2016 (9) TMI 1385 - HC - Income Tax

Granting benefit of Sec.80P(2)(d) - Held that - The interest income has been earned from short-term deposits with Co-operative Banks and Cooperative Societies and is fully exempted u/s 80P(2)(d). See Kerala State Co-operative Marketing Federation Ltd. & Ors. ETC. vs. Commissioner of Income Tax 1998 (5) TMI 6 - SUPREME Court

Summary

Issues Involved:
1. Eligibility for deduction under Section 80P(2)(a)(iv) of the Income Tax Act, 1961.
2. Eligibility for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.

Detailed Analysis:

1. Eligibility for Deduction under Section 80P(2)(a)(iv):

The department contended that the assessee was not entitled to the benefit under Section 80P(2)(a)(iv) of the Income Tax Act, 1961, which pertains to the purchase of agricultural implements, seeds, livestock, or other articles intended for agriculture for the purpose of supplying them to its members. The assessing officer and the CIT (Appeals) rejected the assessee's claim based on the Supreme Court judgment in Assam Co-operative Apex Marketing Society Ltd. Vs. Additional CIT, which was further confirmed by the CIT (Appeals).

However, the tribunal allowed the assessee's appeal by relying on the Supreme Court's decision in Kerala State Co-operative Marketing Federation Ltd. & Ors. vs. Commissioner of Income Tax. The Supreme Court in this case held that the society engaged in marketing the agricultural produce of its members includes societies dealing with produce raised by members who are individuals or societies that may have purchased such goods from agriculturists. The tribunal directed the AO to consider the claim of the assessee as per the provisions of Section 80P(2)(a)(iv) and allow the deduction accordingly.

The department's counsel argued that the substantial questions of law framed by the court are covered by the Supreme Court judgments, asserting that the assessee is not entitled to the benefit under Section 80P(2)(a)(iv) as the Parliament intended to distinguish between various types of cooperative societies. The respondent's counsel countered by relying on the Supreme Court's decision in Kerala State Cooperative Marketing Federation Ltd., emphasizing that the interpretation of "members" should be in the context of the Co-operative Societies Act.

2. Eligibility for Deduction under Section 80P(2)(d):

The assessee claimed a deduction under Section 80P(2)(d) for interest received from other cooperative societies/banks. The AO disallowed this deduction on the grounds that the interest income was not derived from any investment but from running current accounts with various cooperative banks, which cannot be considered an investment. The CIT (Appeals) confirmed this disallowance.

The assessee argued that the interest income was earned from short-term deposits with cooperative banks and cooperative societies, which is fully exempt under Section 80P(2)(d). The tribunal, in the subsequent assessment year, allowed the same deduction. The respondent's counsel supported this argument by referencing the judgment of the Punjab & Haryana High Court in CTT vs. Haryana State Co-operative Housing Society, which upheld the exemption.

The court referred to various judgments, including the Supreme Court's decision in Kerala State Co-operative Marketing Federation Ltd. and the Gujarat High Court's decision in Surat Vankar Sahakari Sangh Ltd. vs. Assistant Commissioner of Income Tax, which supported the assessee's claim for deduction under Section 80P(2)(d). These judgments emphasized that the purpose of the investment, whether from surplus funds or otherwise, is immaterial, and the deduction should be allowed.

Conclusion:

The court upheld the tribunal's view, affirming that the assessee is entitled to the benefit under Section 80P(2)(a)(iv) and Section 80P(2)(d) of the Income Tax Act, 1961. Both issues were resolved in favor of the assessee and against the department. The tribunal's decision was accepted, and the assessee was granted the deductions claimed.