2017 (5) TMI 404 - AT - Income Tax

Deduction under section 80P(2)(a)(i) - AO held the society to be a housing society and hence he has denied the deduction under section 80P(2)(a)(i) - Held that - In this case it is evident that apart from providing credit facilities to its members the co-operative society is also engaged in activities of a housing co-operative society. Hence to the extent the profit of the assessee is attributable to the activity of providing credit facilities to its members the same be qualify for deduction under section 80P(2)(a)(i). The assessee s plea that in the past it has been provided deduction on the total income under section 80P(2)(a)(i) on the same set of facts cannot come to the rescue of the assessee. It is settled law from the honourable Supreme Court that a mistake cannot be perpetuated. As per the facts of the case and the mandate of law it is clear that the assessee is engaged in activities of providing credit facility as well as providing housing facility. Hence the assessee s activities which relate to the provisions of section 80P(2)(a) will get hundred per cent. deduction. In this regard it is noted that the assessee s books of account have not been maintained separately so as to depict profits attributable to both the segments. In this regard both the counsel agreed that the issue can be remitted to the file of the Assessing Officer and the assessee will co-operate in arriving at the profit attributable to both the segments. Accordingly in the interest of justice the issue of arriving at profits attributable to both the segments is remitted to the Assessing Officer. The Assessing Officer shall arrive at the figure of profits after giving the assessee an opportunity of being heard. See Chhattisgad Urban Credit Sahakari Sanstha Maryadit v. ITO 2015 (5) TMI 1088 - ITAT NAGPUR Another issue on which the assessee has filed appeal is with regard to the learned Commissioner of Income-tax Appeals s direction that the assessee would not be eligible for deduction on interest income as it is not co-operative bank.

Summary

Issues Involved:

1. Deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.
2. Classification of the assessee as a co-operative housing society under section 80P(2)(c)(ii).
3. Eligibility of other incomes for deduction under section 80P(2)(a)(i).
4. Interest earned from co-operative banks and its eligibility for deduction under section 80P(2)(a)(i) or 80P(2)(d).

Detailed Analysis:

1. Deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961:

The primary issue was whether the assessee, a co-operative society, was eligible for a deduction under section 80P(2)(a)(i). The Assessing Officer (AO) disallowed the deduction, arguing that the society was a co-operative housing society and thus only eligible for a deduction of ?50,000 under section 80P(2)(c)(ii). The assessee contended that it provided credit facilities to its members, which should qualify for the deduction under section 80P(2)(a)(i). The Tribunal noted that the society was engaged in both providing credit facilities and housing activities. The Tribunal remitted the issue to the AO to determine the profits attributable to each segment and allowed the deduction under section 80P(2)(a)(i) proportionately.

2. Classification of the Assessee as a Co-operative Housing Society under section 80P(2)(c)(ii):

The AO classified the assessee as a co-operative housing society, limiting its deduction to ?50,000 under section 80P(2)(c)(ii). The assessee argued that its primary activity was providing credit facilities to its members, and the housing activities were ancillary. The Tribunal found that the society was engaged in both activities and directed the AO to allocate the profits accordingly, allowing the appropriate deduction under section 80P(2)(a)(i) for the credit facility activities.

3. Eligibility of Other Incomes for Deduction under section 80P(2)(a)(i):

The assessee claimed that all its incomes, including interest on investments, locker rent, surplus from housing schemes, and other receipts, were eligible for deduction under section 80P(2)(a)(i). The Commissioner of Income-tax (Appeals) [CIT(A)] held that only specific interest incomes directly related to credit facilities were eligible for deduction, while other incomes were not. The Tribunal upheld the CIT(A)'s decision, stating that only incomes directly attributable to the business of providing credit facilities to members were eligible for the deduction.

4. Interest Earned from Co-operative Banks and its Eligibility for Deduction under section 80P(2)(a)(i) or 80P(2)(d):

The CIT(A) denied the deduction for interest earned from investments in co-operative banks, stating that co-operative banks were not co-operative societies under section 80P. The Tribunal referred to the precedent set in the case of Chhattisgad Urban Credit Sahakari Sanstha Maryadit v. ITO, where it was held that interest earned from short-term deposits maintained for liquidity purposes was eligible for deduction under section 80P(2)(a)(i). The Tribunal applied this precedent, allowing the deduction for interest earned from co-operative banks under section 80P(2)(a)(i).

Conclusion:

The Tribunal allowed the appeals for statistical purposes, directing the AO to determine the profits attributable to the credit facility activities and allow the deduction under section 80P(2)(a)(i) accordingly. The Tribunal also allowed the deduction for interest earned from co-operative banks under section 80P(2)(a)(i), following the established precedent.