2024 (10) TMI 1272 - AT - Income Tax

Deduction claimed u/s 80P(2)(a)(i) - interest income earned out of surplus fund invested with a Co-operative Banks in the form of fixed deposits - HELD THAT - As respectfully following the decision of The Ismailia Urban Co operative Society 2024 (6) TMI 1404 - ITAT NAGPUR we set aside the impugned order passed by the learned CIT(A) and hold that the assessee is eligible to claim deduction u/s 80P(2)(a)(i) of the Act. Thus, grounds no.1 and 2 are allowed.

Summary

Issues Involved:

1. Disallowance of deduction under Section 80P(2)(a)(i) of the Income Tax Act for interest income from investments in cooperative and nationalized banks.
2. Disallowance of deduction under Section 80P(2)(d) of the Income Tax Act for interest income from investments in cooperative and nationalized banks.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80P(2)(a)(i):

The primary issue in both appeals was the disallowance of the deduction claimed under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee, a credit-cum-consumer cooperative society, had invested surplus funds in fixed deposits with Nagpur District Central Cooperative Bank and State Bank of India. The interest income from these investments was claimed as a deduction under Section 80P(2)(a)(i), which the Assessing Officer (AO) disallowed, treating it as "income from other sources." The AO relied on the Supreme Court's decision in The Totgars' Cooperative Sale Society Ltd. v/s ITO, which held that interest income from surplus funds not required for immediate business purposes should be taxed as income from other sources.

However, the Tribunal found that similar issues had been adjudicated in favor of the assessee in previous cases, including The Ismailia Urban Cooperative Society v/s ITO. The Tribunal noted that the interest income from investments made out of operational funds maintained for liquidity purposes should qualify for deduction under Section 80P(2)(a)(i). The Tribunal distinguished the facts of the present case from the Totgars' case, emphasizing that the funds were operational, not surplus. Consequently, the Tribunal set aside the order of the CIT(A) and allowed the deduction under Section 80P(2)(a)(i).

2. Disallowance of Deduction under Section 80P(2)(d):

The second issue was the disallowance of deduction under Section 80P(2)(d) for the same interest income. The Tribunal, while addressing this issue, reiterated the rationale applied in the first issue. It emphasized that the funds invested were not surplus but were part of the operational funds necessary for the society's business activities. Consistent with the Tribunal's previous decisions and the jurisdictional High Court's rulings, the interest income was deemed eligible for deduction under Section 80P(2)(d) as well.

In conclusion, the Tribunal allowed both grounds of appeal for the assessment years 2018-19 and 2020-21, setting aside the orders of the CIT(A) and confirming that the assessee is entitled to the deductions claimed under Sections 80P(2)(a)(i) and 80P(2)(d). The appeals filed by the assessee were allowed, reaffirming the eligibility of the cooperative society for the claimed deductions.