2014 (5) TMI 556 - AT - Income Tax

Denial of claim of deduction u/s 80P(2)(a)(i) of the Act Restriction of deduction u/s 80P(2)(c)(ii) of the Act Held that - once the nominal members or non-voting members are themselves included in the definition of members , they satisfy the relevant condition imposed by the legislature u/s 80P(2)(a)(i) - the objections of the Revenue that the members defined in sub-clause(i) of section 80P(2) should only include voting members would amount to a classification within classification which is beyond the purview of tax statute, unless provided specifically by the legislature Relying upon CIT vs Punjab State Co-operative bank Ltd 2008 (3) TMI 45 - HIGH COURT PUNJAB AND HARYANA - under the provision that for the purpose of deduction, it is irrelevant so far as classification of the members in A or B category is concerned Decided partly in favour of Assessee.

Summary

Issues involved:
Appeal against denial of deduction u/s 80P(2)(a)(i) and restriction of deduction u/s 80P(2)(c)(ii) to Rs. 50,000 from Rs. 1 lakh.

Analysis:
- The appeals were filed by different assessees challenging the orders of the Commissioner of Income-tax (Appeals) for the assessment year 2008-09 under section 143(3) of the Income-tax Act, 1961. The case of S.1382 Mullukurichi Primary Agricultural Co-operative Credit Society Ltd. was taken as the lead case due to identical facts and issues involved.
- The primary issue raised by the assessee was the denial of deduction u/s 80P(2)(a)(i) and the restriction of another deduction u/s 80P(2)(c)(ii) by the CIT(A). The assessee argued that as a primary agricultural co-operative credit society established under the Tamil Nadu Societies Act, 1983, it was entitled to the deduction under section 80P(2)(a)(i). The assessee cited relevant case law to support its claim.
- The Revenue contended that the CIT(A) correctly denied the deduction u/s 80P(2)(a)(i) and sought to uphold the decision.
- The assessee, a primary agricultural co-operative credit society providing credit facilities to its members, filed its return claiming deductions under section 80P(2). The Assessing Officer denied the deduction citing section 80P(4) explanation (b) due to the nature of loans provided by the assessee. The taxable income was computed accordingly.
- In the appeal, the lower appellate authority overruled the Assessing Officer's classification of the assessee as a 'bank' under section 80P(4) but upheld the denial of deduction u/s 80P(2)(a)(i) based on the provision's interpretation regarding 'nominal' or 'B' class members.
- The ITAT, after considering the relevant provisions of the State Co-operative Societies Act, 1983, held that 'nominal' members were included in the definition of 'members' as per the Act, satisfying the conditions of section 80P(2)(a)(i). The ITAT emphasized interpreting deduction provisions liberally and rejected the Revenue's argument of classification within classification.
- Relying on the case law of the Punjab & Haryana High Court, the ITAT concluded that the classification of members as 'A' or 'B' category was irrelevant for the purpose of the deduction under section 80P(2)(a)(i) and allowed the assessee's appeal partly.

The ITAT's decision in the lead case was partly allowed, with the same order to follow in another related case. Both appeals were partly allowed, emphasizing the statutory recognition of 'nominal' members and the liberal interpretation of deduction provisions.