Society is eligible for a basic exemption of Rs. 50000 on income not eligible for deduction under section 80P: ITAT

Case Details: Baroda Citizen Community Co-op. Credit Society Ltd. v. ITO - [2022] 134 taxmann.com 290 (Ahmedabad - Trib.)

Judiciary and Counsel Details

• • Rajpal Yadav, Vice President and Waseem Ahmed, Accountant Member
  • Kamlesh Makwana, Sr. DR for the Respondent.

Facts of the Case

The assessee was a cooperative credit society carrying on banking and providing credit facilities to its members. During the year under consideration, the assessee, apart from interest income earned from credit facilities provided to its member, also earned interest from the fixed deposit made with the State Bank of India (SBI).

The surplus fund was deposited with the Bank to generate the interest income and maintain the liquidity to repay the deposits accepted from the members. As per the Assessing Officer (AO), the interest income was not arising to the assessee from providing credit facility to the members. Thus he held that said interest income was not eligible for deduction under section 80P(2)(a)(i). Accordingly, he added interest income from SBI as income from other sources under section 56.

The assessee preferred an appeal to the CIT(A), who confirmed the order of the AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that the provisions of section 80P(2)(a)(i) provide the deduction to a cooperative society engaged in the business of banking or providing credit facilities to its members. The provisions of the section are without any ambiguity, thus, if there is any income arising to the cooperative society from the non-members, that will not be subject to deduction.

The provisions of section 80P(2)(c) provide that a cooperative society engaged in activities other than those specified in clause (a) clause (b) of section 80P(2), the following deduction shall be allowed from its profits and gains attributable to such activities:-

(i) Rs. 1,00,000 in the case of consumer cooperative society.
(ii) Rs. 50,000 in any other case.

The expression ‘profits and gains’ as contained under section 80P(2)(c) is not confined to ‘Profits and gains of business’. Thus, in the case of a cooperative credit society, income to which benefit of section 80P(2)(a)(i) is not allowed, i.e. rental income, interest income from surplus funds kept in FDs of banks, etc. basic exemption of Rs. 50,000 under section 80P(2)(c)(ii) must be granted.

Case Review

• • State Bank of India (SBI) v. CIT [2016] 72 taxmann.com 64/241 Taxman 163/389 ITR 578 (Guj.) (para 8) followed.

List  of Cases Referred to

• • State Bank of India (SBI) v. CIT [2016] 72 taxmann.com 64/241 Taxman 163/389 ITR 578 (Guj.) (para 8)
  • Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161/279 Taxman 75/431 ITR 1 (SC) (para 8.2)
  • CIT v. Ratanabad Co-operative Housing Society Ltd. [1985] 81 Taxman 257/215 ITR 549 (Bom.) (para 8.9).