2015 (12) TMI 1763 - HC - Income Tax

Addition made on account of interest income from investment in Co-Operative Societies u/s. 80P(2)(d) - A.O. computed the disallowance u/s. 14A r.w.r. 8D - Held that - The matter is no longer res integra. This Court in The Punjab State Cooperative Milk Producers Federation Limited vs. Commissioner of Income Tax II 2011 (3) TMI 615 - PUNJAB AND HARYANA HIGH COURT as held as per the bye-laws of the appellant- Federation deductions were admissible to it under section 80P(2)(a)(i) of the Act on the income derived by it from its members by way of interest on its investments as loan and advances for their working capital - assessee is entitled to deduction under section 80P(2)(d) of the Act after excluding the expenditure attributable to the earning of such income - It may be noticed that section 80P was inserted in place of section 81 which was simultaneously deleted by Finance (No. 2) Act 1967 with effect from 1-4-1968 Regarding Section 14A - on consideration of facts involved therein had concluded that there was no expenditure which had been incurred by the assessee for earning the income and the same did not form part of total income - Decided against the assessee

Summary

Issues:
- Interpretation of Section 14A of the Income Tax Act, 1961
- Applicability of Section 80P(2)(d) deductions
- Disallowance of expenses claimed by the assessee
- Contrary views by different High Courts

Analysis:

Interpretation of Section 14A:
The case involved a cooperative society engaged in marketing milk products and providing loans to member societies. The dispute arose regarding the applicability of Section 14A of the Income Tax Act, which disallows expenses related to income not forming part of the total income. The Tribunal partly allowed the appeal, upholding the disallowance of expenses under Section 14A and directing re-computation of disallowance under Rule 8D of the Income Tax Rules, 1962. The Tribunal's decision was based on the retrospective insertion of Section 14A, aiming to prevent the deduction of expenses related to exempt income against taxable income.

Applicability of Section 80P(2)(d) deductions:
The appellant claimed deductions under Section 80P(2)(d) of the Act, which allows deductions for income earned by cooperative societies. However, the Assessing Officer disallowed a portion of the claimed deduction, leading to the appeal. The Tribunal upheld the disallowance under Section 14A, reducing the deduction claimed by the appellant. This decision was in line with the statutory provisions and aimed to ensure that deductions were granted only for income forming part of the total income.

Disallowance of expenses claimed by the assessee:
The Assessing Officer disallowed a significant portion of the deduction claimed by the appellant under Section 80P(2)(d) of the Act. The appellant contended that the expenses were related to business activities eligible for deduction. However, the Tribunal upheld the disallowance based on the application of Section 14A, emphasizing the need to exclude expenses related to income not forming part of the total income.

Contrary views by different High Courts:
The appellant cited a judgment by the Delhi High Court in a similar case where a contrary view was taken regarding the application of Section 14A. However, the High Court in the present case relied on its previous decision in a similar matter, where the issue was decided against the assessee. The High Court emphasized the binding nature of its previous decision and dismissed the appeal, stating that no substantial question of law arose due to the conflicting views between different High Courts.

In conclusion, the judgment clarified the interpretation and application of Section 14A of the Income Tax Act, highlighting the importance of excluding expenses related to exempt income while computing deductions. The decision also underscored the significance of consistency in legal interpretations across different jurisdictions to ensure uniform application of tax laws.