INCOME TAX ACT, 1961

Section 80P

Deduction under section 80P - Allowability - Interest on FDR - Scope of netting of expenditure

During the year under consideration, assessee received interest on FDRs placed with Jaipur Central Co-operative Bank on which deduction under section 80P was claimed. AO held that if assessee society was regularly earning interest on funds (not required immediately for business purpsoes), such interest income was taxable under section 56 under the head 'Income from other sources' and not eligible for deudction under section 80P. Further the deduction under section 80P(2)(d) is available on interest or dividend derived from its investment made in co-operative soceity and not available if interest was received from investmentmade in co-operative bank. Accordingly, the AO disallowed the claim of dedudction under section 80P. CIT(A) held that deduction under section 80P(2)(d) was admissible to the assessee in respect of income by way of interest or dividend derived by the assessee (cooperative society) from its investment with any other cooperative society (Jaipur Central Co-operative Bank Society). The CIT(A) further held that the net interest income from JCCB would be allowed.Held: Following the Co-ordinate Bench decision in assessee's own case for earlier years and considering the principle of consistency, there was no reason to deviate from the earlier decision and accordingly for the purposes of section 80P(2)(d), Jaipur Central Co-operative Bank Ltd. shall be treated as a co-operative society. Therefore, interest on FDRs placed by the assessee society with such cooperative societys shall be eligible for deduction under section 80P(2)(d) and such claim cannot be deneid by virtue of provisions of section 80P(4). As regards to deduction of expenditure CIT(A) had allocated the whole of the interest expenditure over the interest on FDRs and to the extent of interest attributbale to FDRs placed with JCCB, the same had been reduced while working out the net interest income eligible for dedduction under section 80P(2)(d). In the instant case, merely stating that the assessee had interest free funds by way of share capital and accumulated profits at the year end will not help the case of the assessee as the same reflect the position subsequent to deployment of funds in FDRs which were placed sometime during the year and not at the end of the year. Further, whether such interest free funds at the year end were liquid funds or are represented by fixed assets and other currents. In case, there were no liquid funds and all the funds are deployed in fixed and current assets, then the said theory of interest free funds doesn't support the case of the assessee.

Followed:CIT v. Rajasthan Rajya Sahkari Upbhokta Sangh Ltd. (1996) 84 TAxman 33 (Raj) and Assessee's own case in ITA No. 512, 633, 513 & 634/JP/2019 for assessment year 2011-12 & 2012-13 vide its Order, dated 2-9-2019. Distinguished:Surat Vankar Sahakari Sangh Ltd. v. Asstt. CIt 92016) 72 Taxmann.com 169 (Guj).

REFERRED : Surat Vankar Sahakari Sangh Ltd v. Asstt. CIT [2016] 72 Taxmann.com 169 (Guj).

FAVOUR : In assessee's favour.

A.Y. :

INCOME TAX ACT, 1961

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