1996 (1) TMI 177 - AT - Income Tax

Summary

Issues:
Interpretation of deduction under section 80P(2)(a)(i) of the Income-tax Act for a co-operative society providing credit facilities to members against hypothecation of goods.

Analysis:

The judgment by the Appellate Tribunal ITAT Pune dealt with four appeals by the assessee against orders of the CIT(A) and CIT for the assessment years 1984-85, 1986-87, 1987-88, and 1988-89. The common issue in all appeals was the deduction of interest income under section 80P(2)(a)(i) related to the activity of providing credit facilities to members against hypothecation of goods. The Tribunal consolidated the appeals due to the common issue. The assessee, a co-operative society, processed grey cloth and provided credit facilities to members, receiving interest income. The Assessing Officer disallowed the deduction for the assessment year 1984-85 but allowed it for the other years. The CIT initiated proceedings under section 263, directing withdrawal of the deduction. The Tribunal was tasked with determining if the assessee was entitled to the deduction under section 80P(2)(a)(i).

The assessee argued that providing credit facilities was an independent activity, not merely incidental to processing grey cloth, and should be eligible for the deduction under section 80P. They relied on Supreme Court and High Court decisions supporting a liberal interpretation of the provision. In contrast, the departmental representative contended that the credit facility was incidental to the main activity of processing grey cloth and did not qualify for the deduction. They cited court decisions and legal commentary to support their position.

After considering the arguments and relevant case law, the Tribunal concluded that the assessee's claim for deduction could not succeed. They emphasized that the provision of credit facilities was not independent of the primary activity of processing grey cloth and was temporary and incidental. The Tribunal highlighted the requirement that the provision of credit facilities should be part of the business of banking to qualify for the deduction under section 80P. They found that the activity of providing credit facilities by the assessee did not meet this criterion and was ancillary to the main business of processing grey cloth. The Tribunal distinguished the cited court decisions, noting that they did not support the assessee's case. Consequently, the Tribunal dismissed the appeals, ruling that the assessee was not entitled to the deduction under section 80P(2)(a)(i) for providing credit facilities to members against hypothecation of goods.