Court allows income exemption for co-op housing society letting out shops under sec 80P(2)(c) of Income-tax Act

The High Court of BOMBAY ruled in favor of the co-operative housing society, allowing the exemption of income derived from letting out shops to non-members under section 80P(2)(c) of the Income-tax Act, 1961. The Income-tax Appellate Tribunal's decision was upheld, setting aside the Income-tax Officer's initial rejection of the exemption claim. The Court clarified that income from letting out shops falls under clause (c) of sub-section (2) of section 80P, entitling the society to a deduction for profits and gains attributable to this activity. The judgment aligned with a previous ruling from the Gauhati High Court on similar grounds, ultimately granting the exemption within specified limits and not awarding costs.

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Issues Involved:
The judgment involves the interpretation of section 80P(2)(c) of the Income-tax Act, 1961, regarding the exemption of income derived by a co-operative housing society from letting out shops to persons other than its members.

Summary:

The High Court of BOMBAY considered a reference made by the Income-tax Appellate Tribunal regarding the exemption of income under section 80P(2)(c) of the Income-tax Act, 1961. The assessee, a co-operative housing society, derived income from letting out shops to non-members. The Income-tax Officer initially rejected the contention that this income was exempt from tax. However, the Tribunal allowed the claims of the assessee-society based on previous rulings and set aside the orders of the Appellate Assistant Commissioner.

Section 80P of the Act provides for deductions in respect of income of co-operative societies. To qualify for exemption, a co-operative society must engage in specific activities mentioned in sub-section (2) of the section. The Court emphasized that each category of income exemption under section 80P is distinct. In this case, the income from letting out shops did not fall under the activities specified in clauses (a) or (b) of sub-section (2) of section 80P. However, it was considered an activity falling under clause (c) of sub-section (2) of section 80P.

The Court referred to a similar case before the Gauhati High Court, where it was held that income derived from letting out property would be considered profits and gains attributable to the activity of letting out the property. Similarly, in this case, the Court held that the assessee-society was entitled to a deduction from the profits and gains attributable to letting out the shops to non-members.

In conclusion, the Court answered the question in favor of the assessee-society, allowing the exemption under section 80P(2)(c) subject to the specified limit. No costs were awarded in this matter.

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