2016 (2) TMI 1390 - AT - Income Tax

Claim of deduction u/s.80P(2)(a)(i) denied - interest income earned by the assessee on deposits made out of surplus funds - Held that - As in M/s Guttigedarara Credit Co-Operative Society Ltd. Versus The Income Tax Officer 2015 (7) TMI 874 - KARNATAKA HIGH COURT interest income earned by a Credit Co-operative Society on deposits of surplus funds with scheduled bank would qualify for deduction u/s.80P(2)(a)(i) of the Income Tax Act - Decided in favour of assessee

Summary

Issues:
1. Denial of deduction u/s.80P(2)(a)(i) of interest income earned on deposits from surplus funds.
2. Interpretation of the term "attributable to" in Section 80P(2)(a)(i) of the Income Tax Act.
3. Application of legal precedent from the Hon'ble Karnataka High Court regarding deduction eligibility.

Analysis:
1. The assessee appealed against the order denying the deduction of interest income earned on deposits from surplus funds for A.Y. 2012-13. The Assessing Officer disallowed the deduction under Section 80P(2)(a)(i) as the banks were not co-operative banks. The appeal to the CIT(A) was unsuccessful.

2. The Hon'ble Karnataka High Court's judgment was referenced, emphasizing the importance of the term "attributable to" in Section 80P(2)(a)(i). The Court held that interest income earned by a Co-operative Society on deposits with scheduled banks qualifies for deduction under this section. The Court clarified that such income should be directly related to the business of providing credit facilities to members to be eligible for deduction.

3. The judgment highlighted the wider import of "attributable to" compared to "derived from," indicating that income sources beyond the core business activities can still qualify for deduction. The Court differentiated cases where income was retained as a liability, stating that interest income from surplus funds not immediately required for lending to members is attributable to the business of providing credit facilities. The judgment also referenced a similar view taken by the Andhra Pradesh High Court in a related case.

4. Following the Karnataka High Court's decision, the ITAT Ahmedabad allowed the appeal, directing the Assessing Officer to grant the deduction u/s.80P(2)(a)(i) for the interest income earned on deposits with scheduled banks. The specific amount of &8377; 3,93,533/- was deemed eligible for the deduction, in line with the legal interpretation provided by the Karnataka High Court.

5. The ITAT's decision aligned with the legal precedent set by the Karnataka High Court, emphasizing the correct interpretation of "attributable to" in Section 80P(2)(a)(i) and ensuring that interest income from surplus funds deposited in banks for Co-operative Societies' business activities qualifies for deduction under the Income Tax Act.