The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that interest income received on investments from State Bank of India ( SBI ) was not attributable to the business of the taxpayer and, therefore, was not eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.
The Commissioner of Income Tax (Appeals) CIT (A) has erred on facts and in circumstances of the case and in law by confirming the assessment order passed by the learned Assessing Officer who has held that the interest received by the appellant on deposits with State Bank of India is taxable under the head ‘Income from Other Sources’ and is not eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
The appellant, Farmers Agriculture Credit Co-operative Society Ltd stated that the appellant has earned interest income from its investments with State Bank of India, out of its own funds i.e. share capital, reserves & surplus, profits of the current and previous years and various funds, which are attributable to business income earned by the society by providing credit facility to its members and thereby, as it is not funds which are not immediately required by the society attributable to a liability payable by the society. Hence, interest income from State Bank of India earned during the relevant years would be attributable to business income earned by the society by providing credit facility to its members and thereby eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
The bench noted that the issue was whether the assessee was eligible to claim of deduction under Section 80P(2)(a)(i) on the interest income earned on its investments amount made with SBI out of internal fund (Share Capital plus other Funds) of Rs. 5,17,72,069/- constituting its income from the business of providing credit facilities to the members.
It was clear that the interest received on such investments by assessees was not eligible for deduction under Section 80P (2)(a)(i)/80P(2)(d) on such interest received from State Bank of India ( SBI ). Since the interest income received on such investments from State Bank of India is not attributable to the main business of the appellant, hence needs to be assessed as “income from other sources”.
The issue regarding the word “attributable” has been discussed elaborately by the Apex Court in the case of M/s Totagar’s Co-operative Sales Society (2010) where it was held by the Supreme Court that the deduction under Section 80P was available only to the income which is attributable to the business operation. Since the interest income received by the appellant was not attributable to the main business of the appellant the same should not be allowed as deduction under Section 80P of the Income Tax Act.
Further, the two member bench of the tribunal comprising Narendar Kumar Choudhary (Judicial member) and Laxmi Prasad Sahu (Accountant member) further noted that the revenue authorities have treated the entire income as income from other sources. The entire interest income cannot be taxed if the assessee has incurred expenses towards earning of such income.
Further noted from the financial statement as on 31.03.2016 that FD with SBI was Rs.4,36,328,811, however the internal fund is Rs. 5,17,72,069/- which is more than investments made with SBI, it shows that the assessee has not utilized external funds for investment with SBI. Therefore, relying on the judgment of Jurisdictional High Court in case of Totgars’ Co-operative Sales Society Ltd. vs. ITO the assessee was eligible for claim of its expenditure towards earning of such interest income.
Accordingly, the assessee was directed to provide the details of expenditure for earning interest income before the assessing officer. Therefore to allow expenditure, ITAT remitted this issue to the assessing officer for determining the cost of funds for earning interest income. Accordingly, the appeals of the assessee were partly allowed.
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