2014 (6) TMI 210 - AT - Income Tax

Claim of exemption u/s 80P(2) of the Act - Allowability of exemption in recovery charges and service charges Main activity of providing credit facility to members Held that - The activity resulting in service and recovery charges was an integral part of the main activity of the assessee of providing credit facilities to its members and since the income from service charges and recovery charges was very much incidental to the income of the assessee from the business of providing credit facilities to its members was entitled to deduction u/s 80-P(2)(a)(i) of the Act thus, there was no infirmity in the order of the CIT(A) Decided against Revenue.

Summary

Issues:
1. Exemption on recovery and service charges under section 143(3) of the Income Tax Act, 1961 for the assessment year 2009-10.

Analysis:
The appeal was filed by the Revenue against the order passed by the Commissioner (Appeals) challenging the exemption granted on recovery and service charges. The assessee, a co-operative society engaged in borrowing and lending money, declared nil income after claiming deduction under section 80P(2). The Assessing Officer noted income from service charges, recovery charges, and interest from banks and mutual funds. The assessee explained that recovery charges were against amounts recovered from borrowers for non-payment of installments, while service charges were collected for scrutinizing documents and visiting borrower's places. The Assessing Officer disallowed the deduction under section 80P for interest income from banks and mutual funds, and for recovery and service charges due to excess amounts recovered from members not being part of the main activity.

The Commissioner (Appeals) decided in favor of the assessee after considering detailed submissions. The Tribunal's decision in the assessee's case for the assessment year 2008-09 was cited, where it was held that income from service and recovery charges was integral to the main activity of providing credit facilities to members, making it eligible for deduction under section 80P(2)(a)(i). The Tribunal dismissed the Revenue's appeal based on the previous decision, stating that the service and recovery charges were incidental to the income from providing credit facilities, hence entitled to deduction under section 80P.

In conclusion, the Tribunal upheld the Commissioner (Appeals) decision, dismissing the Revenue's appeal and confirming the eligibility of the assessee for deduction under section 80P for recovery and service charges.