2015 (10) TMI 1380 - AT - Income Tax

Deduction under section 80P(2)(a)(i) denied - CIT(A) held that the assessee are not engaged in the business of providing credit facilities to its members only but extending loans to class B members who are all nominal members and not recognising them as members for audit, hence does not qualify for deduction - Held that - A perusal of definition of the term member clearly shows that member includes associate member . The reference of class B members by the Commissioner of Income-tax (Appeals) is with respect to associate members. The Commissioner of Income-tax (Appeals) has denied deduction to the assessees only for the reason, that credit facilities have been extended to a particular class of members, who are not normal members of the society. We do not agree with the Commissioner of Income-tax (Appeals) on the issue. The authorities under the Act cannot go beyond their jurisdiction and make classification within a classification of members to deny the benefit of deduction. The co-ordinate Bench of the Tribunal in the case of SL(SPL) 151, Karkudalpatty Primary Agricultural Co-operative Credit Society Ltd. v. ITO 2014 (5) TMI 556 - ITAT CHENNAI has held held under the very provision that for the purpose of impugned deduction, it is irrelevant so far as classification of the members in A or B category is concerned. - Decided in favour of assessee.

Summary

Issues:
Denial of deduction under section 80P(2)(a)(i) of the Act to different assessees due to the Assessing Officer's interpretation of their status as primary agricultural credit societies and not banks eligible for the deduction.

Analysis:
The Assessing Officer initially denied deduction under section 80P of the Act on the entire income of the assessees, claiming they did not meet the criteria of primary agricultural co-operative societies providing credit facilities to members. However, the deduction was restricted to income from the farm sector and credit facilities. The Commissioner of Income-tax (Appeals) ruled that the assessees were not banks but primary agricultural credit societies, questioning their eligibility for the deduction. The Commissioner allowed the deduction under section 80P(2)(a)(i) but disallowed it due to the assessees extending loans to class "B" members who were not considered full members for audit purposes.

The Tribunal referred to previous decisions where it was established that the definition of "member" under the Societies Act includes "associate member," encompassing class "B" members. The Tribunal disagreed with the Commissioner's classification within the membership to deny the deduction, emphasizing that the statute should be interpreted liberally. The Tribunal cited a High Court case supporting the broad interpretation of the deduction provision, concluding that the assessees were entitled to claim the deduction under section 80P(2)(a)(i) and (iv) of the Act.

In alignment with the precedent set by the Tribunal and High Court decisions, the Tribunal allowed the appeals of the assessees, affirming their entitlement to the deduction under section 80P(2)(a)(i) of the Act. The issue was deemed identical to previous cases, leading to the allowance of the appeals based on established legal interpretations.

In conclusion, the Tribunal's judgment clarified the eligibility of the assessees for the deduction under section 80P(2)(a)(i) of the Act, emphasizing the inclusive definition of "member" and rejecting the Commissioner's restrictive interpretation. The decision underscored the importance of interpreting tax statutes liberally and following established legal precedents to determine eligibility for deductions.