2023 (9) TMI 828 - AT - Income Tax

Deduction u/s 80P(2)(a) - interest income by the assessee from its funds parked with nationalized and commercial banks - HELD THAT - As deposit of funds by the assessee society with the nationalized/commercial banks, earning interest thereon with total cost of investment shows that the investment made by the assessee society was in compliance to the mandatory provisions of Maharashtra Co-operative Society Act thus integral part of its business and profession. When the assessee is wholly and exclusively doing its business for its members, the earning of interest on FDs with the banks is incidental to the assessee society s business of accepting the deposit and provision of credit facilities from/to its members. Hence, the interest income has rightly been treated as business income by the assessee society and assessed to tax under the head profit and gains of business . We are of the further view that in the present scenario parking of funds with nationalized and commercial banks is safe and easy for ease of business of the assessee society because many of co-operative banks have crumbled during the last many years. We are of the considered view that the CIT(A) has erred in disallowing the deduction claimed by the assessee society u/s 80P(2)(a)(i) and consequently we direct the AO to allow the deduction claimed by the assessee society.

Issues Involved:
1. Eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act.
2. Classification of interest income as "Income from Business" or "Income from Other Sources".
3. Applicability of judicial decisions and binding precedents.
4. Alternative grounds for deduction under sections 80P(2)(d) and 57.
5. Application of judgments like The Totagar Co-operative Sale Society Limited.
6. General deduction under section 80P(2)(c).

Summary:

Issue 1: Eligibility for Deduction under Section 80P(2)(a)(i)
The core issue was whether the interest income earned by the assessee, a co-operative credit society, from its funds parked with nationalized and commercial banks, qualifies for deduction under section 80P(2)(a)(i) of the Income Tax Act. The Tribunal held that since the assessee society is wholly engaged in providing credit facilities to its members and the investments in fixed deposits were made in compliance with mandatory provisions under the Maharashtra Co-operative Society Act, the interest income is attributable to the business income and thus eligible for deduction under section 80P(2)(a)(i).

Issue 2: Classification of Interest Income
The Tribunal noted that the Assessing Officer had incorrectly assessed the interest income under the head "Income from Other Sources". It was held that the interest income earned from investments with nationalized and commercial banks is part of the business income of the assessee, as these investments were necessary for the business operations and compliance with statutory requirements.

Issue 3: Applicability of Judicial Decisions and Binding Precedents
The Tribunal emphasized that the CIT(A) had failed to consider binding judicial decisions of the Jurisdictional ITATs, Hon. Bombay High Court, and the Supreme Court, which had held that similar interest income is to be classified as business income. The Tribunal also referred to CBDT Circular No. 18/2015, which clarified that interest from investments made by banking concerns is part of the business income.

Issue 4: Alternative Grounds for Deduction
The Tribunal addressed the alternate grounds raised by the assessee for deduction under sections 80P(2)(d) and 57. However, since the primary ground for deduction under section 80P(2)(a)(i) was allowed, these alternate grounds were not elaborated upon in detail.

Issue 5: Application of Judgments like The Totagar Co-operative Sale Society Limited
The Tribunal found that the CIT(A) had erroneously applied the judgment of The Totagar Co-operative Sale Society Limited and other decisions, which were not applicable to the facts of the assessee's case. The Tribunal reiterated that the assessee's case was covered by the binding decisions of the Jurisdictional ITATs and the Bombay High Court.

Issue 6: General Deduction under Section 80P(2)(c)
The Tribunal noted that the Assessing Officer had erred in not granting the general deduction of Rs. 50,000/- under section 80P(2)(c) while calculating the tax demand.

Conclusion:
The Tribunal allowed the appeals filed by the assessee society, directing the AO to allow the deduction claimed under section 80P(2)(a)(i) of the Income Tax Act, thus treating the interest income as business income. The order was pronounced in the open court on 27.04.2023.

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