2006 (8) TMI 434 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under section 80P(2)(d) of the Income-tax Act, 1961.
2. Applicability of the Rajasthan High Court decision in CIT v. Rajasthan Rajya Sahkari Upbhokta Sangh Ltd.
3. Consideration of expenses incurred for earning interest income under section 80P(2)(d).
4. Disallowance under section 80P(2)(a)(iii).
5. Disallowance under section 80P(2)(e).

Issue-wise Detailed Analysis:

1. Deduction under section 80P(2)(d) of the Income-tax Act, 1961:
The primary issue revolves around the allowability of deduction under section 80P(2)(d) for interest and dividend income derived from investments with Co-operative Societies and Co-operative Banks. The assessee claimed deductions for gross interest and dividend income without netting off expenses and interest paid on loans taken for such investments. The Assessing Officer disallowed this claim, but the CIT(A) directed the Assessing Officer to allow the deduction, noting that the assessee maintained separate accounts for different departments and there was no nexus between the funds invested and borrowings made. The Tribunal upheld the CIT(A)'s decision, emphasizing that the whole of such income derived by way of interest or dividend from investments with other co-operative societies is deductible under section 80P(2)(d).

2. Applicability of the Rajasthan High Court decision in CIT v. Rajasthan Rajya Sahkari Upbhokta Sangh Ltd.:
The revenue argued that the decision in Rajasthan Rajya Sahkari Upbhokta Sangh Ltd. should apply, which involved proportionate reduction of expenses before allowing deduction under section 80P(2). However, the Tribunal found that the facts of the present case were different as the assessee maintained separate accounts, and there was no composite account of income. Therefore, the Tribunal concluded that the Rajasthan High Court's decision was not applicable to the present case.

3. Consideration of expenses incurred for earning interest income under section 80P(2)(d):
The revenue contended that the CIT(A) failed to consider the expenses incurred for earning interest income before allowing the deduction under section 80P(2)(d). The Tribunal noted that the CIT(A) had directed the Assessing Officer to verify the claim of the assessee and allow the deduction if found correct. Since there was no nexus between the interest received and interest paid, the Tribunal dismissed the revenue's ground, affirming the CIT(A)'s order.

4. Disallowance under section 80P(2)(a)(iii):
The assessee challenged the disallowance of deduction under section 80P(2)(a)(iii) related to the marketing of agricultural produce to its members, arguing against the retrospective amendment effective from 1-4-1968. However, the Tribunal dismissed this ground, citing the Supreme Court's decision in National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India, which upheld the validity of the retrospective amendment.

5. Disallowance under section 80P(2)(e):
The assessee also raised an issue regarding the disallowance under section 80P(2)(e) by reducing miscellaneous income from rental income. This ground was not pressed by the revenue and was consequently dismissed by the Tribunal.

Conclusion:
The Tribunal dismissed both the appeals filed by the revenue and the cross-objections filed by the assessee, upholding the CIT(A)'s decision to allow the deduction under section 80P(2)(d) and rejecting the applicability of the Rajasthan High Court decision. The Tribunal also dismissed the grounds related to disallowances under sections 80P(2)(a)(iii) and 80P(2)(e) as not pressed.