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2020 (1) TMI 1728 - AT - Income TaxRectification of mistake u/s 254 - recall the orders of the Tribunal for confirming the CIT(A) s order in granting benefit of deduction u/s 80P(2)(a)(i) - as per revenue deduction to be denied treating interest income received from investment with treasury co-operative banks other banks as income from other sources - HELD THAT - CIT(A) following the order of Kizhathadiyoor Service Co-operative Bank Ltd. 2016 (7) TMI 1405 - ITAT COCHIN decided the issue in favour of the assessee. The CIT(A) held that the interest income earned on investment made with Treasury and Banks are part of the banking activity of the assessee and therefore the said income was eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. Tribunal in the impugned order had relied on Karnataka State Co-operative Bank 2001 (8) TMI 9 - SUPREME COURT Vaveru Co-operative Rural Bank Ltd. 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT and The Azhikode Service Co-operative Bank Ltd. Others 2017 (7) TMI 1138 - ITAT COCHIN As categorically concluded by the Tribunal that the assessees in these cases were entitled to the deduction u/s80P(2)(a)(i) on the interest income received on such investments. There is no mistake apparent on record in the orders of the ITAT warranting our interference u/s 256(2) of the I.T.Act - Miscellaneous applications filed by the Revenue are dismissed.
The core legal issue considered in these miscellaneous applications is whether the interest income earned by primary agricultural credit societies from investments made with the Treasury, co-operative banks, and other banks qualifies as income derived from their banking business activities, thereby entitling them to claim deduction under Section 80P(2)(a)(i) of the Income Tax Act. Specifically, the question is whether such interest income should be treated as "income from other sources" (thus ineligible for deduction) or as "income from business" (eligible for deduction).
The Tribunal and the appellate authorities considered the following key issues:
Issue-wise Detailed Analysis 1. Nature of Interest Income from Investments and Eligibility for Deduction under Section 80P(2)(a)(i) Relevant Legal Framework and Precedents: Section 80P(2)(a)(i) of the Income Tax Act provides deduction to primary agricultural credit societies in respect of income derived from their business of banking or providing credit facilities to members. The legal question is whether interest income from investments made with Treasury and other banks falls within the scope of "business income" or is to be treated as "income from other sources". The Tribunal relied on several judicial pronouncements to interpret this provision, including:
Court's Interpretation and Reasoning: The Tribunal and CIT(A) held that the interest income earned on investments with Treasury and other banks is integrally connected to the banking business of the primary agricultural credit societies. Such investments are made in the ordinary course of their business to manage funds and generate income. Therefore, the income arising from these investments is rightly treated as business income. The Tribunal emphasized that the assessees are engaged in banking and credit activities under the Kerala Co-operative Societies Act, 1969, and the interest income from investments with sub-treasuries, district co-operative banks, and other banks forms part of their business operations. The income is not merely incidental or unrelated to their banking business but a natural extension of it. Key Evidence and Findings: The facts established that the primary agricultural credit societies made investments with various financial institutions, including Treasury and co-operative banks, as part of their banking operations. The CIT(A) followed the precedent set by the Cochin Bench of the Tribunal in Kizhathadiyoor Service Co-operative Bank Ltd., which had held that such interest income qualifies for deduction under Section 80P(2)(a)(i). Application of Law to Facts: Applying the legal principles to the facts, the Tribunal concluded that the interest income from investments was rightly classified as income from business and not from other sources. Consequently, the deduction under Section 80P(2)(a)(i) was appropriately allowed by the CIT(A) and confirmed by the Tribunal. Treatment of Competing Arguments: The Revenue contended that the interest income should be treated as income from other sources, thereby disqualifying it from deduction under Section 80P(2)(a)(i). However, the Tribunal found no apparent error or mistake in the earlier orders to warrant interference under Section 254(2) of the Income Tax Act. The learned Departmental Representative's submissions were considered but found insufficient to overturn the well-reasoned orders of the CIT(A) and the Tribunal. Conclusions: The Tribunal categorically held that the interest income earned on investments made with Treasury and banks is part of the banking activity of the primary agricultural credit societies and is eligible for deduction under Section 80P(2)(a)(i). There was no mistake apparent on record in the orders of the ITAT, and therefore, the Revenue's miscellaneous applications were dismissed. Significant Holdings The Tribunal's crucial legal reasoning is encapsulated in the following:
Core principles established include:
Final determinations on the issue were that the orders of the CIT(A) and the Tribunal confirming the deduction under Section 80P(2)(a)(i) were affirmed, and the miscellaneous applications filed by the Revenue were dismissed accordingly.
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