2016 (8) TMI 1125 - HC - Income Tax

Deduction u/s 80P (2) (a) (iii) - Assessee is a co-operative society engaged in marketing the agricultural produces grown by its members - ITAT allowed the claim - Held that - The Income Tax Appellate Tribunal has clearly perceived that the assessee is not a co-operative bank and that the activities in the nature of accepting deposits, advancing loans etc., carried on by the assessee, but is confined to its members only and that too in a particular geographical area. Therefore, the respondent Society is eligible for deduction under Section 80P (2) (a) (i) of the Act. The contention of the appellant that the members of the assessee society 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, is not a ground to deny the exemption granted under Section 80P (2)(a) (i) of the Act. - Decided against revenue

Summary

Issues:
1. Interpretation of Section 80P of the Income Tax Act, 1961 regarding deduction eligibility for a cooperative society.
2. Classification of members in a cooperative society for deduction purposes.
3. Consideration of loans for non-agricultural purposes under Section 80P.

Issue 1: Interpretation of Section 80P:
The case involved an appeal by the Revenue against the orders of the Income Tax Appellate Tribunal regarding the eligibility of a cooperative society for deductions under Section 80P of the Income Tax Act, 1961. The society claimed deductions under Section 80P (2)(a)(i) for interest income earned from loans provided to its members. The Assessing Officer disallowed the claims, stating that the society was not engaged in banking activities and therefore not entitled to the deduction. The Commissioner of Income Tax (Appeal) upheld this decision, denying the deduction for interest income from loans extended to non-members for non-agricultural purposes. However, the Tribunal allowed the appeal, considering the definition of 'members' under the State Cooperative Societies Act, 1983, and granted the deduction under Section 80P (2)(a)(i).

Issue 2: Classification of Members for Deduction:
The dispute also centered around the classification of members in the cooperative society. The Commissioner of Income Tax (Appeal) differentiated between Class A and Class B members, denying the deduction for interest income from loans extended to Class B members engaged in non-agricultural activities. The Tribunal, however, considered the definition of 'members' under the State Cooperative Societies Act, including associate members, and ruled in favor of the society, allowing the deduction under Section 80P (2)(a)(i).

Issue 3: Loans for Non-Agricultural Purposes:
The Revenue contended that the society had lent money for non-agricultural purposes at higher interest rates, violating the provisions of Section 80P (4) and 2(24)(viia). The Tribunal, citing precedents and the State Cooperative Societies Act, held that the society was not a cooperative bank and was eligible for the deduction under Section 80P (2)(a)(i), dismissing the Revenue's appeal.

In conclusion, the High Court dismissed the Revenue's appeals, upholding the Tribunal's decision that the cooperative society was entitled to the deduction under Section 80P (2)(a)(i) for interest income from loans provided to its members, including Class B members, and that the society's activities did not disqualify it from the deduction eligibility criteria outlined in the Income Tax Act.