By TIOL News Service

AHEMDABAD, SEPT 20, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether interest income earned by co-operative society from keeping surplus funds in banks, will be taxable u/s 56 and will not qualify for deduction u/s 80P. YES is the answer.

Facts of the case:

The Assessee had filed its return declaring income of Rs. Nil. Subsequently, the case was selected for scrutiny, wherein the AO noticed that the assessee had shown gross total income at Rs. 16,96,744/- and after claiming deduction under Chapter VI-A. The AO rejected the claim of Assessee u/s. 80P(2)(a) by stating that as per Section 80P(4) inserted by the Finance Act 2006 from A.Y 2007-08, deduction u/s. 80P would not be available to any co-operative bank. On appeal, the CIT(A) provided part relief to the assessee stating that interest income of Rs. 13,88,824/- received on F.D. would be taxable u/s. 56 and would not qualify for deduction u/s. 80P of the act.

Tribunal held that,

++ we noticed that the assessee was not operating u/s. 5(b) of the Banking Regulation Act as the assessee was not allowed to accept deposit of money from the public and do other banking activities as defined in the section 5(b) of the Banking Regulation Act. We forther noticed that the assessee was a co-operative society registered under Registrar of Co-operative Society Mehsana, Mehsana, Gujarat State engaged in taking deposits from its members and providing advances to its members with the object of promotion and development of its members. In view of the above facts and the detailed findings provided by the CIT(A), we considered that the assessee is not a co-operative bank u/s. 80P(4) of the act;

++ we also noticed that the assessee claimed deduction u/s 80P(2)(i) on the interest income of Rs. 13,88,824/- received on fixed deposit. We find that CIT(A) held that this interest income earned from keeping the surplus funds in banks or other investment would be taxable and will not qualify for deduction u/s. 80P. In this connection, we have perused the judicial pronouncement of the Supreme Court in the cases of Totgors Co-operative society Ltd. Vs. ITO Karnataka - 2010-TIOL-11-SC-IT in which it was held that interest income earned on investing in short term deposits would fall in the category of "other income" to be taxed u/s. 56. Therefore, we find no merit in the contentions of the counsel for considering the interest income on fixed deposit as business income.

(See 2017-TIOL-1288-ITAT-AHM)