2025 (6) TMI 1455 - AT - Income Tax

Cooperative society gets section 80P deduction on commission income from government bill collection and interest on mandatory deposits

Kalyani Mahila Nagar Sahakari Patsanstha Maryadit Versus Income Tax Officer, Ward-1 (2), Nashik

The Tribunal allowed the cooperative society's claim for deduction under section 80P for both commission income of Rs. 6,11,030 earned from MSEDCL and ... Denial of benefit of deduction u/s.80P - commission income earned from MSEDCL as well as interest income on deposit with MSEDCL and other Government Securities - HELD THAT:- Revenue authorities failed to dispute this fact that the deposits with MSEDCL have been made by the assessee for carrying out the activity of earning commission and similarly the deposits made with the Government Securities are on account of the mandatory deposits for maintaining liquidity ratio to be maintained by the Credit Cooperative Societies in order to carry out its activity. As decided in the case of CIT Vs. Ahmednagar Dist. Coop. Bank Ltd [2003 (7) TMI 50 - BOMBAY HIGH COURT] has laid down that the activity of collecting bills, dues and charges for and on behalf of the Government, local authority, MTNL, BEST, MSEB etc., is akin to banking activity and is eligible for deduction u/s.80P(2)(a)(i) Thus, Assessee is eligible for deduction u/s.80P for the commission income earned from MSEDCL. Similarly, the interest income earned from deposits with MSEDCL as well as mandatory deposits in Government Securities by the assessee society for carrying out the activity are akin to the main objects of the assessee society and therefore since the commission income is eligible for deduction u/s.80P(2)(a)(i) of the Act being incidental in nature and not having earned interest from deposit made from surplus funds with any Scheduled Banks, the same deserves to be allowable as deduction u/s.80P(2)(a)(i) of the Act. Accordingly, the finding of CIT(A) is set aside and the grounds raised by the assessee are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether commission income earned by a cooperative credit society for collection of bills/dues on behalf of a State Electricity Distribution Company qualifies for deduction under section 80P(2)(a)(i) of the Income Tax Act as activity akin to banking. 2. Whether interest income on deposits made with the State Electricity Distribution Company and on mandatory government securities deposits maintained to satisfy liquidity requirements of a credit cooperative society is incidental to, and hence deductible under, section 80P(2)(a)(i). 3. Whether the Revenue's objection based on absence of documentary proof of the society's objects and specifically an object to earn commission from the Electricity Distribution Company bars allowance of deduction under section 80P. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Eligibility of commission income for deduction under section 80P(2)(a)(i) Legal framework: Section 80P(2)(a)(i) provides deduction for income of cooperative societies from certain activities akin to banking, including collection of bills/dues/charges for government/local authorities and specified bodies. Precedent Treatment: The Jurisdictional High Court has held that activities of collecting bills/dues/charges for government/local authorities and similar bodies are akin to banking activities and eligible for section 80P(2)(a)(i) relief; this Tribunal has followed that ratio in subsequent decisions. Interpretation and reasoning: The Tribunal examined the nature of the appellant's commission income - earned for collection of amounts on behalf of the State Electricity Distribution Company - and found it to fall squarely within the activity characterized by the High Court as akin to banking. The Court treated the commission activity as part of the cooperative society's core function of providing banking-like services to members and public bodies, aligning it with the language and purpose of section 80P(2)(a)(i). Ratio vs. Obiter: The conclusion that collection-of-bills commission by a cooperative society is eligible for section 80P(2)(a)(i) deduction is treated as ratio, directly applying controlling precedent; discussion that this category is 'akin to banking' is central to the decision. Conclusion: Commission income of Rs. 6,11,030 earned for collection of bills/dues of the State Electricity Distribution Company qualifies for deduction under section 80P(2)(a)(i). Issue 2 - Deductibility of interest income on deposits with the Electricity Distribution Company and on mandatory government securities deposits Legal framework: Section 80P(2)(a)(i) permits deduction for income incidental to the eligible banking-like activities of cooperative societies; incidental receipts may include interest when they arise in the course of those activities. Precedent Treatment: The Tribunal relied on the same line of authorities that recognize ancillary receipts, which are integral to the cooperative society's banking-like operations, as falling within section 80P where they are not the product of unrelated surplus investments. Interpretation and reasoning: The Tribunal found that deposits with the Electricity Distribution Company were made in connection with the commission-earning activity, and that mandatory government securities deposits were held to satisfy statutory liquidity requirements necessary to carry out the society's core activities. Since interest on these deposits arose in the course of, and were incidental to, the commission-earning/banking-like operations - and not interest from surplus funds placed with scheduled banks - such interest income is incidental to the main objects and within the ambit of section 80P(2)(a)(i). Ratio vs. Obiter: The finding that interest on deposits directly related to the commission-earning function and mandatory liquidity deposits is deductible under section 80P(2)(a)(i) is treated as ratio for the facts before the Tribunal; the distinction drawn with interest from surplus funds constitutes a legal test applied to the facts. Conclusion: Interest income arising from deposits with the Electricity Distribution Company and from mandatory government securities held to maintain liquidity - being incidental to the eligible commission-earning/banking-like activity - is allowable as deduction under section 80P(2)(a)(i). Issue 3 - Sufficiency of proof regarding society's objects and entitlement to deduction Legal framework: Claimant must demonstrate that the income claimed for deduction falls within the statutory categories and is connected to the society's objects or essential activities; revenue may question existence of objects or documentary proof. Precedent Treatment: Prior decisions and the controlling High Court ratio accept that where the activity is demonstrably part of the society's banking-like functions (collection of dues for public bodies) and the receipts are incidental thereto, deduction under section 80P follows. Interpretation and reasoning: The Tribunal noted that Revenue did not dispute the factual matrix that deposits with the Electricity Distribution Company were made to carry out the commission-earning activity and that government securities were held to meet mandatory liquidity norms. Given these uncontested facts and the established precedent equating the collection activity to banking-like operations, the Tribunal found documentary particulars of the objects unnecessary to defeat the claim where the activity itself and the causal nexus to the receipts were established. Ratio vs. Obiter: The holding that absence of separate documentary proof of an express object to earn commission does not preclude section 80P relief when the activity and nexus are otherwise established is ratio for the circumstance; commentary on evidentiary burden forms supporting reasoning. Conclusion: In the factual matrix where deposits and commission-earning activity are undisputedly connected to the society's functions and mandatory requirements, lack of separate documentary proof of an explicit object to earn commission does not preclude allowance of deduction under section 80P. DISPOSITION - Applying the legal framework and controlling precedent, and finding the commission income and related interest to be part of banking-like activities or incidental thereto, the Tribunal allowed the appeal and directed allowance of deduction under section 80P(2)(a)(i) for the commission and the specified interest receipts.