2006 (11) TMI 195 - HC - Income Tax

Assessee s claim for deduction u/s 80P(2)(a)(i) was rejected by AO on the ground that the activity of the assessee procuring and supplying raw silk and twisted silk on credit to its members cannot be considered as carrying on the business of banking or providing credit facilities within the meaning of section 80P(2)(a)(i) held that co-operative society which is engaged in the marketing of raw silk and twisted silk is eligible for the benefit of section 80P(2)(a)(i) in respect of the interest received from its members for supplying the materials on credit revenue s appeal dismissed

Summary

Issues:
- Appeal against order of Income-tax Appellate Tribunal rejecting deduction claim under section 80P(2)(a)(i) for assessment year 1995-96.
- Interpretation of whether providing credit facilities by a co-operative society qualifies for deduction under section 80P(2)(a)(i) of the Income-tax Act.

Analysis:
1. The appellant, the Revenue, challenged the order of the Income-tax Appellate Tribunal that rejected the deduction claim under section 80P(2)(a)(i) for the assessment year 1995-96. The assessee, a co-operative society engaged in procuring and supplying raw silk and twisted silk to its members, claimed the deduction under Chapter VI-A, which was initially denied by the Assessing Officer on the basis that the activity did not qualify as "carrying on the business of banking or providing credit facilities" under section 80P(2)(a)(i) of the Income-tax Act.

2. Upon appeal by the assessee, the Commissioner of Income-tax (Appeals) allowed the deduction claim, citing precedents from the Tribunal's decisions in the assessee's previous cases for different assessment years. The Tribunal upheld the Commissioner's decision on appeal by the Revenue. Subsequently, the Revenue appealed against this decision, raising the substantial question of law regarding the entitlement of the co-operative society to the deduction under section 80P(2)(a)(i) of the Income-tax Act.

3. The court referred to previous judgments, including one dated December 12, 2005, where it was held that a cooperative society engaged in activities such as running a sugar mill and granting loans to members qualified for exemption under section 80P(2)(a)(i). This interpretation was further reinforced in subsequent judgments, establishing a settled proposition of law that co-operative societies providing credit facilities to members could avail the benefits of section 80P(2)(a)(i) of the Income-tax Act.

4. Consequently, the court held that the respondent co-operative society, involved in marketing raw silk and twisted silk and receiving interest from members for supplying materials on credit, was eligible for the deduction under section 80P(2)(a)(i) of the Income-tax Act. As no substantial question of law was found to be arising for consideration, the appeal by the Revenue was dismissed, affirming the entitlement of the co-operative society to the claimed deduction.

This detailed analysis of the judgment highlights the key issues, legal interpretations, precedents, and the final decision rendered by the court in the case involving the deduction claim under section 80P(2)(a)(i) of the Income-tax Act for a co-operative society engaged in specific activities.