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2015 (3) TMI 317 - AT - Income TaxDeduction under section 80P(2)(a)(i) denied - as per AO assessee has admitted nominal Members in violation of A.P. Cooperative Societies Act /Rules, 1964 as amended on 28.01.2002 Held that - As far as the so-called violations of the provisions of A.P. Cooperative Societies Act, 1964 are concerned, this ground does not arise in the case of assessee as it is not registered under the said Act, but under APAMACS 1995. There is a finding by Ld. CIT(A) that assessee was registered under the said Act vide the Registration granted on 19.11.1997 by the Registrar of A.P. Mutually Aided Cooperative Societies. Therefore, analysing assessee s activities and determining the so-called violations by the A.O. is misdirected. The issue of transactions with nominal Members or non-Members is not an issue as the assessee has clearly claimed deduction under section 80P only to the extent of transactions with its Members. Since the transactions are inter-linked, assessee has proportionately claimed deduction under section 80P(a)(i) by taking the transactions with the Members and the gross receipts. Ld. CIT(A) also examined this aspect on factual basis and excluded certain other incomes also. Therefore, on facts, the issue of violation of provisions of A.P. Cooperative Societies Act, 1964 does not arise at all. - Decided in favour of assessee. Activity of the assessee is not banking activity among its Members but finance business of accepting deposits (surety bonds for accused) and investing them in FDs/advancing loans to Members - Held that - In this case, as rightly pointed out by the Ld. CIT(A), assessee is not involved in business of banking and has only involved in providing credit facilities to the Members of the Society. Even though it has other objects, basically as per the assessee s admission before the authorities, the receipts of interest is on the loans provided to the Members per se. Most of the deposits accepted are from Associate Members who are not generally given any loans as their deposits are for surety on the bonds given to the accused and these amounts received from such non-Members are deposited in other Cooperative Societies/ Cooperative Banks or Scheduled Banks. As can be seen from the order of the A.O. itself, he has identified the amounts of interest received from the Cooperative Societies/Cooperative Banks and deduction under section 80P(2)(d) was allowed. Ld. CIT(A) also corrected certain calculation errors in restricting deduction under section 80P(2)(d) - Decided in favour of assessee. Disallowance of mediclaim and insurance claim - Held that - The receipts from the Members are separately considered for allowing proportionate deduction under section 80P(2)(a)(i). In case, this expenditure is not allowed, the income to that extent will go up from the income computed on the transactions with Members. The deduction under section 80P(2)(a)(i) also has to be proportionately increased. This is an academic view, but the fact is that the expenditure is an allowable expenditure, as it is spent for the benefit of the Members, in the course of society activities, as permitted by the bye-laws of the society. In view of this, we are of the opinion that the expenditure cannot be disallowed as personal in nature. Assessing Officer is directed to allow the amounts and compute the incomes accordingly on proportionate basis between the incomes on the transactions with Members and on transactions with Associated/Nominal Members and allow deduction under section 80P(a)(i) accordingly. - 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. However this expenditure is to be allowed as deduction as it was spent for the objects of society as revenue expenditure u/s 37(1), if not disallowable for violation of TDS provisions as contended by AO. - 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. Eligibility for deduction under section 80P(2)(d) of the Income Tax Act. 3. Disallowance of expenses on insurance and medi-claim policies under section 37(1). 4. Classification of income from cooperative banks as "income from other sources." 5. Application of the Banking Regulation Act and principles of mutuality. Detailed Analysis: 1. Eligibility for Deduction under Section 80P(2)(a)(i): The primary issue was whether the assessee, a cooperative society, was eligible for deduction under section 80P(2)(a)(i) for providing credit facilities to its members. The Assessing Officer (A.O.) denied the deduction, arguing that the assessee engaged in banking activities and violated the A.P. Cooperative Societies Act by admitting nominal members. However, the Commissioner of Income Tax (Appeals) [CIT(A)] and the Tribunal concluded that the assessee was registered under the A.P. Mutually Aided Cooperative Societies Act (APMACSA), not the A.P. Cooperative Societies Act. The Tribunal upheld the CIT(A)'s view that the assessee was engaged in providing credit facilities to its members and allowed the deduction proportionately, excluding income from non-members. 2. Eligibility for Deduction under Section 80P(2)(d): The A.O. allowed a deduction under section 80P(2)(d) for interest income from deposits made with other cooperative societies and banks but made calculation errors. The CIT(A) corrected these errors and restricted the deduction to Rs. 31,89,338. The Tribunal confirmed this, stating that the income from cooperative banks qualifies for the deduction under section 80P(2)(d). 3. Disallowance of Expenses on Insurance and Medi-Claim Policies under Section 37(1): The A.O. disallowed Rs. 20,68,583 towards insurance and medi-claim policies, considering them personal expenses. The CIT(A) upheld this disallowance. However, the Tribunal found that these expenses were for the welfare of the members and related to the society's objectives. The Tribunal directed the A.O. to allow these expenses and compute the income accordingly. 4. Classification of Income from Cooperative Banks as "Income from Other Sources": For the assessment year 2008-09, the A.O. treated income from cooperative banks as "income from other sources" based on the Supreme Court's decision in Totgars Cooperative Sale Society Ltd. The CIT(A) agreed but allowed a deduction under section 80P(2)(d). The Tribunal upheld this decision, stating that the interest income from cooperative banks qualifies for the deduction under section 80P(2)(d). 5. Application of the Banking Regulation Act and Principles of Mutuality: The A.O. argued that the assessee violated the Banking Regulation Act and the principles of mutuality, disqualifying it from deductions under section 80P. The CIT(A) and the Tribunal rejected this, stating that the assessee was not engaged in banking activities and was registered under APMACSA, making the Banking Regulation Act inapplicable. The Tribunal also noted that the assessee did not claim any exemption based on mutuality principles. Conclusion: The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals, confirming the eligibility for deductions under sections 80P(2)(a)(i) and 80P(2)(d), and directed the A.O. to allow expenses on insurance and medi-claim policies. The Tribunal also clarified that the principles of mutuality and the Banking Regulation Act were not applicable to the assessee's case.
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