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Issues involved: Interpretation of section 80P(2)(a)(i) of the Income-tax Act, 1961 regarding exemption for interest received by a cooperative society from members and bank on outstanding balances.
Summary: The High Court of Rajasthan addressed the question referred by the Income-tax Appellate Tribunal regarding the eligibility of interest received by a cooperative society for exemption under section 80P(2)(a)(i) of the Act for the assessment year 1978-79. The Income-tax Officer disallowed the interest amount of Rs. 17,292, stating it did not qualify for exemption as it was not attributable to extending credit facilities. The Commissioner of Income-tax (Appeals) allowed the deduction, and the Tribunal upheld the decision based on the primary objective of providing credit facilities to members. The Tribunal referred to previous judgments emphasizing the interpretation of section 80P(2)(a)(iii) in relation to marketing activities of cooperative societies. The court analyzed various precedents to interpret the provisions of section 80P(2)(a)(i). It was noted that the society must be engaged in the business of banking or providing credit facilities to its members to qualify for exemption. The court referred to judgments from different High Courts regarding the definition of "providing credit facilities" and concluded that selling goods on credit does not constitute providing credit facilities. The court emphasized that the exemption under section 80P(2)(a)(i) is intended for societies engaged in banking and providing credit facilities as their main source of income. Based on the interpretation of the provisions of section 80P(2)(a)(i) and relevant case law, the court held that the interest on outstanding balances from the sale of goods did not qualify for exemption. The court ruled in favor of the Revenue and against the assessee, stating that the Tribunal's conclusion was not justified. No costs were awarded in the matter.
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