2019 (1) TMI 1138 - HC - Income Tax

Entitlement to deduction u/s 80P - amplitude to the words attributable to the business - specific business activities of the societies - interest derived from a credit facility extended to one of its employees and the employee of one of its members - whether the interest earned by the assessee to be out of credit facilities extended from the surplus funds of the business of the assessee - Held that - What has to be specifically looked at is whether the activity from which the income earned fell within any of the clauses under subsection (1). The interest income herein was received from credit facilities extended to the employee and the employee of a member, for personal purposes. This would not fall within sub-clause (i) of Clause (a) of Section 80P of the Act. Further contention raised on the basis of the decision of Income Tax v. Gulshan Mercantile Urban Co-operative Bank Ltd. 2013 (1) TMI 85 - ALLAHABAD HIGH COURT . Therein the interest derived was from the Fixed Deposits maintained out of surplus funds. The decision cannot have application in the present case especially by reason of the dictum in Kerala State Co-operative Marketing Federation Ltd. - Decided in favour of the Revenue and against the assessee

Summary

Issues:
Claim for deduction under Section 80P of the Income Tax Act, 1961 based on interest income from personal credit facilities extended to an employee and a member.

Analysis:
1. The appellant, a Co-operative Society, claimed a deduction under Section 80P of the Income Tax Act based on interest income derived from personal credit facilities extended to an employee and a member. The question raised was whether the Tribunal should have interpreted the words "attributable to the business" in Section 80P(2)(a) more broadly to include the interest earned by the assessee from credit facilities extended from the surplus funds of the business. The relevant provision states that the deduction shall be allowed for the profits and gains of the business attributable to specific activities of the society, including providing credit facilities to its members.

2. The Counsel for the assessee relied on the Supreme Court's decision in Cambay Electric Supply Industrial Co. Ltd. v. Commissioner of Income Tax, which discussed the interpretation of words like "derived from" and "attributable to." However, the Court found that this decision was not directly applicable to the present case. The Court emphasized that the deduction under Section 80P is limited to income arising from specific business activities of the society, such as providing credit facilities to its members.

3. Referring to the decision in Kerala State Cooperative Marketing Federation Ltd. v. Commissioner of Income Tax, the Court highlighted the various categories of societies covered under Section 80P, emphasizing the importance of interpreting each category as a separate head of exemption. The Court clarified that income must fall within one of the specified categories to be exempt from tax. In this case, the interest income from personal credit facilities did not align with the activities listed under Section 80P(1).

4. The Court also addressed a contention based on a decision of the Allahabad High Court regarding interest derived from Fixed Deposits. However, the Court distinguished this case from the present situation, reiterating that the income must be linked to the specific business activities outlined in Section 80P to qualify for the deduction. Ultimately, the Court ruled in favor of the Revenue, upholding the Tribunal's order and dismissing the appeal without costs.