TaxTMI 
TaxTMI 
2026 (9) TMI 126
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....als)-2, Surat (the learned CIT(A)). By that order, the CIT(A) dismissed the assessee's appeal against the assessment order passed under section 143(3) of the Income-tax Act, 1961 by the Income Tax Officer, Ward-2 (the learned AO), which denied the assessee deduction under section 80P and determined its total income at Rs.1,564,260. 2. The assessee's sole grievance is that the learned AO and the learned CIT(A) did not allow the deduction claimed under section 80P(2)(a)(i) of the Income-tax Act. The assessee is aggrieved by the finding of the lower authorities that associate members exceeding the prescribed limit could not be treated as regular members, notwithstanding the powers conferred on the assessee under its bye-laws. 3. Despite ....
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....e AO disallowed the deduction of Rs.1,564,262. On appeal, the learned CIT(A) also denied the assessee's claim for deduction under section 80P(2)(a)(i) of the Act. The assessee is, therefore, in appeal before us. 5. The facts placed before us show that the assessee is a Souharda Sahakari registered under section 6 of the Karnataka Souharda Sahakari Act, 1997, and is engaged in providing credit facilities to its members. It deals only with its members and not with non-members; therefore, the principle of mutuality is not lost. The profits and gains from the business of providing credit facilities to its members are eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act. 6. We find that the first issue-whether an assesse....
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....s. The society is not engaged in any separate business merely because it earns such interest. Therefore, the interest income forms part of the profits and gains attributable to the eligible activity and is deductible under section 80P. The Court further observed that the surplus invested in banks was not an amount payable to members, nor was it shown as a liability. It represented profits and gains not immediately required for lending, and the interest earned on such deposits was therefore attributable to the business of banking or providing credit facilities to members. The relevant observations of the Hon'ble Court are as under: "8. Therefore, the word "attributable to" is certainly wider in import than the expression "derived fr....
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....lities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the a....