2023 (4) TMI 481 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest derived by the assessee on the deposits in the Andhra Bank and the Indian Bank on the credit balance available therein - Scope of expressions, namely, derived from or directly attributable to - HELD THAT - In the case on hand, undisputedly, the interest arose on the credit balances with reference to the regular course of business of the assessee. As decided in Vavveru Co-operative Rural Bank Ltd. 2017 (4) TMI 663 - ANDHRA PRADESH if the original source of the investments made by the petitioners in nationalized banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a), then the character of such income may not be lost, especially when the statute uses the expression attributable to and not any one of the two expressions, namely, derived from or directly attributable to . It, therefore, goes without saying that the interest credited by the Andhra Bank and the Indian Bank to the account of the assessee on the credit balances does not lose its character as the income derived from the activities of the assessee covered by 80P(2)(a)(i) - thus disallowed interest in this matter, as a matter of fact is eligible for deduction under section 80P(2)(a)(i) - AO will accordingly delete the disallowance. Decided in favour of assessee.

Summary

Issues involved:
The allowability of interest under section 80P(2)(a)(i) of the Income Tax Act, 1961 derived by the assessee on the deposits in Andhra Bank and Indian Bank on the credit balance available therein.

Comprehensive details of the judgment:

Issue 1: Allowability of interest under section 80P(2)(a)(i) of the Income Tax Act, 1961

The assessee, an Employees Co-operative Credit Society, contended that the interest accrued on credit balances with Andhra Bank and Indian Bank should be considered part of business transactions, as these balances arose from loan disbursements and repayments. However, the Assessing Officer treated the interest income as taxable under section 56 of the Act, not as income from the business of the assessee. The CIT(A) upheld this decision, stating that interest from investments with public sector banks is not deductible under section 80P(2)(d). The AR argued that the interest arose from regular business transactions, not investments, and should not be taxed as income from other sources. The Tribunal examined relevant case law, including the decision in Totgars Co-operative Sale Society Ltd. vs. ITO [2010] 188 Taxman 282 (SC), and concluded that the interest on credit balances maintained with the banks qualifies for deduction under section 80P(2)(a)(i) as income derived from the activities covered by the provision. Therefore, the disallowed interest was deemed eligible for deduction, and the appeals of the assessee were allowed.

Separate Judgment:
None.