2017 (5) TMI 1770 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) in respect of interest income - HELD THAT - This issue is covered by the decision of Tumkur Merchants Souharda Credit Co-operative Ltd. 2015 (2) TMI 995 - KARNATAKA HIGH COURT as well as in the case of M/s. Guttigedarara Co-operative Society Ltd. 2015 (7) TMI 874 - KARNATAKA HIGH COURT - Also in the case of Shri S.M. Revana Siddaiah CEO Primary Agriculture Credit Co-operative Society Ltd. Others 2017 (2) TMI 1500 - ITAT BANGALORE - Thus claim of the assessee under Section 80P(2)(a)(i) of the Act in respect of interest income is allowed and orders of the authorities below are set aside. - Decided in favour of assessee.

Summary

Issues involved:
- Exemption claim under Section 80P(2)(a)(i) of the Income Tax Act, 1961 for interest income earned by a primary agriculture society from fixed deposits.

Detailed Analysis:
The judgment involved a dispute regarding the exemption claim under Section 80P(2)(a)(i) of the Income Tax Act, 1961 for interest income earned by a primary agriculture society from fixed deposits. The Assessing Officer had denied the claim based on the decision of the Hon'ble Supreme Court in a specific case. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision. However, the Tribunal noted that an identical issue had been considered by the jurisdictional High Court, which had interpreted the law differently. The High Court had held that if a society has surplus funds made as fixed deposits in a bank to earn interest, such interest income is eligible for deduction under Section 80P of the Act.

The Tribunal analyzed the relevant provisions of law, specifically Section 80P(2)(a)(i), which allows deductions for co-operative societies engaged in providing credit facilities to members. The word "attributable" in the section was emphasized, with reference to a Supreme Court decision highlighting its wider import compared to "derived from." The Tribunal concluded that when a co-operative society earns profits by providing credit facilities and deposits surplus funds in a bank to earn interest, the interest income is attributable to the business activity and qualifies for deduction under Section 80P.

Further, the Tribunal differentiated the facts of the case from the Supreme Court precedent, where interest income was held taxable due to specific circumstances. In the present case, the interest earned from fixed deposits was not a liability to members and was not immediately required for lending, making it attributable to the business of providing credit facilities. The Tribunal also cited a similar view taken by another High Court in a related case.

Ultimately, based on the precedent set by the jurisdictional High Court and previous decisions of the Tribunal, the Tribunal allowed the assessee's claim for exemption under Section 80P(2)(a)(i) for the interest income earned. The orders of the authorities below were set aside, and the appeal of the assessee was allowed.