)(a)(i) and interest from surplus funds with banks did not qualify. The Tribunal dismissed the Assessee's reliance on the Supreme Court judgment, emphasizing that profits attributable to non-members' loans were not deductible under the Act. Consequently, the Tribunal upheld the CIT (A)'s order, dismissing the Assessee's appeal.

In conclusion, the Tribunal upheld the disallowance of the deduction claimed under section 80P(2)(a)(i) for interest income from non-members. The judgment highlighted the specific provisions of the Act and relevant case law, emphasizing the ineligibility of such income for deduction. The appeal filed by the Assessee was dismissed, affirming the lower authorities' decision.