Bank Interest Earned by Credit Co-operative Society Eligible for Deduction u/s 80P as Business Income: ITAT [Read Order]

The Income Tax AppellateTribunal (ITAT) Bangalore Bench has held that deduction under Section80P(2)(a)(i) of the Income Tax Act, 1961 cannot be denied to a credit co-operative society on the interest income earned on deposits with banks, treating it as income earned on business activity.

The Tribunal allowed the appeal filed by the assessee and directed the Assessing Officer to allow the deduction under Section 80P(2)(a)(i) on the interest income earned by the credit co-operative society on deposits made with banks holding that the interest income constitutes business income.

The assessee, a credit co-operative society filed its return declaring nominal income after claiming deduction of more than ₹63 lakh under Section 80P. However, the Assessing Officer denied the deduction by invoking the provisions of Section 80P(4) of the Act, treating the interest earned on deposits with banks as income from other sources.

The CIT(A) also followed the same view and denied the deduction. The assessee claimed that it is not a co-operative bank and therefore, Section 80P(4) is not applicable.

Further, it claimed that it is income from business because it is income from temporary deployment of surplus funds in the course of its business of providing credit facilities to its members. The Revenue, on the other hand, has supported the orders passed by lower authorities and claimed that it is taxable under other sources.

The Tribunal comprising Prashant Maharishi [Vice-President] and Keshav Dubey [Judicial Member] held that the surplus funds invested in banks were not liabilities payable to members, but constituted business funds temporarily parked to earn interest and such interest income is attributable to the business of the assessee and eligible for deduction under Section 80P(2)(a)(i).

Accordingly, the Bench allowed the appeal filed by the assessee.

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