2009 (2) TMI 60 - HC - Income Tax

Co-operative society - whether assessee was entitled to exemption u/s 80P(2)(a)(i) of interest received from the members of the society to decide this question, Tribunal was required to examine the details such as memorandum & articles of association, return of income, the status of business etc. so matter is remanded - Tribunal was right in holding that the receipt not attributable to the business of the assessee should be included in the business income for computing the allowance u/s 32AB

Summary

Issues:
1. Entitlement to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.
2. Inclusion of certain receipts in business income for computing allowance under section 32AB of the Income-tax Act, 1961.

Entitlement to Deduction under Section 80P(2)(a)(i):
The case involved a cooperative society engaged in sugar manufacturing and sales, disputing the disallowance of a deduction under section 80P(2)(a)(i) for interest received from cane-growers. The Assessing Officer contended that the society was not providing credit facilities to its members. The Commissioner of Income-tax (Appeals) upheld the disallowance, emphasizing the necessity for the primary income source to be banking or credit provision. However, the Income-tax Appellate Tribunal allowed the deduction, citing precedents. The High Court observed a Supreme Court ruling requiring a detailed examination of the society's activities to qualify for the exemption. Consequently, the matter was remitted to the Tribunal for reconsideration in line with the Supreme Court directive.

Inclusion of Receipts in Business Income for Section 32AB Allowance:
Regarding the issue of including certain receipts in business income for computing the allowance under section 32AB, the Tribunal granted relief to the assessee, following a precedent involving the Tamil Nadu Mercantile Bank Ltd. The High Court endorsed the Tribunal's decision, emphasizing that the computation of profits under section 32AB should adhere to the provisions of Schedule VI to the Companies Act. The court highlighted that the calculation should not consider different heads of income from the Income-tax Act but should focus on the business profits as per the Companies Act requirements. Consistent with previous judgments, the court ruled in favor of the assessee, affirming the Tribunal's decision and answering the question of law in favor of the assessee.

In conclusion, the High Court addressed the issues of entitlement to deduction under section 80P(2)(a)(i) and the inclusion of receipts in business income for section 32AB allowance. The judgment highlighted the necessity for a cooperative society to meet specific criteria for exemption under section 80P(2)(a)(i) and emphasized the correct computation of profits under section 32AB in accordance with the Companies Act. The court's decision aligned with previous rulings, ensuring a consistent application of tax laws and provisions.