2021 (1) TMI 1087 - HC - Income Tax

Deduction u/s 80(P)(2)(a)(i) - AO disallowed the claims of the assessee on the ground that the assessees had lent monies to the members who were undertaking non-agricultural/ non-farm activities and had received the interest on par with commercial banks - HELD THAT - As decided in own case 2016 (8) TMI 560 - MADRAS HIGH COURT CIT (Appeal) and the Income Tax Appellate Tribunal has clearly held that the assessees are not co-operative bank and that their activities in the nature of accepting deposits, advancing loans etc., carried on by the assessees are confined to its members only and that too in a particular geographical area. Therefore, the respondent Societies are eligible for deduction under Section 80P (2) (a) (i) of the Act.. The contention of the appellants that the members of the assessee societies are not entitled to receive any dividend or having any voting right or no right to participate in the general administration or to attend any meeting etc., because they are admitted as associate members for availing loan only and was also charging a higher rate of interest at the rate of 14%, is not a ground to deny the exemption granted under Section 80P (2)(a) (i) of the Act. - Decided against the Revenue.

Summary

Issues Involved:
1. Jurisdiction of the assessing officer in giving effect to the appellate authority's order under Section 80P(2)(a)(i) of the Income Tax Act.
2. Restriction of the claim for deduction under Section 80P(2)(a)(i) of the Income Tax Act by the assessing officer.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer:
The primary issue was whether the assessing officer exceeded his jurisdiction while giving effect to the order of the appellate authority concerning the deduction under Section 80P(2)(a)(i) of the Income Tax Act. The court noted that in the assessee's own case for the assessment year 2008-2009, similar questions were decided in favor of the assessee. The court referenced the previous judgment where it was established that the assessing officer did not exceed his jurisdiction. The Tribunal had previously determined that Class B members, who were nominal members, could not be treated as non-members for the purposes of Section 80P(2)(a)(i). Therefore, the assessing officer's actions were within the scope of his jurisdiction.

2. Restriction of Deduction Claim under Section 80P(2)(a)(i):
The second issue was whether the assessing officer was correct in restricting the claim for deduction under Section 80P(2)(a)(i). The court discussed that the assessee, a co-operative society, claimed deductions under Section 80P(2)(a)(i) for interest income received from loans given to its members. The assessing officer had disallowed these claims, arguing that the loans were given for non-agricultural purposes and at commercial rates, thus not qualifying for the deduction. However, the Commissioner of Income Tax (Appeal) and the Income Tax Appellate Tribunal had allowed the deductions, stating that the activities of the assessee were confined to its members and within a particular geographical area. The court upheld this view, noting that the Tribunal had correctly interpreted the definition of 'member' under the State Cooperative Societies Act, 1983, which included 'associate members'. The court emphasized that the objections raised by the revenue, which sought to exclude nominal members from the definition of 'members', were beyond the purview of the tax statute unless explicitly provided by the legislature.

Conclusion:
The court concluded that the substantial questions of law were answered in favor of the assessee. The assessing officer's jurisdiction was not exceeded, and the restriction on the claim for deduction under Section 80P(2)(a)(i) was not justified. The court dismissed the appeals filed by the revenue and allowed the cross objections filed by the assessee, thereby upholding the orders of the Commissioner of Income Tax (Appeal) and the Income Tax Appellate Tribunal.