Ruby Hall Clinic Karmchari Sahakari Patsanstha Maryadit Vs ITO (ITAT Pune)
The Pune Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal against the order of the National Faceless Appeal Centre for Assessment Year 2020-21. The assessee, a co-operative credit society engaged in providing credit facilities to its members, had filed its return declaring nil income after claiming deduction of ₹1,16,19,383 under Section 80P of the Income-tax Act. The case was selected for scrutiny, and the Assessing Officer observed that the assessee had earned interest and dividend income of ₹23,42,047, which, according to the Assessing Officer, was not earned in the regular course of business and was assessable as income from other sources. Accordingly, while completing the assessment under Section 143(3) read with Section 144B, the Assessing Officer disallowed the entire deduction claimed under Section 80P. On appeal, the NFAC restricted the disallowance to ₹23,42,047 instead of the entire claim.
Before the Tribunal, the assessee submitted that the issue was already covered by several decisions of the Pune Benches. The Tribunal observed that the assessee was admittedly a co-operative society engaged in providing credit facilities and did not possess a banking licence from the Reserve Bank of India. Referring to the Supreme Court decision in PCIT v. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. and the Bombay High Court decision in PCIT v. Quepem Urban Co-operative Credit Society Ltd., it held that the assessee was eligible for deduction under Section 80P(2)(a)(i). The Tribunal also noted the divergent judicial views of various High Courts on deduction relating to interest earned from bank deposits but observed that the Pune Bench had consistently followed the Karnataka High Court decision in Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO, which held that such interest income is attributable to the activities of the society and qualifies for deduction under Section 80P(2)(a)(i). Following its earlier coordinate bench decision, the Tribunal held that interest income earned on fixed deposits with co-operative and scheduled banks partakes the character of business income and is eligible for deduction under Section 80P(2)(a)(i). Accordingly, it set aside the order of the CIT(A)/NFAC, directed the Assessing Officer to allow the deduction under Section 80P(2)(a)(i), and allowed the appeal.
