2014 (2) TMI 683 - AT - Income Tax

Deletion made u/s 80(2)(a)(i) of the Act Scope of deduction - Held that - Whether co-operative society providing credit facilities to its members covered in sub-section (4) of section 80P or not Held that - The assessee is in the business of providing credit facility to its member and accepting the deposits from the member - The decision in Commissioner of Income Tax Versus Jafari Momin Vikas Co-Op Credit Society Ltd. 2014 (2) TMI 28 - GUJARAT HIGH COURT followed - the income of the assessee is eligible for deduction under Section 80P(2)(a)(i) since the only activity of the assessee is to provide credit facility to the members and therefore the interest earned from short term deposits is business income and is eligible for deduction under Section 80P(2)(a)(i) and no portion thereof can be taxed under Section 56 as income from other sources Decided against Revenue. Disallowance made on account of doubtful debt Held that - The decision in M/s. Vijaya Bank Versus Commissioner of Income Tax & Anr. 2010 (4) TMI 46 - SUPREME COURT followed - Disallowance was made on account of doubtful debt and to that extent assessee-bank income increased - the additions were made on account of building funds had been debited in the assessee s income generated from providing credit facility to its members thus, it is equally eligible for deduction u/s. 80P thus were allowed the appeal of the assessee Decided in favour of Assessee.

Summary

Issues:
- Interpretation of Section 80P(2)(a)(i) of the Income Tax Act
- Applicability of sub-section (4) of Section 80P to cooperative societies providing credit facilities
- Eligibility of deduction under Section 80P for income from short term deposits
- Treatment of building fund additions in the income of cooperative societies

Analysis:

The judgment by the Appellate Tribunal ITAT Ahmedabad involved appeals arising from the order of CIT(A)-VIII, Ahmedabad for the assessment year 2009-10, with a specific focus on the interpretation of Section 80P(2)(a)(i) of the Income Tax Act. The main issue revolved around whether cooperative societies providing credit facilities to their members are covered under sub-section (4) of Section 80P. The Assessing Officer (AO) had denied the deduction under Section 80P to certain cooperative societies, arguing that the provisions of sub-section (4) only applied to Cooperative Banks and not to societies providing credit facilities. The AO emphasized that the insertion of sub-clause (4) restricted the exemption from societies engaged in banking activities. However, the CIT(A) allowed the appeals, citing various precedents and holding that if a society's sole activity is providing credit facilities to its members, the income qualifies for deduction under Section 80P(2)(a)(i).

The Tribunal considered the arguments presented by both the Revenue and the assessee. The Revenue contended that the cooperative societies in question did not fall under the definition of a cooperative bank as per the Banking Regulation Act, 1949, and therefore, sub-section (4) of Section 80P did not apply. The assessee relied on judicial decisions, including one by the Hon'ble Gujarat High Court, to support their position that sub-section (4) did not apply to them. The Tribunal, in line with the decisions of the High Court, concluded that the income of cooperative societies providing credit facilities to members was eligible for deduction under Section 80P(2)(a)(i) and that sub-section (4) did not apply to such cases.

Furthermore, the Tribunal addressed the issue of additions made on account of building funds in the income of the cooperative societies. By considering the Supreme Court precedent in Vijaya Bank vs. CIT, where disallowance was related to doubtful debts, the Tribunal highlighted that in the present cases, the additions were due to building funds debited in the income generated from providing credit facilities. Consequently, the Tribunal allowed the appeals of the assessee, emphasizing that such additions were eligible for deduction under Section 80P.

In conclusion, the Tribunal dismissed the Revenue's appeals and allowed the Cross-Objections filed by the assessee, thereby upholding the eligibility of cooperative societies providing credit facilities for deductions under Section 80P and addressing the treatment of building fund additions in their income.