Deduction for cooperative society interest income treated as business income, primary cooperative deduction granted and alternative relief recognised

Assessees interest receipts from banks and cooperative societies were held eligible for deduction under the law governing cooperatives; where interest might not qualify under the primary cooperative deduction, the assessing officer had alternatively allowed deduction under the alternative cooperative provision, and the appellate authoritys classification of that interest as income from other sources was rejected. The reasoning emphasises that small bank interest receipts relate to the business of milk supply and can be treated as business income, so the taxpayer is entitled to the cooperative deduction under the primary provision and, where applicable, under the alternative provision as conceded by the assessing officer.

---

---

Issues: (i) Whether the assessee, a co-operative society engaged in supply of milk, is entitled to deduction of interest income under Section 80P(2)(b) of the Income-tax Act, 1961; (ii) Whether the assessee is entitled to deduction of interest income under Section 80P(2)(d) of the Income-tax Act, 1961.

Issue (i): Whether the interest income received by the co-operative society is eligible for deduction under Section 80P(2)(b) of the Income-tax Act, 1961.

Analysis: The Tribunal examined whether interest receipts from various banks are related to the profits and gains of the business of supplying milk. The Assessing Officer had partly disallowed interest on grounds it was not related to supply of milk but also observed that if not allowable under clause (2)(b), the assessee could claim deduction under clause (2)(d). The Tribunal found that most of the interest income in dispute was received from co-operative banks/societies and that there was no finding by the lower authorities that such interest could not be treated as business income attributable to the supply of milk.

Conclusion: The assessee is entitled to deduction of the disputed interest income under Section 80P(2)(b) of the Income-tax Act, 1961; conclusion in favour of the assessee.

Issue (ii): Whether the assessee is entitled to deduction of interest income under Section 80P(2)(d) of the Income-tax Act, 1961 as an alternative.

Analysis: The Assessing Officer had allowed deduction under Section 80P(2)(d) in respect of interest received from certain co-operative societies and indicated that, if Section 80P(2)(b) did not apply, Section 80P(2)(d) would be available. The Tribunal found the facts of the second assessment year similar and accepted that the assessee could claim deduction under Section 80P(2)(d) where applicable.

Conclusion: The assessee is entitled to deduction under Section 80P(2)(d) of the Income-tax Act, 1961 where the facts so warrant; conclusion in favour of the assessee.

Final Conclusion: Both appeals are allowed and the assessee is entitled to the deductions claimed under Section 80P(2)(b) and, where applicable, under Section 80P(2)(d), resulting in allowance of the disputed interest deductions.

Ratio Decidendi: Interest income received by a cooperative society that is shown to be related to the profits and gains of its business of supplying milk qualifies for deduction under Section 80P(2)(b) of the Income-tax Act, 1961, and where not covered by (2)(b) may be allowable under Section 80P(2)(d).

---