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Judgment
PER MAHAVIR SINGH, VP:
The Assessee has filed the Appeal against the Order of the Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi dated 28.3.2025, relating to assessment year 2017-18.
The only issue in this appeal of the assessee is as regards to order of the CIT(A) confirming the addition made by the AO on account of interest of income tax refund received u/s. 244A of the Act by the assessee amounting to Rs. 45,73,538/- by treating the same as ‘income from other sources’ instead of allowing deduction u/s. 80P(2)(a)(i) of the Act.
Briefly stated facts are that the assessee is a cooperative society registered under the Delhi Cooperative Societies Act and is engaged in the business of banking exclusively for its members whereby it mobilizing thrift money from its members and providing credit facilities to its members. For the relevant assessment year 2017-18, assessee filed its return of income declaring gross total income under the head ‘income from business and profession’ at Rs. 1,25,82,397/- and claimed deduction u/s. 80P of the Act for the entire income thereby declaring total income at NIL. The AO while completing the assessment u/s. 143(3) of the Act, rejected the claim of deduction on interest income earned on account of income tax refund u/s. 244A of the Act amounting to Rs. 45,73,438/-. According to AO, the interest u/s. 244A of the Act is not at all covered for the deduction u/s. 80 P(2)(a)(i) of the Act and therefore, he added the same as income from ‘other sources’. Aggrieved, assessee preferred the appeal before the CIT(A). The CIT(A) also agreed with the view of the AO by observing in para no. 5.15 as under:
“5.15With regard to interest of income tax refund amounting to Rs. 45,73,538/- received u/s. 244A of the Act, I agree with the Assessing Officer that such interest is neither eligible for deduction u/s. 80P of the Act nor any expenditure u/s. 57(iii) of the Act against such income is allowable. Hence, the amount of Rs. 45,73,538/- has been correctly brought to tax under the head “Income from other sources” in the impugned assessment order. The impugned addition of Rs. 45,73,538/- is, thus, confirmed.”
Aggrieved, assessee is in appeal before the Tribunal.
Before us, Ld. Counsel for the assessee admitted that there is no dispute about the facts of the case, but she argued that the issue in dispute involved in the instant case is fully covered by the decision of the Hon’ble Special Bench of this Tribunal in the case Maharashtra State Cooperative Bank Ltd. vs. ACIT [2010] 38 SOT 325 (Mum) (SB) and specifically drew our attention to para no. 9.7 of the aforesaid decision, which read as under:
“9.7.On the survey of afore-noted judgments rendered by the highest court of the country, it can be seen that the scope of the phrase “attributable to” is wider than “derived from”. Whereas in the case of later, the relation of the income with the source must be direct and that of the first degree, but in the former even some commercial or casual connection sufficies the test. As every income of assessee falling under the head `Profits and gains of business or profession’ may not be necessarily `derived from’ the industrial undertaking, similarly it is not necessary that only the items of income falling under the head `Profits and gains of business or profession’ are `attributable to’ the profits and gains of business. We have noted above that the scope of the expression `carrying on banking business’ as used in section 80P(2)(a)(i) is wider than the later expression used in the same subclause of `providing credit facilities to its members’ and due to the using of the word “or” between the two, the benefit of section 80P(2)(a)(i) has to be granted in respect of profits and gains attributable to the business of banking as a whole and not merely providing credit facilities to its members. It was while carrying on the business of banking that the assessee claimed deduction u/s.80P in earlier years which was not allowed by the assessing authority and the demand was created. When finally the order of the assessing authority was finally set aside, the assessee became entitled to the refund of income-tax due to the grant of deduction u/s.80P from the business of banking. It is not as if the funds of the banking business were used for any other non-business purpose or some other non- banking activity. Rather the amount of income-tax, on which interest was granted, was utilized to satisfy the demand raised in relation to the banking business. It is but for the banking business that the income-tax was originally paid and subsequently the amount was refunded along with interest. The direct nexus of interest on income tax refund is with the payment of income-tax but when we try to trace the relation between income tax and the income on which it was paid, it comes to light that the same was for the business of banking. Thus there exists a commercial and casual connection between the interest on income-tax refund and the banking business. It www.taxguru.in ITA No.7108/Mum/2004 (SB) The Maharashtra State Co-op. Bank Limited. 42 is still further imperative to note that the amount of income-tax collected by the authorities was for the denial of deduction u/s.80P and not on any other count not related to any activity other than the banking activity. With the restoration of deduction u/s.80P, which has commercial connection with the business of banking, the interest on income-tax refund can be rightly said to have casual connection with such banking activity. Before concluding on the above issue, we need to emphasize that in the present case, the assessee did no other activity except the one specified in section 80P(2)(a)(i) of the Act. But for the action of the Revenue in bringing to tax the interest income, the assessee would have not paid income tax, which was refunded later, consequent to the order of the tribunal holding that the interest income is income which is entitled to deduction u/s 80P(2)(a)(i) of the Act. We have also taken note of the fact that the assessee does not have any other taxable income except income from house property. In these circumstances, we are of the view that the purpose of allowing deduction u/s 80P(2)(a)(i) to a co-operative society would be frustrated, if in peculiar circumstances, such as the one prevailing in the present case, the assessee is compelled to pay tax on its income, due to circumstances beyond its control. The above factor has weighed heavily in our mind in the conclusion which we have reached in the present case. In view of the fact that the expression `attributable to’ has been used in section 80P vis-à-vis the `business of the banking’, we have absolutely no doubt in our mind that such interest is attributable to the banking business and there cannot be any question of denial of deduction u/s.80P on such interest.”
Ld. DR relied upon the orders of the authorities below.
We have heard the rival contentions and perused the records. After perusing the aforesaid findings, we are of the considered view that the issue in dispute is squarely covered by the aforesaid decision, hence, respectfully following the above precedent, the addition in dispute is hereby deleted and accordingly, hence, the only the ground no. 3 raised by the assessee is allowed.
In the result, the assessee’s appeal is allowed.