2008 (9) TMI 2 - SC - Income Tax

Claim of deduction under Section 80P (2)(a)(i) AO rejected the claim on the ground that the income reflected by the assessee, cooperative society can neither be attributed to actual labour of the members nor can be treated as arising out of collective disposal of its labour - High Court failed to notice that the profit earned by the Society in executing the work was retained by the members themselves decision of HC is raising confusion matter remanded to HC

Summary

Issues involved: Challenge to judgment on deduction claim under Section 80P(2)(a)(i) of the Income Tax Act, 1961.

Analysis:
1. The appeal challenged the judgment of the Madras High Court regarding the deduction claim made by the respondent under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The assessing officer had denied the claim, stating that the income could not be attributed to the actual labor of the members or the collective disposal of labor. However, the Commissioner of Income Tax (Appeals) and the Tribunal allowed the appeal, leading to the Revenue filing further appeals.

2. The appellant argued that the assessing officer was correct in denying the deduction under Section 80P(2)(a)(i), contrary to the decisions of the Commissioner (Appeals) and the Tribunal. The High Court's judgment was criticized for failing to recognize that the profit earned by the Society was retained by the members themselves, indicating a misunderstanding of the case's factual context.

3. Despite the absence of representation from the assessee, the Supreme Court noted that the High Court had misconstrued the case, assuming it involved interest received from members, likely due to a mix-up with another case concerning a credit society engaged in banking activities. This factual confusion rendered the High Court's decision indefensible.

4. Additionally, the Supreme Court pointed out that the High Court failed to consider a relevant precedent, the decision in Madas Autorickshaw Drivers v. Commissioner of Income Tax (2001 (10) SCC 175). Consequently, the Supreme Court set aside the High Court's order and remitted the matter for fresh consideration, instructing a review in light of the mentioned decision and the correct factual position, emphasizing that no opinion on the case's merits was expressed.

5. Ultimately, the Supreme Court disposed of the appeal accordingly, indicating a clear directive for the High Court to reevaluate the matter, considering the correct legal principles and factual context, as highlighted in the referenced decision, without expressing any view on the case's substance.