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2010 (4) TMI 803 - AT - Income TaxDeduction under section 80P(2)(a)(i) - claim for deduction of its interest income - Assessee engaged in construction activity and contended that it carries operation on lines of co-operation self help & thrift - Held that - In view of Madras Autorickshaw Drivers Co-operative Society Ltd. s (1982 - TMI - 28720 - MADRAS High Court) which was later on afirm by Apex Court. The tax relief under section 80P(2)(a)(i) is a grant by Parliament not to a category to income but to a category of the assessee. If the society in question does not answer this description it is not entitled to the relief. For invoking or applying this provision it is not permissible to make a break-up of the income of the society as so much derived from the provision of credit facilities and so much from other income. Thus appeal of revenue were allowed.
Issues Involved:
1. Eligibility of the assessee to claim deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, in respect of interest received from credit facilities extended to its members. Issue-wise Detailed Analysis: 1. Eligibility to Claim Deduction under Section 80P(2)(a)(i): The primary issue in these appeals is the eligibility of the assessee, a co-operative society, to claim deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, for interest received from credit facilities extended to its members. The Assessing Officer initially disallowed this claim, but the Commissioner of Income-tax (Appeals) allowed it, leading to the Revenue's appeal. Facts and Background: The assessee, a labour contract society registered under the Tamil Nadu Co-operative Societies Act, 1961, comprised unemployed graduates/diploma holders in engineering. It claimed deductions under section 80P for profits from collective disposal of labour and interest from credit facilities to its members. The Tribunal previously remitted the matter for fresh consideration of the collective disposal of labour profits but affirmed the deduction of interest under section 80P(2)(a)(i). The Revenue appealed to the High Court, which remitted the matter back to the Tribunal for de novo consideration, emphasizing the need to examine the memorandum of association and other documents. High Court and Supreme Court Directions: The High Court, referencing the Supreme Court's decision in CIT v. Ponni Sugars and Chemicals Ltd., emphasized the need to examine whether the society engaged in activities listed under section 80P(2). The Supreme Court, in a related case, also remitted the matter back for reconsideration in light of its earlier judgment. Revenue's Argument: The Revenue argued that the assessee, being a labour contract society, did not engage in the business of banking or providing credit facilities as required under section 80P(2)(a)(i). The Revenue cited the Tamil Nadu Co-operative Societies Rules, 1988, which differentiate between credit societies and labour contract societies, emphasizing that the assessee did not qualify as a credit society. Assessee's Argument: The assessee contended that its bye-laws included objectives like encouraging thrift and providing credit facilities to members, justifying the deduction. It argued that carrying out multiple activities should not bar claiming deductions for interest from credit facilities. The assessee relied on the High Court decision in CIT v. Pondicherry Co-operative Housing Society Ltd. to support its claim. Tribunal's Analysis: The Tribunal examined the memorandum of association and audit reports, noting that the society was categorized as a construction society, not a credit society. The Tribunal referenced the Supreme Court's decision in Madras Auto Rickshaw Drivers' Co-operative Society, which clarified that a society must be engaged in providing credit facilities to qualify for the deduction. The Tribunal concluded that the assessee's activities did not align with the requirements of section 80P(2)(a)(i), emphasizing that the deduction is category-specific. Conclusion: The Tribunal held that the assessee, being a labour contract society, did not qualify for the deduction under section 80P(2)(a)(i) for interest income from credit facilities. The appeals of the Revenue were allowed, and the assessee's claim for deduction was disallowed for all relevant years. Summary: The Tribunal, following the directions of the High Court and Supreme Court, concluded that the assessee, a labour contract society, did not qualify for the deduction under section 80P(2)(a)(i) for interest income from credit facilities to its members. The Revenue's appeals were allowed, disallowing the assessee's claim for the said deduction.
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