2016 (8) TMI 1427 - HC - Income Tax

Deduction u/s 80P(2)(a)(i) - assessee is not a co-operative bank - interest earned from loan to associate members - HELD THAT - Commissioner of Income Tax (Appeal) and the Income Tax Appellate Tribunal has clearly held that the assessee is not co-operative bank and the provisions of Section 80P (4) are not attracted. Therefore the respondent Society is eligible for exemption under Section 80P(2)(a)(i) of the Act. The contention of the appellant that the members of the assessee societies are not entitled to receive any dividend or having any voting right or no right to participate in the general administration or to attend any meeting etc. because they are admitted as associate members for availing loan only and was also charging a higher rate of interest is not a ground to deny the exemption granted under Section 80P (2)(a) (i) of the Act. - Decided against revenue.

Summary

Issues:
1. Interpretation of Section 80P (2)(a)(i) of the Income Tax Act, 1961 regarding deduction for cooperative societies.
2. Classification of members in cooperative societies for eligibility of deduction under Section 80P.
3. Consideration of loans for non-agricultural purposes and applicability of Section 80P (4).
4. Determination of cooperative society status for deduction eligibility under Section 80P.

Analysis:
1. The Appeals by the Revenue challenge the order of the Income Tax Appellate Tribunal regarding the deduction under Section 80P (2)(a)(i) of the Income Tax Act, 1961. The Tribunal allowed the deduction for the cooperative societies engaged in banking and trading activities, despite the Assessing Officer's disallowance due to lending for non-agricultural activities.

2. The issue of member classification arose as the Commissioner of Income Tax (Appeal) differentiated between Class A and Class B members in similar cases. The Tribunal considered the definition of a member under Section 2(16) and included associate members, ruling in favor of the cooperative societies' entitlement to deduction under Section 80P (2)(a)(i).

3. The Tribunal's decision in various cases, including the Salem Agricultural Producers Co-operative Marketing Society Ltd., emphasized the cooperative societies' rights to deduction under Section 80P (2)(a)(i) based on the State Cooperative Societies Act, 1983. The Tribunal highlighted the statutory recognition of nominal members and rejected the Revenue's argument against non-agricultural loans.

4. The judgment referred to the Gujarat High Court's ruling and decisions of other benches to support the cooperative societies' eligibility for deduction under Section 80P. It also cited the Kerala High Court's decision to uphold the exemption for primary agricultural credit societies, reinforcing the Tribunal's stance on the cooperative society's status for deduction under Section 80P.

5. The Court dismissed the Revenue's appeals, affirming the Tribunal's findings that the cooperative societies were not cooperative banks and thus eligible for exemption under Section 80P (2)(a)(i). The judgment aligned with previous decisions and concluded that the substantial questions of law raised by the Revenue were answered against them, leading to the dismissal of the appeals.

This detailed analysis of the judgment outlines the key issues, interpretations of relevant sections, and the reasoning behind the decisions made by the authorities and the Court.