Taxabililty of  Interest on securities or income from house property in case of a co-operative society [Deduction under Section 80P(2)(f)]

As per Section 80P(2)(f), when the property is not under any housing society, then the income derived from that property – or any other income in the form of interest from any securities – is eligible for tax deduction.

100% of the income from interest on securities or any income from house property chargeable under section 22 shall be allowed as deduction in case of a co-operative society not being—

(a) a housing society, or

(b) an urban consumers’ society, or

(c) a society carrying on transport business, or

(d) a society engaged in the performance of any manufacturing operation with the aid of power.

provided its gross total income does not exceed Rs. 20,000/-.

Text of Section 80P(2)(f)

(f) in the case of a co-operative society, not being a housing society or an urban consumers’ society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22.

Explanation. – For the purposes of this section, an “urban consumers’ co-operative society” means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.

Assessee-society’s claim of deduction under section 80P(2)(c) for Rs. 50,000 was disallowed by revenue relying upon provisions of section 80P(2)(f) – clause (f) of section 80P(2) is applicable only with reference to income by way of interest on securities or income from house property chargeable under section 22 – Since assessee had not claimed any deduction in respect of aforesaid income, provisions of clause

(f) would not become applicable – Therefore assessee would be entitled to deduction of Rs. 50,000 under section 80P(2)(c)
The assessee-society’s claim of deduction under section 80P(2)( c) for Rs. 50,000 was disallowed by the revenue relying upon the provisions of section 80P(2)(f).

Interest on securities or house property income of co-op society - Section 80P(2)(f) deduction

A bare reading of the provisions of section 80P(2)(c) would show that in the case of a co-operative society deduction of Rs. 50,000 would be allowable if the activity carried on by it does not fall under clause (a) or clause (b) of sub-section (2) of section 80P. Admittedly, the case of the assessee did not fall within the provisions of clause (a) or clause (b) of sub-section (2) of section 80P. Therefore, the provisions of clause (c) would become applicable to the instant case and, consequently, the assessee was entitled to deduction of Rs. 50,000. Clause (f) relied upon by the revenue was applicable only with reference to income by way of interest on securities or income from house property chargeable under section 22. Since the assessee had not claimed any deduction in respect of such income, the provisions of clause (f) would not become applicable. Consequently, the Assessing Officer was to be directed to allow deduction of Rs. 50,000 under section 80P(2)(c). (Related Assessment years : 2000-01 and 2001-02) – [Maker Tower A&B Co-op. Housing Society Ltd. v. ITO (2008) 20 SOT 253 (ITAT Mumbai)]

Assessee, a co-operative housing society, declared income from house property and claimed deduction in terms of section 80P(2)(c)(ii) – Assessing Officer, while processing return of assessee under section 143(1)(a), disallowed claim of assessee holding that assessee having not shown any profits and gains from business, deduction reduced from income from house property was not permissible under section 80P(2)(f) – Commissioner (Appeals) affirmed said order – Expression ‘profits and gains attributable to such activities’ as appearing in section 80P(2)(c) may include even letting of shop, though income from such letting is assessed only under head ‘house property’ and not under head ‘business’ – Further, reliance placed by Assessing Officer on provisions of section 80P(2)(f) was not of any assistance to revenue, because assessee had not claimed relief under section 80P(2)(f), but had claimed relief only under section80P(2)(c) and question of invoking provisions of section 80P(2)(f) did not arise – Therefore, adjustment made by Assessing Officer, denying assessee’s claim for deduction under section 80P(2)(c), while processing returns under section 143(1)(a), were beyond scope of permissible adjustment, and additions made were to be deleted

The assessee, a co-operative housing society declared income from house property as well as from other sources for the assessment years 1995-96 and 1996-97. There was no income under the head ‘Profits and gains of business or profession’ in either of the two years. The assessee claimed deduction of Rs. 20,000 for each of the two years in terms of section80P(2)(c)(ii). The Assessing Officer, while processing the return of the assessee under section 143(1)(a), inter alia, disallowed the claim of the assessee holding that the assessee having not shown any profits and gains from business, the deduction reduced from income from house property was not permissible under section 80P(2)(f). On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. On second appeal :

What is referred to in section 80P(2)(c) is ‘profits and gains attributable to such activities’ of a co-operative society and not profits and gains of a business. The activities may include even letting of shops, even though the income from such letting is assessed only under the head ‘Income from house property’ and not under the head ‘Profits and gains of business or profession’. Further, there is reference to ‘profits and gains of business attributable to any one or more of such activities’ in section80P(2)(a), and there is reference to ‘profits and gains of such business’ in section 80P(2)(b), whereas the word ‘business’ is conspicuous by its absence in section 80P(2)(c). What is referred to in section80P(2)(c) is, only ‘profits and gains attributable to such activities’ which cannot possibly be equated to the expression ‘profits and gains of such business’, used in section 80P(2)(b) or similar expression used in section 80P(2)(a).

