2016 (4) TMI 473 - AT - Income Tax

Eligibility for deduction under section 80P(2)(a) or 80P(2)(b) - determine eligibility of deduction under section 80P of the Act in respect of income earned from certain allied activities viz. (i) Locker Rent; (ii) Ambulance Rent; (iii) Commission on Collection of MSEB bills; and (iv) Health Club by cooperative credit society carrying on banking business - Held that - We find that eligibility of the assessee for deduction under section 80P of the Act in respect of locker rent income is covered by the decision of the Hon ble Supreme Court in the case of Mehsana District Central Co-op. Bank Ltd. (2001 (8) TMI 15 - SUPREME Court ). Therefore, we set-aside the direction of the CIT(A) in this regard and hold that the assessee is eligible for deduction under section 80P of the Act in respect of this income. With respect to the income from running of Ambulance, while holding that the assessee is not eligible for deduction under section 80P(2)(a) or (b), we are in total agreement with the alternate plea of the assessee that the expenses attributable for the purpose operating such activity ought to have to be allowed on actual/proportionate basis. We are of the view that the action of the CIT(A) in restricting the expenses artificially @ 10% of the gross income from such activities is not sustainable in law being devoid of objectivity. The Assessing Officer is accordingly directed to allow the expenses which are attributable to the running of Ambulance and determine the income from the aforesaid activity. The surplus if any, from this activity would be entitled to relief made residuary clause of section 80P(2)(c)(ii). We also notice that the Income from MSEB commission is held to be business activity as per decision cited by the assessee in the case of Ahmednagar District Co-operative Bank Ltd. (1990 (4) TMI 119 - ITAT PUNE ) and other decisions noted above. Accordingly, we hold that the assessee is entitled to relief under section 80P as per law. We also simultaneously find merit in the alternate plea of the assessee that proportionate expenses attributable to earning of such income ought to have been allowed by the authorities below. In view of the fair admission on the part of the assessee, the finding of the CIT(A) in respect of Shop Rent Income is sustained. With regard to other income, namely, Health Club Fees, we once again hold that expenses attributable to the running of the Health Club should be allowed to the assessee while determining the income from such activity on reasonable/proportionate basis. However, we do not find any merit in claim of the assessee for deduction under section 80P(2)(a)/80P(2)(b) of the Act in respect of this activity. As regards withdrawal of deduction of ₹ 50,000/- as allowed by the Assessing Officer under section 80P(2)(c), we find merit in the plea of the assessee that a co-operative society engaged in any business activity which is not otherwise eligible for deduction under section 80P(2)(a) or (b), in such a scenario, it is eligible for deduction to the extent of ₹ 50,000/- as per plain provisions of the Act. We also find that the action of the CIT(A) in withdrawing the aforesaid deduction without affording the opportunity to the assessee in this regard also offends the provisions of the Act as well as principles of natural justice. In the light of the aforesaid, we hold that the assessee is entitled to deduction under section 80P(2)(c)(ii) of the Act in respect of business activities such as running of Ambulance, Health Club fee etc. which are not eligible for deduction under section 80P(2)(a) or 80P(2)(b) of the Act. - Decided partly in favour of assessee

Issues Involved:
1. Taxability of income under the head 'Income from Other Sources'.
2. Disallowance of deduction claimed under section 80P.
3. Restriction of deductions of expenses attributable to various income sources.
4. Taxation of property rent income under the head 'Income from House Property'.
5. Withdrawal of deduction granted under section 80P(2)(c)(ii).

Issue-wise Detailed Analysis:

1. Taxability of Income under the Head 'Income from Other Sources':

The assessee, a Co-operative Credit Society, declared income from various sources such as Locker Rent, Ambulance Rent, Commission on collection of MSEB bills, Shop Rent, and Health Club Fees. The Assessing Officer (AO) opined that this income was not attributable to the main activity of the society and thus, was not eligible for full deduction under section 80P of the Income-tax Act, 1961. The CIT(A) confirmed this view, directing that such income should be taxed under 'Income from Other Sources' with an ad hoc deduction of 10% for expenses.

2. Disallowance of Deduction Claimed under Section 80P:

The assessee claimed deductions under section 80P for income earned from Locker Rent, Ambulance Rent, MSEB Bill collection commission, and Health Club Fees. The CIT(A) disallowed these claims, stating that these activities were not part of the business activities of the society and thus, the income could not be assessed under 'Income from Business'. The CIT(A) also withdrew the deduction of Rs. 50,000/- granted by the AO under section 80P(2)(c)(ii), as the society was covered by clause (a) of sub-section (2) of section 80P.

3. Restriction of Deductions of Expenses Attributable to Various Income Sources:

The CIT(A) allowed only 10% of the gross receipts of the income sources as expenses, rejecting the actual expenses claimed by the assessee. The assessee argued that the actual expenses incurred for running the Ambulance, Health Club, and other activities should be allowed as deductions. The Tribunal agreed with the assessee's contention that expenses should be allowed on an actual/proportionate basis rather than an arbitrary 10%.

4. Taxation of Property Rent Income under the Head 'Income from House Property':

The CIT(A) directed the AO to tax the property rent income under 'Income from House Property' and grant a statutory deduction of 30% under section 24. The assessee accepted this finding and did not press this issue further.

5. Withdrawal of Deduction Granted under Section 80P(2)(c)(ii):

The CIT(A) withdrew the Rs. 50,000/- deduction granted by the AO under section 80P(2)(c)(ii) without giving notice of enhancement. The Tribunal found merit in the assessee's plea that a co-operative society engaged in any business activity not eligible for deduction under section 80P(2)(a) or (b) is entitled to a deduction of Rs. 50,000/-. The Tribunal held that the CIT(A)'s action violated principles of natural justice and directed the AO to allow the deduction.

Conclusion:

The Tribunal held that the assessee is eligible for deduction under section 80P for Locker Rent income, following the Supreme Court decision in Mehsana District Central Co-op. Bank Ltd. For Ambulance Rent, MSEB Bill collection commission, and Health Club Fees, the Tribunal directed the AO to allow actual/proportionate expenses. The withdrawal of the Rs. 50,000/- deduction under section 80P(2)(c)(ii) was reversed. The appeals for both assessment years 2010-11 and 2011-12 were partly allowed.

Order Pronounced:

The appeals of the assessee in ITA No.1521/PN/2015 (A.Y. 2010-11) and ITA No.1522/PN/2015 (A.Y. 2011-12) were partly allowed, as pronounced on 10th March 2016.

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