2004 (11) TMI 28 - HC - Income Tax

Deduction under section 80P(2)(c) cooperative society - income earned by the assessee-respondent on the deposits with the banks and post offices during the relevant assessment year when the sugar factory itself was under construction is the income earned by it from investment in fixed deposits is attributable to the activities of the society. The interest income was treated by the Income-tax Officer as the income earned by the assessee. The assessee being a cooperative society in our view is entitled for deduction of Rs. 20, 000 in its gross total income under section 80P(2)(c) - Tribunal has rightly interpreted section 80P(2)(c) of the Act and the assessee was entitled to deduction

Summary

Issues:
Interpretation of deduction under section 80P(2)(c) of the Income-tax Act, 1961 for a co-operative society not engaged in business activities during the assessment year.

Analysis:
The case involved a co-operative society that did not conduct any business activities during the assessment year as its sugar factory was under construction. The society earned interest income on deposits with banks and post offices, which the Income-tax Officer treated as income earned by the society. The society claimed a deduction under section 80P(2)(c) of the Income-tax Act, which was initially disallowed. However, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal allowed the deduction.

The relevant provision, section 80P(2)(c), grants deduction to a co-operative society for profits and gains attributable to activities other than those specified in clauses (a) or (b). The clause operates as a residuary clause for activities not falling under clauses (a) or (b). The court referred to previous judgments emphasizing a liberal interpretation of such provisions to promote the growth of co-operative societies.

The court analyzed the term "attributable to" in relation to income earned by the society from deposits. Citing previous judgments, the court noted that this term signifies a broader scope than "derived from," covering receipts from sources beyond the actual conduct of the business. The court highlighted the Supreme Court's interpretation in related cases and reiterated the principle that the provision should be construed liberally to encourage co-operative societies' growth.

A judgment from the Punjab and Haryana High Court was mentioned, which took a different view on the applicability of the deduction under section 80P(2)(c) when a society had not commenced production. However, the court disagreed with this view, emphasizing that the clause covers the entire income of a co-operative society not falling under other specified clauses. The court concluded that the society was entitled to the deduction under section 80P(2)(c) based on the income earned from deposits, considering the broader interpretation of the term "attributable to."

In the final ruling, the court upheld the Tribunal's interpretation of section 80P(2)(c) and granted the deduction to the co-operative society. The judgment favored the assessee, ruling against the Revenue. No costs were awarded in the case.