The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench allowed the Deduction under Section 80P of the Income Tax Act, 1961 to Co-operative Societies despite Loans to Non-Agriculture Members.
The claim of deduction under section 80P(2)(d) the AO disallowed the claim on the ground that the assessee, the Advocates Mutually Aided Cooperative Society Ltd. is not engaged in the business of banking, is not providing credit facility to its members and also on the ground that interest was earned on surplus funds. Since the assessee earned incomes on the investments made from the cooperative sector, the AO had calculated the proportionate incomes earned from cooperative banks.
Aggrieved by the order of AO, the assessee preferred appeal before the CIT(A). The CIT(A) disallowed the assessee’s claim of deduction under section 80P(2)(a)(i) and allowed the deduction claimed under section 80P(2)(d) of the Act.
The coram of Judicial Member, S.S.Godara and Accountant Member, L.P. Sahu relied on the Apex Court’s decision in the case of Mavilayi Service Cooperative Bank Ltd. Vs. CIT wherein it was held that section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Clearly, therefore, once section 80P(4) is out of harm’s way, the assessee is entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.
The ITAT held that allowed the appeal of the assessee and dismissed the appeal of the revenue.
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