2016 (7) TMI 565 - AT - Income Tax

Treatment of assessee s interest income from its surplus funds parked in the State Bank of India IDBI and Sardar Sarobar Narmada Nigam - Held that - Entitlment for Section 80P deduction qua interest income allowed Addition made in respect of profits earned out of trading activity - Held that - Departmental Representative fails to rebut this factual position that the lower appellate order does not deal with the assessee s second substantive grievance. We accordingly remit this issue back to ld. CIT(A) for adjudication as per law.

Summary

Issues:
1. Denial of Section 80P deduction on interest income derived from investments made with nationalized banks.
2. Treatment of interest income from surplus funds parked in various banks for a cooperative society.

Analysis:
1. The first issue pertains to the denial of Section 80P deduction on interest income of Rs. 2,70,168/- earned from investments made with nationalized banks by a cooperative society engaged in various activities. The Assessing Officer and CIT(A) treated the interest income as taxable, not derived from non-taxable activities. However, the Tribunal referred to a similar case decided in favor of the assessee in A.Y. 2010-11 and a Karnataka High Court judgment supporting deduction under Section 80P(2)(a)(i) for interest income from deposits with scheduled banks. The Tribunal held that the interest income is attributable to the business activities of the cooperative society and thus eligible for deduction under Section 80P.

2. The second issue revolves around the treatment of interest income from surplus funds parked in State Bank of India, IDBI, and Sardar Sarobar Narmada Nigam by the same cooperative society. The Tribunal, following the Karnataka High Court judgment, allowed the appeal and directed the Assessing Officer to grant deduction under Section 80P(2)(a)(i) for the interest income earned from these deposits. The interest income reported at Rs. 3,93,533/- was deemed eligible for the deduction. The Tribunal noted that the interest income was attributable to the cooperative society's business activities and not a separate business, making it liable for deduction under Section 80P.

3. In conclusion, the Tribunal allowed the appeal partly, granting Section 80P deduction for interest income of Rs. 2,70,168/- and remitting the issue of addition of Rs. 1,28,012/- in profits earned from trading activity back to the CIT(A) for adjudication. The judgment emphasized the importance of the term "attributable to" in determining the eligibility for deduction under Section 80P and relied on legal precedents to support its decision in favor of the cooperative society.