2014 (1) TMI 1927 - AT - Income Tax

Deduction u/s 80P - whether co-operative society providing credit facilities to its members covered in sub-section (4) of section 80P or not? - assessee is in the business of providing credit facility to its member and accepting the deposits from the member - HELD THAT - As decided in M/S. JAFARI MOMIN VIKAS CO-OP CREDIT SOCIETY LTD. 2014 (1) TMI 481 - ITAT AHMEDABAD it is clear that the income of the assessee is eligible for deduction under Section 80P(2)(a)(i) since the only activity of the assessee is to provide credit facility to the members and therefore the interest earned from short term deposits is business income and is eligible for deduction under Section 80P(2)(a)(i) and no portion thereof can be taxed under Section 56 as income from other sources - Decided against revenue. Addition made on account of building fund in the income of the assessee but deduction u/s. 80P was not allowed by considering the Supreme Court in the case of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT but in that case disallowance was made on account of doubtful debt and to that extent assessee-bank income increased. But in all cases the additions were made on account of building funds had been debited in the assessee s income generated from providing credit facility to its members. Therefore it is equally eligible for deduction u/s. 80P thus were allowed the appeal of the assessee.

Summary

Issues:
1. Interpretation of Section 80P(2)(a)(i) and 80P(2)(d) for cooperative societies providing credit facilities.
2. Applicability of sub-section (4) of Section 80P to cooperative societies providing credit facilities.
3. Eligibility of deductions under Section 80P for income generated from building funds.

Detailed Analysis:

1. The main issue in this case revolved around the interpretation of Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act for cooperative societies providing credit facilities. The Assessing Officer (AO) denied the deduction claimed under these sections for the assessee societies, citing that the income falls under section 2(24)(viia) and is not eligible for deduction under sub-section (4) of Section 80P. The AO differentiated between cooperative societies engaged in banking activities and those providing credit facilities to members only.

2. The key point of contention was the applicability of sub-section (4) of Section 80P to cooperative societies providing credit facilities. The AO held that the insertion of sub-clause(4) restricted the exemption to cooperative banks only, excluding societies providing credit facilities. However, the Cooperative Appellate Tribunal (ITAT) considered the case law and held that the assessee societies, engaged in providing credit facility to members and accepting deposits, are not covered by sub-section (4) of Section 80P. The ITAT relied on the decision of the Hon'ble Gujarat High Court in similar cases to support their interpretation.

3. Another issue addressed in the judgment was the eligibility of deductions under Section 80P for income generated from building funds. The CIT(A) had confirmed additions made by the AO on the grounds that building fund additions were not eligible for deduction under 80P(2)(a)(i). However, the ITAT overturned this decision, citing the Supreme Court case of Vijaya Bank vs. CIT, where deductions were allowed for income generated from providing credit facilities. The ITAT held that the building fund additions, being part of the income generated from providing credit facilities to members, were eligible for deduction under Section 80P.

In conclusion, the ITAT upheld the decision of the CIT(A) and dismissed the revenue's appeals, confirming that the cooperative societies providing credit facilities to members were eligible for deductions under Section 80P. Additionally, the ITAT allowed the appeals filed by the assessee against the addition of building funds, granting them deductions under Section 80P.