1985 (9) TMI 137 - AT - Income Tax

Summary

Issues:
1. Whether the interest income received by a co-operative society is exempt from tax under section 80P of the Income Tax Act.
2. Whether the entire interest income accrued over multiple years can be taxed in a single year.

Analysis:

Issue 1:
The assessee, a co-operative society, received loans for disbursement to its members at 9% interest per annum. The auditors did not credit the interest due from members in the accounts for the years 1969 to 1973. The dispute arose when the interest amount was brought to tax by the authorities, which the assessee claimed as exempt under section 80P(2)(a)(i) of the IT Act. The Tribunal rejected this claim, stating that the society did not extend credit facilities in the same manner as a banking co-operative society. The Tribunal relied on the decision of the Madras High Court to support its decision.

Issue 2:
The assessee contended that if the interest income was not exempt, only the interest accrued during the previous year should be taxed, not the total interest accrued over several years. The Tribunal agreed with this argument, emphasizing that the interest accrued daily and yearly based on the loan agreements. The Tribunal rejected the Revenue's opposition, stating that the assessee was entitled to present this argument based on admitted facts. The Tribunal distinguished a previous case cited by the Revenue, highlighting that in the present case, the right to receive interest arose from the loan agreements and not a court decree. Consequently, the Tribunal directed that only a portion of the interest income, amounting to Rs. 2,710, should be included in the assessee's total income.

In conclusion, the Tribunal partially allowed the assessee's appeal, ruling that only a specific portion of the interest income should be taxed, based on the accrual principle from the loan agreements.