2012 (12) TMI 1224 - AT - Income Tax

Summary

Issues involved: Interpretation of provisions u/s 80P of the Income Tax Act, 1961 for a Primary Agriculture Cooperative Society engaged in banking activities and providing credit facilities to members and non-members.

Summary:

Issue 1: Eligibility for deduction u/s 80P(2)(a)(i) & 80P(2)(a)(iv)
The Appellate Tribunal considered the case of a Primary Agriculture Cooperative Society engaged in banking activities and providing credit facilities to members and non-members. The Assessing Officer (AO) observed that the society had declared a net profit and claimed deduction u/s 80P(2)(a)(i) & 80P(2)(a)(iv) of the Income Tax Act, 1961. The AO required the society to bifurcate income and expenditure related to members and non-members to restrict the deduction claimed u/s 80P. The society argued that it provided credit facilities to members only and accepted deposits from non-members as part of banking activities. The AO concluded that accepting deposits from non-members made the society ineligible for 100% deduction u/s 80P. However, the CIT(A) allowed the deduction, stating that the society provided credit facilities and supplies only to its members, and deposits from non-members did not affect the revenue generated for members. The Tribunal upheld the CIT(A)'s decision, emphasizing that the source of funds utilized for income generation should not impact the eligibility for deduction u/s 80P.

Issue 2: Interpretation of business activities under Section 80P
The Tribunal clarified that the business of banking for a cooperative society is not restricted to activities with members only, as there is no such limitation under Section 80P(2)(a)(i). The direct source of income for deduction under Section 80P(2)(a)(iv) is from providing credit facilities to members or selling agricultural products to members. The Tribunal confirmed the CIT(A)'s order based on the understanding that income generation for deduction purposes is linked to activities benefiting members, regardless of the source of funds.

Conclusion:
The Tribunal dismissed the department's appeal, affirming the eligibility of the Primary Agriculture Cooperative Society for deduction u/s 80P(2)(a)(i) & 80P(2)(a)(iv) based on the nature of business activities benefiting members, irrespective of the source of funds utilized.