2014 (5) TMI 1099 - AT - Income Tax

Eligibility for deduction u/s 80P(2)(a)(i) - Held that - The income earned by co-operative society engaged in the business of providing credit facility to its members is exempt. The assessee has earned income from facilities provided to its members. The fact that the income earned from members from loans advanced which were partially secured out of borrowing from NDCC Bank does not make any difference. Nowhere it has been provided in the above section that in order to earn income from providing credit facilities to its members amount used for giving credit facilities to its members should not be from borrowing from cooperative banks. In view of above the CIT(A) was justified in observing that the assessee is eligible for deduction u/s 80P(2)(a)(i) - Decided in favour of assessee Addition on account of income from cash collection counter - Held that - the business activity of credit co-operative society and co-operative banks are similar in respect of accepting deposits providing credit facilities and also carrying on activity of electricity bills telephone bills collection centre. The Hon ble Bombay High Court in the case of CIT Vs. Ahmednagar District Central Co-operative Bank Ltd. (2003 (7) TMI 50 - BOMBAY High Court ) has laid down that the activity of collecting bills dues and charges for and on behalf of government local authority MTNL BEST MSEB etc. is akin to banking activity and is eligible for deduction u/s. 80P(2)(a)(i). In view of above the CIT(A) was justified in directing the Assessing Officer to allow the deduction u/s. 80P(2)(a)(i) in respect of the said income - Decided in favour of assessee

Summary

Issues:
1. Eligibility of a co-operative credit society for deduction u/s 80P(2)(a)(i) of the Income Tax Act.
2. Treatment of income from cash collection counter under section 80P(2)(a)(i).

Issue 1:
The appeal pertains to a co-operative credit society's eligibility for deduction u/s 80P(2)(a)(i) of the Income Tax Act. The society provided credit facilities to its members and earned income from it. The Assessing Officer disallowed a portion of the deduction claimed by the society and taxed the income. The first appellate authority allowed the deduction, which was contested by the revenue. The key contention was whether the income earned by the society from providing credit facilities to non-members should be eligible for deduction. The Tribunal analyzed the provisions of section 80P(1) & (2)(a) and noted that the society had earned income on credit facilities given to its members, even partially secured through borrowing from a bank. The Tribunal upheld the CIT(A)'s decision, stating that the society was eligible for the deduction u/s 80P(2)(a)(i), and the addition made by the Assessing Officer was rightly deleted.

Issue 2:
The second issue revolved around the treatment of income from a cash collection counter under section 80P(2)(a)(i). The Assessing Officer disallowed an amount earned by the society from collecting electricity bills, treating it as taxable income and denying the deduction u/s 80P(2)(a)(i). In contrast, the CIT(A) allowed the deduction, citing a decision of the Bombay High Court related to a similar case. The Tribunal examined the nature of the activity, comparing it to banking operations, and referred to the High Court's ruling that such bill collection activities are akin to banking and qualify for the deduction u/s 80P(2)(a)(i). Consequently, the Tribunal upheld the CIT(A)'s decision to allow the deduction for the income from the cash collection counter. As a result, the appeal filed by the revenue was dismissed by the Tribunal.

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