Section 80P(1), (2)(a)(i) – Co-operative society – Co-operative bank – Deduction u/s. 80P(1), (2)(a)(i) – Income from sale of goods for public distribution system of State Government – Ancillary activity of credit society – Entitled to deduction

54. Kodumudi Growers Co-operative Bank Ltd. vs. ITO; 410 ITR 218 (Mad) Date of order: 31^st October, 2018 A. Y. 2005-06: Ss. 80P(1), (2)(a)(i) of ITA 1961:

Section 80P(1), (2)(a)(i) – Co-operative society – Co-operative bank – Deduction u/s. 80P(1), (2)(a)(i) – Income from sale of goods for public distribution system of State Government – Ancillary activity of credit society – Entitled to deduction

The assessee-society was in the business of banking and provided credit facilities to its members. For the A. Y. 2005-06 it filed Nil return. The Assessing Officer computed the assessee’s income at Rs. 22,16,211/- of which a sum of Rs. 2,55,118/- represented income on account of sale of goods for the public distribution system of the Government of Tamil Nadu. The Assessing Officer was of the view that such activity was not related to the assessee’s banking activity and held that the income that arise therefrom was not allowable as deduction u/s. 80P(2)(a) of the Income-tax Act, 1961 (hereinafter for the sake of brevity referred to as the “Act”) but included such income for consideration in the overall deduction allowable u/s. 80P(2)(c)(ii) which amounted to Rs. 50,000/-.

The Commissioner (Appeals) and the Tribunal upheld the decision of the Assessing Officer.

The Madras High Court allowed the appeal filed by the assessee and held as under:

“i)   The activity undertaken by the assesse was not one which it was not authorized to do. The assessee was entitled to distribute the items under the public distribution system. The bye-laws themselves provided for such an activity as an ancillary activity by the assesse. Furthermore, the assesse was bound by the directives issued by the Government as well as the Registrar of Co-operative Societies. The fair price shops were opened based on the directions opened by the Government as communicated by the Registrar of Co-operative Societies and the District Collector. Therefore, the activity done by the assesse could not be truncated from the activity as a credit society and the authorities below had committed an error in denying the special deduction.

ii)    The assessee was entitled to the benefit of deduction u/s. 80P(1) r.w.s. 80P(2)(a)(i).

iii)   The tax appeal is allowed. The orders passed by the authorities below are set aside and the substantial question of law is answered in favour of the assessee. The Assessing Officer is directed to extend the benefit of deduction u/s. 80P(1) r.w.s. 80P(2)(a)(i) to the appellant/assessee.”