2019 (2) TMI 1205 - AT - Income Tax

Denying deduction u/s 80P(2)(a) in respect of interest received - assessee had advanced loan to its members, who in turn, had authorized the employer i.e. Ghatge Patil Group of Companies to deduct installments and interest due from their salaries and remit the same to Co-operative Society - HELD THAT - There was default in such remittances and various cases were filed. As per directions of the District Deputy Registrar, Co-operative Societies, Kolhapur, the assessee not only received installments but also received interest. During the year, it had received interest of ₹ 23,74,646/- and the question was that such interest was received during the course of carrying on its activity of providing credit facilities to its members and hence, deductible under section 80P(2)(a)(i) of the Act. We find merit in the plea of assessee in this regard. The interest became due to the assessee from Ghatge Patil Group of companies, since it had failed to remit the amount of installments deducted by it along with interest to the Co-operative Society of the employees of the said concern. Section 49(3) of the Maharashtra Co-operative Societies Act postulates that the employers of members were mandatorily part of the main activity of the assessee society i.e. providing credit facilities to its members. Once the amount is received from the entity which was part of the main activity of the Co-operative Society, then the same is received during the course of carrying on the business activity and hence, eligible for claim of deduction under section 80P(2)(a)(i) - Decided in favour of assessee.

Summary

Issues:
Claim of deduction under section 80P(2)(a) in respect of interest received from Ghatge Patil Group of companies.

Analysis:
The appeal was filed against the denial of deduction under section 80P(2)(a) for interest received from Ghatge Patil Group of companies. The assessee, an Employee Co-operative Credit Society, provided credit facilities to its members who were employees of the group of companies. The interest income in question was received from the companies of the group. The Assessing Officer disallowed the claim, stating lack of business connection with the group companies. However, the assessee argued that the interest was part of its business activity as loans were advanced to members against salary security, which the companies failed to remit, leading to interest payments. The CIT(A) upheld the disallowance, emphasizing the absence of a direct contract with the group companies.

The Tribunal noted that the loans were advanced by the assessee to its members, who authorized their employers (group companies) to deduct installments and interest from their salaries, as mandated by the Maharashtra Co-operative Societies Act. When the companies failed to remit the deductions, the assessee received the interest. The Tribunal found that such interest was earned during the business activity of providing credit facilities to members, making it eligible for deduction under section 80P(2)(a)(i) of the Act. The employer's role in deducting and remitting payments was integral to the society's operations. Therefore, the Tribunal allowed the appeal, directing the Assessing Officer to permit the deduction claimed by the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal and granting the deduction under section 80P(2)(a) for the interest received from the group companies.