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2015 (3) TMI 145 - AT - Income TaxDeduction u/s 80P(a)(i) disallowed to the assessee - as per AO assessee was mobilizing funds for deposits and doing normal banking business and therefore deduction under section 80P(a)(i) should not be allowed to the assessee - Held that - A.O. misdirected herself by analysing the issue in a tangential way ignoring the basic facts of the case. As briefly stated in A.Y. 2007-08, in this year 2008-09 also assessee has not claimed any deduction under section 80P(a)(i) either on the incomes arrived from associate or nominal-Members or on the transactions of miscellaneous nature. What assessee has claimed deduction is proportionately on the net receipts eligible for deduction out of the gross receipts, after arriving at the profits of the society. This basic fact was ignored by the A.O. Moreover, as considered in earlier year, assessee being a Cooperative Society registered under APMECSA, 1995 analysis of the Society under A.P. Cooperative Societies Act does not arise at all. Not only that assessee has neither involved in Banking activity nor obtained any license for doing the banking activity. Therefore, the entire discussion of the A.O. on the so-called violation of Banking Regulation Act and guidelines of the RBI is superfluous. Even the principles of mutuality analysed by the A.O. does not pertain to the assessee at all. Even though assessee is registered as Mutually Aided Cooperative Society, assessee never claimed any exemption of income on the principle of mutuality. The deduction claimed is limited to the proportionate income on the credit facilities provided to its Members as a Cooperative Society. Balance of the income was offered to tax and there is no dispute to the fact that assessee declared income of ₹ 84,87,660. In view of these facts, we are unable to understand why the A.O. has to do lot of research in analysing the principles of mutuality and coming to a conclusion that assessee is not a Mutual Society, that too lifting corporate veil when there is no claim at all. - Decided in favaour of assessee. Whether CIT(A) is misplaced with regard to deduction u/s.80P(2)(i)(a) is even otherwise given to the assessee even if it accepts deposits from non members.? - Held that - As far as assessee s activities are concerned, since assessee has claimed deduction under section 80P(2)(a)(i) only on the income of credit facilities provided to its Members, A.O. was correctly directed by the Ld. CIT(A) to allow the deduction. Ld.CIT(A) also analysed other miscellaneous income and directed the A.O. to exclude the same. Therefore, we do not find any reason to interfere with the orders of the Ld. CIT(A) in directing the A.O. to allow deduction under section 80P(2)(a)(i). However, A.O. is directed to examine the quantum of income earned and allow the deduction accordingly. We also find no reason to interfere with the directions of the Ld. CIT(A) in granting deduction under section 80P(2)(d). The Ld. CIT(A) direction is with reference to the incomes earned from the Cooperative Societies/Cooperative Banks as covered by section 80P(2)(d). - Decided against revenue. Principle of mutuality relied on by the A.O. emanate to distinguish that assessee - Held that - Assessee has not claimed any benefit of mutuality. So contention on principle of mutuality itself is misplaced, so raising ground on that is misconceived. Not only that, Ld. CIT(A) direction is to allow deduction under section 80P(2)(d) and this direction was similar to the direction given in A.Y. 2007-08. Surprisingly, Revenue has not preferred any ground on that issue in that year as the assessee is eligible for such deduction. Why they preferred the ground in this assessment year is not understandable at all. This indicates that neither the A.O. nor the Ld. CIT, who authorised the second appeal has not applied their mind to the issue. Moreover, it is surprising that Revenue states in the ground that Having established on the record that the assessee has deposited money in RRBs/Cooperative Banks, status of which is not recognized under the Income Tax Act as cooperative bank, can the interest arising out of the deposit of this RRBs/Co-op Banks would quality for deduction u/s.80P(2)(d). We fail to comprehend this contention. Cooperative banks are basically registered as cooperative societies. These are involved in banking activity by obtaining necessary permissions. Only incomes of such banking societies are not made eligible to claim deduction under 80P, consequent to amendments made to the Act. We are of the opinion that Revenue did not understand the issues and simply raised ground for the