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.”