Basaveshwara Pattina Souharda Sahakari Sangha Ni. Vs ITO (ITAT Bangalore)
The ITAT Bangalore held that interest income earned by a credit co-operative society from deposits with co-operative banks and societies is eligible for deduction under section 80P(2)(a)(i), treating it as business income attributable to providing credit facilities to members.
In this case, the assessee earned interest of ₹2.22 crore from investments of surplus funds and claimed deduction under section 80P. The AO and CIT(A) denied the claim, treating such income as “income from other sources” and relying on the Karnataka High Court ruling in Totagars.
The Tribunal, however, relied on the Karnataka High Court decision in Tumkur Merchants Souharda Credit Co-operative Ltd., which held that interest earned on temporarily parked surplus funds is attributable to the business of providing credit facilities and qualifies for deduction under section 80P.
It distinguished Totagars on facts, noting that in that case the funds represented liabilities payable to members, whereas in the present case the funds were surplus business funds and not liabilities.
Accordingly, the Tribunal directed the AO to allow deduction under section 80P(2)(a)(i) on such interest income and allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. Above appeal is against the appellate order passed by the National Faceless Appeal Centre, Delhi (the learned CIT – A) for assessment year 2020 – 21 dated 26 August 2005 wherein the appeal filed by the assessee against the assessment order passed under section 143(3) read with section 144B of The Income Tax Act, 1961 (The Act) dated 21 September 2022 by the assessment unit, Income Tax Department ( the ld. AO ), was dismissed.
