1984 (7) TMI 156 - AT - Income Tax

Summary

Issues Involved:
1. Classification of the assessee as a co-operative credit society.
2. Eligibility for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961.
3. Nature of income derived from different sources.

Issue-wise Detailed Analysis:

1. Classification of the Assessee as a Co-operative Credit Society:
The assessee, a co-operative institution formed at the instance of the Government of Andhra Pradesh, was classified as a miscellaneous society and not a credit society under the Co-operative Societies Act. The main object was to promote an industrial estate on a co-operative basis. The Commissioner (Appeals) and the ITO both denied the classification of the assessee as a co-operative credit society, which was a significant factor in denying the exemption under section 80P(2)(a)(i).

2. Eligibility for Exemption under Section 80P(2)(a)(i) of the Income-tax Act, 1961:
The assessee claimed exemption under section 80P(2)(a)(i) on the grounds that its main activity was providing credit facilities to its members. The Commissioner (Appeals) rejected this claim, stating that the primary object was to establish an industrial estate, not to provide credit. The Tribunal, however, found that the provision of credit facilities to members was a significant activity of the assessee. The Tribunal emphasized that the exemption is not solely based on the classification but on the actual activities conducted. It was noted that the provision of credit was a means to achieve the object of promoting an industrial estate, and substantial funds were utilized for financing members, making the assessee eligible for the exemption.

3. Nature of Income Derived from Different Sources:
The income of the assessee included interest from loans to unit-holders, interest on fixed deposits, rental income, and water charges. The ITO considered rental income as property income and the rest as business income. The Tribunal agreed that the income from loans to unit-holders should be considered as business income attributable to the provision of credit facilities. However, the nature of interest on fixed deposits required further examination to determine if it was attributable to the business of providing credit facilities. The Tribunal directed the ITO to reassess the nature of the deposits and revise the computation accordingly.

Conclusion:
The Tribunal upheld the assessee's claim in principle, recognizing the provision of credit facilities as a significant business activity. The assessments were set aside for fresh consideration, directing the ITO to treat the assessee as engaged in the business of providing credit facilities and to reassess the nature of other income and the final computation of exempt business income. The appeals were allowed for statistical purposes.