2015 (8) TMI 1200 - AT - Income Tax

Principle of mutuality - Co-operative Society - Disallowance of deduction u/s. 80P - Revenue has denied deduction on the profits earned by assessee from consumer and garments division on the ground that such activities are akin to the activities of consumer society - Held that - It is an admitted position that these activities were carried out by the assessee for several years and no objection whatsoever was raised by the Department on this count. The assessee has been consistently following the same method of accounting and the nature of activities carried out in the past, as well as, in subsequent assessment years is same. It was only during the impugned assessment year and the following assessment year that the Revenue has raised dispute with respect to profits from consumer goods and garments division We are of the considered view that since the turnover from the consumer divisions as compared to the total turnover of the assessee is miniscule, it would not change the nature of activities of Co-operative Society. The assessee Co-operative Society is primarily engaged in providing credit facilities to its members and it is for the benefit for members that consumer division and cloth division have been included in the activities of the society. By providing such facilities to its members it cannot be said that the assessee is engaged in trading of consumer goods on commercial basis. The profits arising from aforesaid divisions are not liable to be taxed under the principle of mutuality. Any income generated from facilities, amenities, privileges provided to the members in accordance with the bye-laws and regulations of the society is exempt on the principle of mutuality. See CIT Vs. Ranchi Club Ltd. 1991 (9) TMI 52 - PATNA High Court - Decided in favour of assessee

Summary

Issues Involved:
Disallowance of deduction u/s. 80P of the Income Tax Act, 1961 claimed by the assessee.

Detailed Analysis:

Issue 1: Disallowance of deduction u/s. 80P of the Income Tax Act, 1961

The appeal was filed against the order of Commissioner of Income Tax (Appeals) for the assessment year 2008-09, specifically challenging the disallowance of deduction u/s. 80P claimed by the assessee. The assessee, a Co-operative Society engaged in providing credit facilities to its members, faced disallowance of income from the sale of consumer goods and cloth divisions by the Assessing Officer. The Assessing Officer contended that such activities were akin to consumer societies, limiting the deduction to &8377; 1,00,000 under section 80P(2)(c)(i). The Commissioner of Income Tax (Appeals) upheld this decision, leading to the current appeal before the Tribunal.

Issue 2: Principles of Mutuality and Consistency

The assessee argued that its activities, including the sale of consumer goods and cloth divisions, were primarily for the benefit of its members, with a minimal portion of sales to non-members. The assessee emphasized the principles of mutuality, consistency in accounting methods, and historical acceptance of its activities by the Department in previous assessment years. Citing relevant case laws, the assessee contended that the profits from these activities were not taxable under the principle of mutuality.

Issue 3: Interpretation of Section 80P and Relevant Case Laws

The Tribunal analyzed Section 80P(2)(a)(i) and Section 80P(2)(c)(i) to determine the eligibility of the assessee for the claimed deduction. Emphasizing that the assessee provided credit facilities to its members and predominantly engaged in activities benefiting members, the Tribunal referred to judgments supporting the exemption of income generated from facilities provided to members based on mutual arrangements. Noting the non-commercial nature of the activities and the absence of profit motive, the Tribunal concluded that the income from such activities was exempt under the principle of mutuality.

Conclusion

Based on the facts presented and the legal precedents discussed, the Tribunal allowed the appeal of the assessee, setting aside the impugned order disallowing the deduction u/s. 80P. The Tribunal's decision was grounded in the principles of mutuality, consistency in activities, and the non-commercial nature of the income generated from the sale of consumer goods and cloth divisions. The judgment highlighted the importance of providing privileges and conveniences to members as part of a mutual arrangement, exempting such income from taxation.

This detailed analysis covers the issues involved in the legal judgment regarding the disallowance of deduction u/s. 80P of the Income Tax Act, 1961 claimed by the assessee, providing a comprehensive overview of the arguments, interpretations of relevant sections, and the final decision of the Tribunal.