Credit Society eligible for Sec. 80P deduction on Interest on idle fund

By TG Team Income Tax Judiciary May 31, 2017

TaxGuru Citation: 2017 taxguru.in 650
Case Name: Primary Agriculture Credit Co-opeative Society Ltd Vs CIT (Appeals), (ITAT Bangalore)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2012-13
Courts: All ITAT, ITAT Bangalore

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In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 336 ITR 516/200 Taxman 220/12 taxmann.com 66.

Thus it is clear that when the amount which was deposited in the bank was not an amount due to members and it was not the liability of the society to the members then the interest earned from the deposits in the bank was held to be eligible for deduction under Section 80P (1) as well as 80P(2)(a)(i) of the Act. In the case on hand, the assessees are co-operative societies providing the credit facilities to its members. The Assessing Officer has noted that the assessee has earned interest on funds which are not required for the business deposited in the fixed deposit in the bank. Therefore in the facts of these cases, the decisions of Hon’ble jurisdictional High Court are applicable. Accordingly, by following the binding precedent of Hon’ble jurisdictional High Court, the claim of the assessees are allowed and the orders of the authorities below are set aside.”

Accordingly, in view of the earlier decision of this Tribunal as well as the binding precedent of Hon’ble jurisdictional High Court, the 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.

Full Text of the ITAT Order is as follows:-

This appeal by the assessee is directed against the order dt.8.2.2017 of Commissioner of Income Tax (Appeals), Gulbarga for the Assessment Year 2012-13.

2. The assessee has raised the following grounds :

“1. On the facts in the circumstance of the case, the order of the CIT (Appeals) dt.8.2.2017 for the Assessment Year 2012-13, is not maintainable in law and liable to be set aside.