2011 (3) TMI 1232 - HC - Income Tax

Deduction u/s 80P(2)(a)(i) - interest received by the appellant being a co-operative society from its members - Held that - Tribunal while confirming the order of the Commissioner of Income-tax (Appeals) had held that the assessee was a co-operative society engaged in procuring processing and marketing of milk and milk products of its members societies - It also recorded that the credit facility which was extended by the assessee to its members was ancillary to its main object and it was not carrying on the business of banking or providing credit facilities to its members and, therefore, was not entitled to the benefits of section 80P(2)(a)(i) of the Act - Against assessee.

Summary

Issues:
1. Interpretation of section 80P(2)(a)(i) of the Income-tax Act, 1961 regarding deduction eligibility for interest received by a cooperative society from its members.
2. Admissibility of deduction under section 80P(2)(d) of the Act for income derived from interest on investments as loans and advances for working capital.
3. Analysis of the Tribunal's decision on the eligibility of the appellant for deductions under section 80P(2)(a)(i) and 80P(2)(d) of the Act.

The High Court of Punjab and Haryana heard an appeal under section 260A of the Income-tax Act, 1961, regarding the denial of a claim by the appellant cooperative society for interest received from its members under section 80P(2)(a)(i) of the Act. The appellant, an apex body of cooperative societies, marketed milk products of its member societies and claimed deductions under section 80P(2)(a)(i) and 80P(2)(d) of the Act for the assessment year 2002-03. The Assessing Officer disallowed the deductions under section 80P(2)(d) on the grounds that working capital advances did not qualify as "investments." The Commissioner of Income-tax (Appeals) upheld this decision, denying deductions under both sections. The Tribunal, however, allowed the appeal, granting the deduction under section 80P(2)(d) for interest received on advances to member cooperative societies. The Tribunal's decision was challenged in the High Court, which upheld the Tribunal's findings, concluding that the appellant was not entitled to deductions under section 80P(2)(a)(i) as the credit facility provided to members was ancillary to its main objective of procuring, processing, and marketing milk products. The High Court dismissed the appeal, finding no illegality or perversity in the Tribunal's decision.

In the case, the primary issue revolved around the interpretation of section 80P(2)(a)(i) of the Income-tax Act, 1961, concerning the eligibility of a cooperative society for deductions on interest income received from its members. The Tribunal found that the appellant, a cooperative society engaged in procuring, processing, and marketing milk products of its members, was not carrying on the business of banking or providing credit facilities to its members. The credit facility extended by the appellant to its members was deemed ancillary to its main objective and not a separate activity attracting the benefits of section 80P(2)(a)(i) of the Act. This interpretation was based on the fact that the credit facility provided was related to outstanding dues and was intended to facilitate the fulfillment of the appellant's main objective, rather than constituting an independent banking or credit facility service. The High Court concurred with the Tribunal's findings, upholding the denial of deductions under section 80P(2)(a)(i) to the appellant.

Another crucial aspect of the case involved the admissibility of deductions under section 80P(2)(d) of the Act for income derived from interest on investments as loans and advances for working capital. The Assessing Officer had disallowed these deductions, stating that the working capital advances did not meet the criteria of "investments" under the Act. The Commissioner of Income-tax (Appeals) upheld this decision, leading to the appellant's appeal to the Tribunal. The Tribunal allowed the appeal, granting the deduction under section 80P(2)(d) for interest received on advances provided to member cooperative societies. However, the Tribunal noted that the deduction was applicable to the net income after deducting expenses related to earning such income. The High Court did not find any legal basis to interfere with the Tribunal's decision on this matter, thereby dismissing the appeal challenging the deduction under section 80P(2)(d) of the Act.

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