2019 (12) TMI 1180 - AT - Income Tax

Tribunal grants exemption to Co-op Consumers Stores for interest income under mutuality principle

Ordnance Factories Employees Coop Consumers Stores Ltd. Versus ACIT, Cir-2, Kalyan.

Ordnance Factories Employees Coop Consumers Stores Ltd. Versus ACIT, Cir-2, Kalyan. - TMI Issues:1. Denial of exemption based on the principle of mutuality.2. Disallowance of proportionate expenses from interest income under section 80P(2)(d).Issue 1: Denial of exemption based on the principle of mutualityFor the Assessment Year (AY) 2012-13, the appellant, a Co-operative Consumers Stores, claimed exemption under section 44A but later sought exemption based on the principle of mutuality for interest income earned from a Co-operative Bank. The Assessing Officer (AO) did not accept the principle of mutuality and taxed the business income. The Commissioner of Income Tax (Appeals) upheld the AO's decision, allowing only a partial deduction under section 80P(2)(c)(i). However, the appellant argued that its activities were conducted on a no-profit basis for the benefit of its members, who were employees of the Ordnance Factory. The Tribunal examined the Bye-laws of the appellant and found that it operated on the principles of mutuality, providing goods to members at competitive prices without profit motive. The Tribunal held that the essence of mutuality was established, setting aside the CIT(A)'s order and allowing the appeal.Issue 2: Disallowance of proportionate expenses from interest income under section 80P(2)(d)In the AY 2013-14, the appellant declared income as exempt based on mutuality principles and claimed a deduction under section 80P(2)(d) for interest earned from a Co-operative Bank. The AO allowed a net interest deduction after deducting proportionate expenses. The CIT(A) agreed with the AO but reduced the disallowance percentage. The appellant contended that section 80P(2)(d) did not differentiate based on the source of investment and argued for the full deduction of interest income. The Tribunal noted that the appellant operated a Co-operative Consumer Stores solely for its members' benefit, investing funds in fixed deposits as per Co-operative Societies Act rules. It found no justification for the AO's disallowance percentage or the CIT(A)'s reduction, holding that the appellant was entitled to the full deduction under section 80P(2)(d). Consequently, the Tribunal allowed the appeals for both AYs 2012-13 and 2013-14.---