2021 (12) TMI 925 - AT - Income Tax

Eligibility of deduction u/s 80P(2)(a)(i) - Receipt of interest income from non-members - HELD THAT - It is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India is not being attributable to the business as envisaged under the provisions of the Act. Thus the same cannot be deducted under section 80P(2)(a)(i) of the Act. Thus, there remains no ambiguity that income received by the assessee on the money deposited with the bank is not eligible for deduction under section 80P(2)(a)(i). Thus, the profits and gains attributable to non-members arising as a result of advancement of loans was held to be not an allowable deduction under Section 80P(2)(a)(i) of the Act. In view of the above, we do not find any merits in the argument advanced by the learned counsel for the assessee Deduction under section 80P(2)(c) - The expression 'profits and gains' in clause (c) of sub-section (2) of section 80P of the Act is not confined to 'Profits and gains of business'. Thus, in case of co-operative credit society, income to which benefit of section 80P(2)(a)(i) is not allowed, e.g., rental income, interest income from surplus funds kept in FDs' of banks, etc., basic exemption of ₹ 50,000 as provided for in section 80P(2)(c)(ii) must be granted. It also appears that, though the word 'activity' is not defined, yet the investment activity, activity of renting of immovable property, etc., and the consequent income attributable to such activities would be covered under section 80P(2)(c). Hence, we direct the AO to allow the deduction under section 80P(2)(c) of the Act. Thus the ground of appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of deduction claimed under section 80P(2)(a)(i) of the Income Tax Act.
2. Interpretation of provisions of section 80P(2)(a)(i) regarding deduction eligibility.
3. Applicability of case law in determining deduction eligibility for cooperative societies.
4. Granting of basic deduction under section 80P(2)(c) for cooperative societies engaged in specified activities.
5. Clarification on the scope of 'profits and gains' under section 80P(2)(c) for cooperative societies.

Analysis:

Issue 1: The appeal was against the order disallowing a deduction claimed under section 80P(2)(a)(i) of the Act. The Assessing Officer (AO) disallowed the deduction of interest income received from non-members as it was not considered eligible under the said provision.

Issue 2: The Tribunal analyzed the provisions of section 80P(2)(a)(i) and held that only income derived from activities related to providing credit facilities to members of a cooperative society is eligible for deduction. Income from non-members does not qualify for the deduction under this section.

Issue 3: The case law cited by the Assessee regarding the entitlement of cooperative societies to the deduction under section 80P(2)(a)(i) was examined. The Tribunal differentiated between income attributable to members and non-members, emphasizing that only profits related to members are deductible.

Issue 4: The Tribunal considered the provisions of section 80P(2)(c) which provide for a basic deduction for cooperative societies engaged in activities other than those specified in clauses (a) or (b) of section 80P(2). It was emphasized that such deductions must be granted, even for activities like rental income or interest income from surplus funds.

Issue 5: The Tribunal clarified that the term 'profits and gains' under section 80P(2)(c) is not limited to business profits. It highlighted a case where income from activities not covered under section 80P(2)(a)(i) was granted the basic exemption provided under section 80P(2)(c)(ii).

In conclusion, the Tribunal allowed the appeal filed by the Assessee, directing the AO to grant the deduction under section 80P(2)(c) of the Act. The judgment provided a detailed analysis of the provisions, case laws, and interpretations relevant to the issues raised in the appeal.