2015 (1) TMI 867 - AT - Income Tax

Denial of deduction u/s. 80P(4) - Held that - The word activity is wider than the word business . It connotes a specified form of supervised action or 0field of action. Read in the context of the profit earning activity of a co-operative society it means the corporate activity of the society that is to say whether or not they amount to a business trade or profession in the ordinary sense. Clause (c) of section 80P(2) is intended to cover receipts from sources other than the actual conduct of the business but attributable to an activity which results in profits and gains. Letting out of surplus space in the building owned and used by the assessee is not such an activity falling under clause (c). The rent thus received by the assessee is not eligible for the exemption provided thereunder. In this view the Appellate Tribunal was justified in rejecting the assessee s claim. Assessee is not entitled for deduction u/s. 80P of the Act. - Decided against assessee. Deduction u/s. 36(1)(viia) - provisions made for assets classified as doubtful assets or loss assets - Held that - Only with reference to the assessment year in question appellants/assessees have created provision for bad and doubtful debts in the books of accounts. So far as this issue is concerned opinion of the assessing officer and two appellate authorities is justified and we need not interfere with the opinion of the authorities in restricting deductions only to 7.5% of the total income as provided under sub-clause (viia) of Section 36(1). CIT(A) is justified in giving a finding that the assessee s claim for deduction u/s. 36(1)(vii) (a) is to be considered subject to statutory limit and also the Ld. AR has not been able to show as to how this section is not applicable to the assessee s case. Being so we decline to interfere with the order of the CIT(A) on this issue. Accordingly this ground of the assessee is dismissed.- Decided against assessee.

Summary

Issues Involved:
1. Denial of deduction under Section 80P(4) of the Income Tax Act.
2. Eligibility for deduction under Section 36(1)(viia) for provisions made for assets classified as doubtful or loss assets.
3. Misinterpretation of reserve for overdue interest due on borrowings as provision for bad and doubtful debts.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80P(4):
The primary issue was whether the assessee, a cooperative society, was eligible for deduction under Section 80P of the Income Tax Act. The Assessing Officer (AO) concluded that the assessee did not meet the criteria for a "primary agricultural credit society" as defined under Section 59cciv) of the Banking Regulation Act, 1949. The CIT(A) upheld this view, noting that the assessee's bye-laws did not prioritize providing financial accommodation for agricultural purposes, and the agricultural credit provided was minimal. The CIT(A) relied on the jurisdictional High Court's judgment in M/s. Thathamangalam Service Co-operative Bank Ltd.

The Tribunal, referencing its earlier decision in the case of Kunnamangalam Co-operative Bank, reiterated that the assessee's primary business was not agricultural credit but banking. The Tribunal emphasized that for eligibility under Section 80P(2)(a)(i), the cooperative society must primarily engage in banking or providing credit facilities to its members. The assessee's activities did not align with the definition of a "primary agricultural credit society" as it lent only 3.56% of total loans for agricultural purposes. Consequently, the Tribunal held that the assessee was a primary cooperative bank and thus not eligible for deduction under Section 80P(4).

2. Eligibility for Deduction under Section 36(1)(viia):
The assessee contended that if considered a cooperative bank, it should be allowed deductions under Section 36(1)(viia) for provisions made for assets classified as doubtful or loss assets. The Tribunal referred to the jurisdictional High Court's decision in the case of The Kannur District Co-operative Bank Ltd., which clarified that cooperative banks could claim deductions under Section 36(1)(viia)(a) for bad and doubtful debts, provided they met the stipulated conditions. The Tribunal upheld the CIT(A)'s decision, noting that the assessee did not fulfill the criteria for claiming the deduction beyond the statutory limit.

3. Misinterpretation of Reserve for Overdue Interest:
The assessee argued that the CIT(A) wrongly considered the reserve for overdue interest due on borrowings as a provision for bad and doubtful debts. The Tribunal found this ground misconstrued, affirming the CIT(A)'s decision that the assessee's claim for deduction under Section 36(1)(vii)(a) should be subject to statutory limits. The Tribunal noted that the assessee failed to demonstrate how this section was inapplicable to its case.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s findings on all grounds. The assessee was not entitled to deductions under Section 80P due to its primary banking activities and failed to meet the criteria for additional deductions under Section 36(1)(viia). The Tribunal also rejected the claim regarding the misinterpretation of the reserve for overdue interest.