Deduction for co-operative banking income under section 80P(2)(a)(i) upheld where member-credit activity fell within the statutory field.

A co-operative society engaged in providing credit facilities to its members claimed deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. The dispute turned on whether its business income from member-based banking activity fell within the statutory field for deduction and whether the appellate authority was justified in sustaining the disallowance on the basis that eligibility had not been proved. The Tribunal noted that the income was assessed as business income and that the relevant activity was covered by section 80P(2)(a)(i); it also found that the appellate authority relied on considerations not material to the assessment record. On that reasoning, the disallowance was unsustainable and the deduction was allowed.

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Issues: Whether the assessee, a co-operative society engaged in banking with its members, was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, and whether the disallowance sustained by the appellate authority was justified.

Analysis: The assessee's income was reflected as business income and the dispute centered on the availability of deduction for income attributable to the specified activity of providing credit to members. The appellate authority denied the claim on the ground that the assessee had not established fulfillment of the conditions for exemption and that the onus lay on the assessee to prove eligibility. However, the Tribunal found that once the gross total income was from business and profession, the assessee's activity fell within the statutory field of section 80P(2)(a)(i), and the appellate authority had proceeded on considerations that were not material to the assessment record. On that footing, the reasoning sustaining the disallowance was found unsustainable.

Conclusion: The assessee was held entitled to deduction under section 80P(2)(a)(i), and the disallowance was set aside.

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