2011 (10) TMI 30 - HC - Income Tax

Exemption under Section 80P(2)(a)(i) - interest received from members - not a co-operative society engaged in the business of banking or providing credit facilities to its members - Held that - the Tribunal has simply followed its earlier decision in identical issue and held that the interest earned on credit facilities provided to its members is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act. While holding so the Tribunal has not decided the matter on merits by carrying out the exercise indicated in the decision of the Supreme Court in Ponni Sugars and Chemicals Ltd. (2008 -TMI - 30719 - SUPREME COURT) viz. examination of the memorandum of association the articles of association the returns of income filed with the Department the status of business indicated in such returns etc. T set aside - matter remanded back to ITAT

Summary

Issues:
1. Interpretation of Section 80P(2)(a)(i) for co-operative societies engaged in the business of manufacturing sugar.
2. Eligibility for exemption under Section 80P(2)(a)(i) without being a co-operative society engaged in banking or providing credit facilities.

Issue 1: Interpretation of Section 80P(2)(a)(i) for co-operative societies engaged in the business of manufacturing sugar.

The case involved a co-operative society engaged in the manufacture and sale of sugar claiming deduction under Sections 80P(2)(a)(i) and Section 80P(2)(ii) of the Income Tax Act for interest received from members on loans advanced to them. The Assessing Officer disallowed the claim stating that the deduction is applicable only if the main object of the society is banking and providing credit facilities to its members. The Commissioner of Income Tax (Appeals) upheld this decision. However, the Appellate Tribunal, considering similar issues in favor of co-operative societies, allowed the appeal. The High Court referred to a previous case and a Supreme Court decision emphasizing the need to examine the society's memorandum of association, articles of association, and returns of income to determine eligibility for exemption under Section 80P(2)(a)(i). The Tribunal's failure to conduct this examination led to the High Court setting aside the Tribunal's order and remanding the matter for reconsideration.

Issue 2: Eligibility for exemption under Section 80P(2)(a)(i) without being a co-operative society engaged in banking or providing credit facilities.

The Tribunal, in this case, followed its earlier decision without conducting a thorough examination as directed by the Supreme Court. It held that the interest earned on credit facilities provided to members is eligible for deduction under Section 80P(2)(a)(i) without delving into the necessary details such as the society's memorandum of association and other relevant documents. The High Court, citing the importance of the Supreme Court's directive, set aside the Tribunal's order, remanding the matter for reconsideration while emphasizing the need to conduct a detailed examination in line with the Supreme Court's guidance and the precedent set by a previous case. The High Court allowed the tax case appeal, directing the Tribunal to reconsider the matter in light of the Supreme Court's decision and the previous case without awarding any costs.