Deduction under s 80P(2)(a)(i)

Interest income received by the co-operative bank from advance rent is eligible for a deduction under s 80P(2)(a)(i), as held by MumHC in CIT v The Maratha Mandir Co-op Bank Ltd — In favour of: The assessee; ITA No 4125 of 2010.

The interest income in the present case arose on account of giving advance rent to the landlord, from whom the premises were taken on rent for the purpose of carrying on a banking business, and the same was closely connected to the banking business carried on by the assessee. The Reserve Bank of India, controlling the banking business in India, has issued guidelines on 18 June 1987 thereby permitting co-operative banks to give advance rent to the landlords (from whom premises are taken for carrying on the business) subject to the charging of interest and other conditions set out therein.

 Thus, the interest income on advance rent is earned in accordance with the norms laid down by the RBI and, hence, it would be income earned during the course of carrying on the business of banking. The decision of the Apex Court in the case of Totgar’s Co-operative Sale Society Ltd v ITO reported in [2010] 322 ITR 283 (SC) is not applicable in the instant case. Thus, the interest on advance rent is business income eligible for a deduction under s 80P.

Decided on: 21 July 2011.