2017 (2) TMI 1270 - HC - Income Tax

Deduction u/s 80P - Held that - Section 80P is part of Chapter VI-A which deals with deductions to be made in computing total income. Section 80P is under Part C , i.e., deductions in respect of certain incomes. Under sub-section (1) if gross total income includes income referred to in sub-section (2), the sums specified in sub-section (2) are deductible in accordance with the said section, i. e., section 80P. Sections dealing with seeds and letting out godowns admittedly come under sub-sections (2)(a)(iv) and (2)(e). On this aspect the learned counsel for the Revenue has no dispute. Under sub-section (2)(a) the whole of the amount of profits and gains of business attributable to one or more of activities under sub-section (2) are deductible. Similarly, under section 80P(2)(e) the whole of the income is deductible. Under section 80P(2)(c)(ii) deduction is permissible to the extent of ₹ 50,000 only. Letting of godowns in fact comes in sub-section (2)(e) and here also the whole of income is deductible. The assessee s activities on its own were not referable to section 80P(2)(c)(ii) which was taken by the assessing authority. There was no reason to pick various sub-sections of section 80P by the assessing authority in his own way. In fact, section 80P is applicable in respect of a different kind of person, i.e., co-operative societies. If it permits the entire income deductible, how and in what manner profits and gains are further utilized or divided by the assessee, would not be relevant. It is for this reason, in our view, sections 40A(7)(b) and 43B(f) would not be attracted. The assessee did not claim any deduction under the head of sum payable in lieu of any leave of credit of employees or in respect of any provision made for payment of gratuity to its employees on their retirement. The assessee claimed the entire business income and profit under the special provision, i. e., under section 80P, with reference to receipts to various heads referable to section 80P. Thus there was no justification or occasion to look into any other provision under Chapter VI-A, Part D . - Decided in favour of assessee.

Issues Involved:
1. Whether the Tribunal erred in holding that additions made in the case of the assessee claiming deduction under section 80P are revenue neutral.
2. Whether the Tribunal erred in holding that the assessee is eligible for deduction under section 80P(2) of the Income-tax Act, 1961.
3. Whether the Tribunal was right in allowing deduction in respect of actual payment towards leave encashment benefits to the employees.
4. Whether the Tribunal was right in allowing deduction in respect of actual payment towards gratuity to the employees.

Detailed Analysis:

Issue I: Revenue Neutral Additions and Section 80P
The Tribunal held that additions made in the case of the assessee claiming deduction under section 80P are revenue neutral. However, the High Court noted that this finding is not in consonance with its earlier judgment for the assessment year 2009-10, where it confirmed the disallowance to the extent of ?4,08,64,000. The High Court observed that only specified incomes would be tax neutral in accordance with law, not the entire income. Therefore, the Tribunal's holding that all additions are revenue neutral was erroneous.

Issue II: Eligibility for Deduction under Section 80P(2)
The Tribunal relied on the High Court’s earlier order for the assessment year 2009-10 to hold that the assessee is eligible for deduction under section 80P(2). The High Court reaffirmed that section 80P provides for deductions in respect of income of co-operative societies. The assessee, a co-operative society engaged in various activities, claimed deductions under section 80P(2)(a)(iv), 80P(2)(d), and 80P(2)(e). The High Court emphasized that if the gross total income includes income referred to in sub-section (2), the sums specified therein are deductible in computing the total income of the assessee.

Issue III: Deduction for Leave Encashment Benefits
The Tribunal allowed the deduction for actual payments towards leave encashment benefits, rejecting the Revenue's argument that there was no approval under section 36(1)(v) or section 40A(7)(b). The High Court noted that the assessee did not claim any deduction under the head of sum payable in lieu of any leave of credit of employees. Instead, the assessee claimed the entire business income and profit under section 80P. The High Court concluded that sections 40A(7)(b) and 43B(f) were not attracted as the deduction was claimed under section 80P, which pertains specifically to co-operative societies.

Issue IV: Deduction for Gratuity Payments
Similar to the leave encashment benefits, the Tribunal allowed the deduction for actual payments towards gratuity, rejecting the Revenue's argument about the lack of approval under section 36(1)(v) or section 40A(7)(b). The High Court reiterated that the assessee claimed the entire income under section 80P, which allows deductions for co-operative societies without the need to comply with sections 40A(7)(b) and 43B(f).

Conclusion:
The High Court concluded that the Tribunal's approach was correct in allowing deductions under section 80P for the assessee, a co-operative society, and that sections 40A(7)(b) and 43B(f) were not applicable. The appeal was dismissed, and the questions were answered in favor of the assessee.

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