sake of objection on the Ld. CIT(A) order. - Decided against revenue. Insurance amounts disallowed by the A.O. under section 37(1) - Held that - Since this expenditure is for the benefit of members as per objects of society, there is direct nexus with the income earned from members. For the reasons stated therein, we direct the A.O. to allow expenses while working out the profit of assessee from the activity of credit facilities to members and then allow deduction under section 80P(2)(a)(i). - Decided in favour of assessee. Disallowance of doctor s salary - Non deduction of TDS - Held that - Since the issue pertains to deduction of TDS on doctor s salary to the tune of ₹ 1,40,910, in the absence of relevant details before us, whether the payment falls under TDS provisions or not has to be examined by the A.O. and therefore, we set aside this issue to the file of A.O. for fresh adjudication, after affording a reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act. 2. Disallowance of expenses on insurance and medi-claim policies. 3. Classification of income from interest as "Income from Other Sources." 4. Application of principles of mutuality and Banking Regulation Act. Issue-wise Detailed Analysis: 1. Eligibility for Deduction under Section 80P(2)(a)(i): The assessee, a cooperative society registered under the A.P. Mutually Aided Cooperative Societies Act (APMACSA), claimed deductions under section 80P(2)(a)(i) for providing credit facilities to its members. The Assessing Officer (A.O.) denied the deduction, arguing that the society violated the A.P. Cooperative Societies Act by admitting nominal members and engaging in banking activities. The Commissioner of Income Tax (Appeals) [CIT(A)] and the Tribunal found that the assessee was not registered under the A.P. Cooperative Societies Act but under APMACSA, and concluded that the society's activities were in line with providing credit facilities to its members. The Tribunal upheld the CIT(A)'s decision, allowing the deduction under section 80P(2)(a)(i). 2. Disallowance of Expenses on Insurance and Medi-claim Policies: The A.O. disallowed expenses related to insurance and medi-claim policies, considering them personal in nature. The CIT(A) upheld this disallowance. However, the Tribunal found that these expenses were incurred for the welfare of the members and were in line with the society's objectives. Therefore, the Tribunal directed the A.O. to allow these expenses as deductions, proportionately increasing the deduction under section 80P(2)(a)(i). 3. Classification of Income from Interest as "Income from Other Sources": The A.O. treated the interest income from deposits with cooperative banks as "Income from Other Sources," disallowing deductions under section 80P(2)(d). The CIT(A) and the Tribunal, relying on the Supreme Court's decision in The Totgars Cooperative Sale Society Ltd. vs. ITO, agreed that while the interest income should be classified as "Income from Other Sources," the deduction under section 80P(2)(d) should still be allowed for interest received from cooperative societies and banks. 4. Application of Principles of Mutuality and Banking Regulation Act: The A.O. argued that the society violated the Banking Regulation Act and did not adhere to the principles of mutuality, thus disqualifying it from deductions under section 80P. The CIT(A) and the Tribunal found that the society was not engaged in banking activities and was not subject to the Banking Regulation Act. The Tribunal also noted that the society did not claim any exemption based on mutuality principles but only claimed deductions under section 80P for transactions with its members. The Tribunal dismissed the Revenue's grounds on these issues, confirming that the society's activities were eligible for deductions under section 80P. Separate Judgments: The Tribunal delivered a comprehensive judgment covering multiple assessment years (2007-08 to 2010-11) and addressed each issue consistently across these years. The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals, directing the A.O. to allow deductions and expenses as per the Tribunal's findings. Conclusion: In summary, the Tribunal upheld the CIT(A)'s decisions, allowing deductions under section 80P(2)(a)(i) and 80P(2)(d) for the cooperative society. The Tribunal also directed the A.O. to allow expenses related to insurance and medi-claim policies, recognizing them as part of the society's objectives. The Tribunal dismissed the Revenue's arguments regarding violations of the Banking Regulation Act and principles of mutuality, confirming the society's eligibility for the claimed deductions.
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