2016 (1) TMI 1455 - AT - Income Tax

Deduction u/s 80P in respect of interest received from the schedule bank - HELD THAT - As decided on QUEPEM URBAN CO-OPERATIVE CREDIT SOCIETY LTD. 2015 (6) TMI 573 - BOMBAY HIGH COURT such lending activities do not constitute banking activities as the same are transacted between the cooperative society and the members of the society. Since, no public is involved the definition of banking‟ does not cover such activities. As such, there is no Reserve Bank of India‟s approval for conducting such banking activities in this case - From the above, Ld Counsel for the assessee demonstrated that the members of the Credit Cooperative Society do not constitute public and there is no depositing, withdrawal by cheque or draft etc. - Decided against revenue. Taxing Commission income‟ under the head income from other sources - assessee demonstrated that there is no objection if the said amount is taxed as per the provisions of clause (c) to section 80P(2) - HELD THAT - We remand this issue to the file of the AO for deciding the issue as per the said provisions of clause (c) of section 80P(2) of the Act, which covers the issue under consideration. We order accordingly. AO is directed to give deduction of ₹ 50,000/- as per the provisions of section 80P(2)(c)(ii) of the Act and allow a reasonable opportunity of being heard to the assessee as per the principles of natural justice. Accordingly, the relevant ground raised by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Allowability of relief u/s 80P of the Act for a credit cooperative society.
2. Taxing of commission income under the head "income from other sources".

Issue 1: Allowability of relief u/s 80P of the Act for a credit cooperative society

The appeal by the Revenue challenged the order of the CIT (A) regarding the allowability of relief u/s 80P of the Act for the assessment year 2010-2011. The primary contention was whether the assessee, a credit cooperative society, should be treated as a "credit cooperative bank" for the purpose of section 80P. The CIT (A) concluded that the assessee did not fall under the definition of a "bank" and thus, section 80P(4) would not apply. The Revenue argued that the lending and borrowing activities constituted "banking activities." However, the assessee's counsel relied on the CIT (A)'s order and relevant citations, emphasizing that the society's activities were limited to specific groups and did not involve the general public. The Tribunal, after considering the facts and relevant legal provisions, upheld the CIT (A)'s decision, citing precedents and the definition of "banking" under the Banking Regulation Act, 1949. The Tribunal found that the members of the credit cooperative society did not constitute the "public," and thus, the deduction claimed u/s 80P(2)(a)(i) could not be denied. The appeal by the Revenue was dismissed based on these findings.

Issue 2: Taxing of commission income under the head "income from other sources"

The assessee's appeal contested the taxing of commission income under the head "income from other sources" for the assessment year 2010-2011. The commission income in question arose from allowing vendors to market products to the members of the credit cooperative society. The society was responsible for recovering instalments and distributing the received commission among its members. The assessee's counsel argued that the said amount should be taxed as per the provisions of clause (c) to section 80P(2) of the Act, emphasizing that it should not be treated as "profits or gains from business or profession." The counsel requested a remand to the AO for a fresh decision considering clause (c) of section 80P(2) to allow deduction of a specific amount and provide a fair opportunity for the assessee to present its case. The Tribunal, after reviewing the facts and legal provisions, remanded the issue to the AO for decision in accordance with clause (c) of section 80P(2), directing the deduction of a specified amount and ensuring the principles of natural justice were followed. Consequently, the relevant ground raised by the assessee was allowed for statistical purposes, and the appeal of the assessee was allowed on this issue.

In conclusion, the Appellate Tribunal ITAT Mumbai's judgment addressed the issues of the allowability of relief u/s 80P for a credit cooperative society and the taxing of commission income under the head "income from other sources." The Tribunal dismissed the Revenue's appeal regarding relief u/s 80P and allowed the assessee's appeal on the issue of commission income, providing detailed reasoning and directions for further proceedings.