INCOME TAX ACT, 1961

Section 80P(2)

Deduction under section 80P - Co-operative society - Assessee withdrew some amount from a bank overdraft account and deposit such amount with another bank - Whether interest earned on such amount would be considered as being attributable to carrying on business of banking

Assessee-cooperative society was engaged in business of providing facilities to its members, marketing of agricultural produce grown by its members etc. It claimed deduction under section 80P(2). AO observed that the assessee withdrew some amount from 'S' bank overdraft account and deposit such amount with 'P' bank. It was noted that the said amount was lying with 'P' bank throughout the year and no amount was withdrawn during the year. AO was of the opinion that interest earned from 'P' bank was not an income, which would be chargeable under the head 'Profits and gains of business or profession' but the same was to be offered under the head income from other sources. Assessee submitted that there was a clear nexus between the withdrawal and deposit of funds from OD account to 'P' bank and interest earned was attributable to its business. It was further submitted that the purpose of depositing funds from OD account into 'P' bank was to maintain the OD limit allowed to the assessee with 'M' bank. It was further, submitted that the interest earned from 'P' bank was equal to the interest paid on OD account and therefore it was to be netted of and treated as business income. Held: It was undisputed that the amount invested with 'P' bank was neither due to any member nor it was a liability. The said money was temporarily parked with 'P' bank, in order to maintain the overdraft limit available to assessee with 'M' bank. In fact, the said amount, which was in the nature of profits and gains, was not immediately required by assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in the 'P' bank so as to earn interest. The said interest income being attributable to carrying on business of banking, therefore, it was liable to be deducted in terms of section 80P.

Followed:Tumkur Merchants Souharda Credit Co-operative Society Ltd. v. ITO [(2015) 55 Taxmann.com 447 (Karn-HC) : 2015 TaxPub(DT) 2857 (Karn-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

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