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TMI Blog2018 (8) TMI 1844X X X X Extracts X X X X X X X X Extracts X X X X ..... ara ["the CIT(A)"] erred in fact and in law in confirming the action of Income Tax Officer, Ward 3(1)(1), Baroda ["the AO"] in not allowing the deduction u/s 80P(2)(a)(i) of Rs. 29,34,280/- claimed by the appellant. 2. The learned CIT(A) erred in fact and in law in confirming the action of the AO holding that the interest earned by the appellant from deposits made with nationalized banks is assessable u/s 56 and not eligible for deduction u/s.80P(2)(a)(i) as it is not related to the business of providing credit facilities to the members of the appellant. 3. The learned CIT(A) erred in fact and in law in ignoring the provisions of section 80P(2)(a)(i) with clearly provides that the deduction is available to a Co Operative society which is engaged in carrying on the business of banking or providing credit facilities to its members. 4. The learned CIT(A) erred in fact and in law in confirming the action of AO in charging interest u/s. 234B of the Act. 5. The learned CIT(A) erred in fact and in law in confirming the action of the AO in initiating penalty proceeding u/s 271(1)(c) of the Income Tax Act, 1961 ("the Act)." 4. The brief fact of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s. 80P(2)(a)(i) of the act on interest income earned from fixed deposit maintained with the commercial bank and cooperative banks. As per section 80P(2)(a)(i) of the act the interest income earned on providing credit facility to its members is deductible u/s. 80P(2)(a)(i) of the act. After perusal of the aforesaid provision of the act we observe that deduction u/s 80P(2)(a)(i) is not available on the interest earned on deposit maintained with the commercial bank. We find that the Hon'ble jurisdictional high court has decided the identical issue in favour of the Revenue vide State Bank of India vs. CIT (2016) 72 taxmann.com 64 (Gujarat) wherein it is held that interest income on deposit placed with the commercial banks is not exempt u/s. 80P(2)(a)(i) of the act. In respect of the claim of the Ld. Counsel that interest earned from investment of surplus funds with the cooperative bank is entitled for deduction u/s 80P(2)(d) of the act we have noticed that as per section 80P(2)(d) of the act, the whole of interest and dividend income derived by a co-operative society from its investment in any other co-operative society is deductible u/s. 80P(2)(d). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court held in the case of the assessee itself, against assessee, was that such interest income on its surplus and idle funds not immediately required for its business, is not income from business taxable under section 28 of the Act, but was taxable as 'income from other sources' under section 56, whereas for availing the exemption or 100 per cent deduction under section 80P, the income is specified in clauses (a) to (f) of sub section (2) of section 80P which should be its business or operational income. [Para 12] What section 80P(2)(d) which was though not specifically argued and canvassed before the Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other cooperative society. The words 'Co-operative Banks' are missing in clause (d) of sub section (2) of section 80P. Even though a cooperative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the primary agricultural credit society with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... needless to say that the provisions relating to exemption and deduction need to be strictly construed and no liberal interpretation or intendment can be inferred in such provisions. What was clearly held to be not exempt and not deductible under section 80P(2)(a) by the Supreme Court in the case of assessee, cannot be contrarily held as exempted and deductible now for these years, merely because the depository bank, with whom the investments were made by the assessee happens to be a co-operative bank. One cannot appreciate this distinction so as not to apply the binding precedent of the Supreme Court for subsequent years merely on account of the change of the bank where such deposits were made by the assessee, all other facts remaining the same, particularly the nature and character of the income earned by it. The interest income of assessee continues to be not attributable to its business operations even in these subsequent years. [Para 17] The character of income depends upon the nature of activity for earning that income and though on the face of it, the same may appear to be falling in any of the specified clauses of section 80P(2) of the Act, but on a deeper analysis of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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