2024 (10) TMI 1269 - AT - Income Tax

Deduction u/s 80P(2) - interest received on investment held by the assessee with other co-operative societies and bank - HELD THAT - The chief determinant factor entitling a claim of deduction u/s 80P(2)(d) in the hands of assessee society is that, interest income should have been earned by it from an investment made with any other cooperative society registered under the provisions of law, irrespective of its nomenclature. Thus, in substance, the Hon'ble High Court of AP TS 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT held that interest income derived on investment with banks is earned / derived from by a co-operative society in the course of its regular business of accepting deposit providing credit facilities to its members hence eligible for deduction u/s 80P(2)(a) of the Act. Revenue could place no contrary decision of Hon'ble Jurisdictional High Court. Therefore, without multiplying judicial precedents on the aforestated issue in view of the ratio laid down in Smt. Godavari devi Saraf 1977 (9) TMI 24 - BOMBAY HIGH COURT we adjudicate the issue in favour of assessee following the decision of Vavveru Co-operative Rural Bank Ltd. 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT by holding that, the interest income earned by the appellant from its investment held with co-operative other banks qualifies for deductions u/s 80P(2)(a)(i) of the Act since arisen in the course of regular business - Decided in favour of assessee.

Summary

Issues:
Allowability of deduction u/s 80P(2) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Allowability of deduction u/s 80P(2)
The appellant challenged the order on three grounds: (i) Ld. NFAC's authority to issue directions, (ii) eligibility of interest income on investments for deduction u/s 80P(2)(a)(i), and (iii) eligibility for deduction u/s 80P(2)(d). The appellant contended that interest earned from investments with cooperative societies and banks is part of its core business of providing credit facilities, making it eligible for deduction. The Tribunal agreed, stating that such interest income qualifies as business income under section 80P(2) and is deductible. The Tribunal also highlighted the distinction between credit cooperative societies and other types of societies in applying the surplus fund theory. It referenced the decision in 'Vavveru Co-operative Rural Bank Ltd. Vs CCIT' to support its conclusion.

Issue 2: Judicial Precedents
The Tribunal referenced the decision of the Hon'ble High Court of AP & TS, which held that interest income derived from investments with banks is earned in the regular course of business by a cooperative society and is eligible for deduction u/s 80P(2)(a) of the Act. The Tribunal noted the absence of contrary decisions from the Revenue and relied on 'Smt. Godavari devi Saraf Vs CIT' to adjudicate in favor of the assessee. Following the decision in 'Vavveru Co-operative Rural Bank Ltd.', the Tribunal directed the AO to delete the disallowance entirely, ruling in favor of the appellant.

Conclusion:
The Tribunal allowed the appeal, holding that the interest income earned by the appellant from investments with cooperative societies and banks qualifies for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal vacated the disallowance and directed the AO to delete it entirely. The decision was based on the principle that such interest income is part of the appellant's regular business activities and is therefore deductible under the Income-tax Act, 1961.