By TIOL News Service

HYDERABAD, APRIL 17, 2017: THE ISSUE IS - Whether income derived by a Primary Agricultural Co-operative Credit Society, by way of interest on fixed deposit made with nationalized banks, would be treated as business income eligible for deduction u/s 80P(2)(a). YES is the verdict.

Facts of the case:

The assessees are engaged in the sale of fertilisers to its members. A portion of the income derived therefrom was deposited by the petitioners in Nationalised Banks. The income derived by way of interest on the Fixed Deposits made by the petitioners with the Banks, was treated by the petitioners as an income attributable to the profits and gains of business, eligible for deduction u/s 80P(2)(a). However, the AO treated the interest income as income from other sources not eligible for deduction. Although the petitioners had an effective statutory alternative remedy of an appeal to the CIT(A). However, the petitioners had come up with these writ petitions on the ground that the denial of the benefit of deductions u/s 80P(2)(a) by the AO was completely contrary to statutory provisions and that since the issue goes to the root of the question of jurisdiction on the part of the AO, they have chosen to come up with the present writ petitions by passing the alternative remedy of appeal.

On appeal, the HC held that,

++ the benefit conferred by Clause (d) upon all types of Co-operative Societies is restricted only to the investments made in other Co-operative Societies. Such a restriction cannot be read into Clause (a), as the temporary parking of the profits and gains of business in nationalised Banks and the earning of interest income therefrom is only one of the methods of multiplying the same income. To accept the stand of the Department would mean that Co-operative Societies carrying on the activities listed in Clauses (i) to (vii), which invest their profits and gains of business either in other Co-operative Societies or in the construction of godowns and warehouses, may benefit in terms of Clause (d) or (e), but the very same Societies will not be entitled to any benefit, if they invest the very same funds in Banks. Such an understanding of section 80P(2) is impermissible for one simple reason. The benefits under Clauses (d) and (e) are available in general to all Co-operative Societies, including Societies engaged in the activities listed in Clause (a). Section 80P(2) is not intended to place all types of co-operative societies on the same pedestal. The section confers different types of benefits to different types of societies. Special types of societies are conferred a special benefit. The original source of the investments made by the petitioners in nationalised Banks is admittedly the income that the petitioners derived from the activities listed in sub- Clauses (i) to (vii) of Clause (a). The character of such income may not be lost, especially when the statute uses the expression attributable to and not anyone of the two expressions, namely, derived from or directly attributable to. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the Writ Petitions are allowed, and the order of the AO, insofar as it relates to treating the interest income as something not allowable as a deduction u/s 80P(2)(a), is set aside.

(See 2017-TIOL-743-HC-AP-IT)