INCOME TAX ACT, 1961

Section 80P(2)(a)

Deduction under section 80P(2)(a)(iv) - Co-operative society - Interest on temporary parking of surplus funds -

Assessee-cooperative society earned interest from surplus funds, which were not required immediately for business purposes and were invested in short term deposits and securities. It claimed such interest as a deduction under section 80P(2)(a). AO was of the view that such an interest was not attributable to the business of the assessee in carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members and was therefore, assessable as income from other sources and not as its business profit. Accordingly, the AO disallowed the claim of deduction under section 80P(2)(a). Held: To accept the stand of AO would mean that co-operative society carrying on the activities listed in sub-clauses (i) to (vii) of section 80P(2)(a) which invest 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) of the section but the very same society will not be entitled to any benefit, if it invest the very same funds in banks. Such an understanding of section 80P(2) would be impermissible. In other words, 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 business profits in nationalized banks and earning of interest income therefrom is only one of the methods of multiplying the same income. The original source of the investments in nationalized banks was admittedly the income that assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income might 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. Further, the jurisdictional High Court in various similar cases, held that the interest income from fixed deposits made out of surplus funds available with the assessee is also attributable to the business of the assessee and is accordingly allowable as a deduction under section 80P. Therefore, the AO was not justified in disallowing the deduction under section 80P(2)(a).

Distinguished:M/s. The Totgars' Cooperative Sale Society Ltd. v. ITO (2010) 322 ITR 283 (SC) : 2010 TaxPub(DT) 1466 (SC)Followed:The Vavveru Co-operative Rural Bank Ltd. v. Chief CIT (2017) 396 ITR 371 (Hyd) : 2017 TaxPub(DT) 1639 (Hyd-HC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2016-17

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