Ismailia Co-operative Credit Society Ltd. Vs ACIT (Telangana High Court)
Section 80P Deduction Allowed as Interest on Bank Deposits Held Attributable to Credit Business: Telangana HC
The appeal under Section 260A of the Income Tax Act, 1961 challenged the order of the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’, for Assessment Year 2004-05, which upheld the denial of deduction under Section 80P in respect of interest earned on bank deposits. The appellant, a co-operative credit society engaged in providing credit facilities to its members, filed its return declaring income of ₹33,35,549, including interest income of ₹31,63,578, and claimed deduction under Section 80P(2), contending that the interest earned on deposits was attributable to its business of providing credit facilities to members. It submitted that surplus funds not immediately required for business were kept in bank deposits for safe custody and to earn interest as part of its regular business activities. The Assessing Officer disallowed the claim, holding that the appellant was not carrying on banking activity, that deposits with the bank were not its business activity, and that Section 80P(2)(d) applied only to interest derived from investments with co-operative societies. The Commissioner of Income Tax (Appeals) affirmed the disallowance, relying on Anakapalli Co-operative Marketing Society Ltd., and the Tribunal also denied the deduction.
