Interest income on deposits made with banks is not attributable section 80P-

[pawansingla]

Supreme Court of India in case of 
Totgars' Co-operative Sale Society Ltd v/s ITO , Karnataka , 322 ITR 283
Section 80P, read with section 56, of the Income-tax Act, 1961 - Deductions - Income of co-operative societies - Assessment years 1991-92 to 1999-2000 - Assessee was a co-operative credit society - Its business was to provide credit facilities to its members and to market their agricultural produce - In many cases, assessee retained sale proceeds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purpose, it invested same in specified securities and earned interest thereon - Whether, on facts, interest earned by assessee would come in category of 'Income from other sources' taxable under section 56 and would not qualify for deduction as business income under section 80P(2)(a)(i) - Held, yes
Words and Phrases : "The whole of the amount of profits and gains of business", as occurring in section 80P(2)(a), of the Income-tax Act, 1961
Mantola Co-Operative Thrift & Credit Society Ltd.v/s Commissioner of Income-tax* [2014] 50 taxmann.com 278 (Delhi High court)
Section 56, read with section 80P, of the Income-tax Act, 1961 - Income from other sources - Chargeable as (Credit society) - Assessment year 2008-09 - Whether where assessee, a co-operative society, engaged in providing credit facilities to its members, deposited surplus funds in fixed deposits and earned interest thereon, said interest would be assessable as 'income from other sources' and, thus, not eligible for deduction under section 80P(2)(a)(i) - Held, yes [In favour of revenue]
Mutholy Service Co-Operative Bank Ltd Vs The Income Tax Officer, ITA No.11/Coch/2014-  (Asst Year 2010-11), Date of pronouncement- 24th, Sept 2014
In the present case, we find that the assessee has earned interest income on fixed deposits made by the assessee with sub-treasury, Meenachili, Kadappattoor and SBI Pala totaling Rs. 20,21,909/- and the interest income earned on the surplus funds of the assessee cannot be considered as business income so as to be entitled for deduction u/s. 80p(2)(a)(i) of the I.T. Act.   Further, we came across the decision of the coordinate Bench of this Tribunal in the case of Aryad Block Small Scale Coir Fibre Mats Manufacturers Co-operative Society Ltd., in I.T.A.  No.787/Coch/2013 vide order dated 14.8.2014 wherein   it has been held that interest income on fixed deposits made by the assessee in a Co-operative Bank and the interest income earned on the surplus funds of the assessee cannot be considered as business income so as to be entitled for deduction u/s. 80P(2)(a)(i) of the I.T. Act.     Accordingly, the  ground  raised by the  assessee is dismissed.
•   Deduction u/s 80P will be allowed only when there is direct or proximate connection with or nexus to the income and the business carried on by the society. Interest income on deposits made with banks is not attributable to income of co-operative society and outside realm of section80P- [Sri Basaveshwara Credit Co-operative Society Ltd. v. CIT [2014] 47 taxmann.com 189 (Bangalore – Trib.)]
•   The Hon'ble Supreme Court of India in the case of Totgars' Co-operative Sale Society Ltd. Vs Income-tax Officer [2010] 188 Taxman 282 (SC), held that fund not required immediately for business of providing credit facilities and interest earned on such fund would come under the category of 'Income from Other Sources' taxable u/s 56 of the Income-tax Act, 1961 and the same would not qualify for deduction as business income u/s 80P(2)(a)(i) of the Income-tax Act, 1961. In view of the decision of the Hon'ble Supreme Court (supra) Interest income on Fixed Deposit- General amounting to Rs.30,00,659/- ; Interest of Rs. 1,48,752/- on M. S.S.S., Interest on Reserve Fund of Rs.1,54,781/-, Interest on Bad Debt Fund of Rs.1,99,593/- and interest on SBF Loan of Rs. 988/- Totalling Rs.35,04,773/- is treated as 'Income from Other Sources' without allowing deduction u/s 80P(2)(a)(i) of the Income-tax Act, 1961. [National coal development corporation staff co-operative credit Soc. Ltd. vs. DCIT –A.Y. 08-09- ITA No.1564/Kol/2011]