Normally, profits and gains refer to the net income from business or profession. The words ‘profits and gains’ normally relate only to net proceeds of the business. But, that does not seem to be the invariable conclusion in all contexts.

In certain contexts, ‘profits and gains’ may not be restricted to the net proceeds of the business operations, but may extend to net proceeds of other activities. However, the issue is debatable.

Further, the reliance placed by the Assessing Officer on the provisions of section 80P(2)(f) was not of any assistance to the revenue, because the assessee had not claimed relief under section 80P(2)(f), but had claimed the relief only under section 80P(2)(c). So, the question of invoking the provisions of section80P(2)(f) did not arise. If the assessee was eligible for relief under section 80P(2)(c) and that would nullify the provisions of section 80P(2)(f) as apprehended by the Assessing Officer, that would render the issue in question only debatable and take the adjustment in question beyond the purview of section 143(1)(a).

Hence, the adjustment made by the Assessing Officer, denying the claims for deduction under section80P(2)(c), while processing the returns under section 143(1)(a), were beyond the scope of permissible adjustment, and as such, the Commissioner (Appeals) was not justified in confirming the action of the Assessing Officer. In the circumstances, the order of the Commissioner (Appeals) was set aside on the said aspect and the additions made were deleted. (Related Assessment years : 1995-96 and 1996-97) – [Film Nagar Co-operative Housing Society Ltd. v. ITO (2004) 91 ITD 27 (ITAT Hyderabad)]

Interest received by Assessee, A State Co-Operative Bank, on Government Securities which were held by it as part of its Stock-in-Trade could not be deducted from its total income under section 80P(2)(f)

For the relevant assessment years, the assessee, a State Co-operative Bank claimed deductions in respect of interest on Government securities which were held by it as part of its stock-in-trade under section 80P(2)(f). The Tribunal rejected the claim of the assessee. On reference:

The learned counsel for the department has brought to our notice that Addl. CIT v. Rajasthan Co-operative Bank Ltd. (1984) 19 Taxman 189 (Raj.), Jaipur, between the same parties for the assessment years 1962-63 to 1965-66 has already been disposed of by this Court on 13.03.1984. The decision in the aforesaid case fully governs the question of law raised in the case before us except that the assessment years are different. The Division Bench of this Court in Rajasthan Cooperative Bank Ltd.’s case (supra) has decided the following question which was raised before them:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of section 81(v) of the Income-tax Act, 1961, were not applicable to the interest received by the assessee on Government securities which were held by it as part of its stock-in-trade?”

In the above case, it was held that on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of section 81(v) of the Income-tax Act, 1961 (‘the Act’) were not applicable to the interest received by the assessee on Government securities which were held by it as part of its stock-in-trade. The question referred was answered in the affirmative. The learned counsel for the department tried to distinguish the above case, but we do not feel inclined to take a different view. In the result, the question referred to us in these cases are also answered in the affirmative.

In view of- the decision in Addl. CIT v. Rajasthan Co-operative Bank Ltd. (1984) 19 Taxman 189 (Raj.) between the same parties for certain earlier assessment years, the provisions of section 80P(2)(f) were not applicable to the interest received on the Government securities held by it as part of its stock-in-trade for the relevant assessment years. Therefore, the Tribunal was justified. – [CIT v. Rajasthan State Co-Operative Bank Ltd. (1985) 22 Taxman 69 (Raj.)]

Assessee, a co-operative society, carrying on banking business and trading operations and other activities, derived interest on securities and income from its properties and claimed exemption under section 14(3)(iv) of 1922 Act and section 81(v) of 1961 Act for relevant assessment years – Since assessee was an Urban Consumers’ Co-operative Society within meaning of both 1922 Act and 1961 Act, it was not entitled to exemption in respect of its income from interest on securities and from property

Section 14(3)(iv) of Indian Income-tax Act, 1922, read with section 81(v) (now section 80P(2)(f)) of Income-tax Act, 1961 – During the previous years relevant to the assessment years 1961-62 and 1962-63, the assessee, a co-operative society carrying on the business in banking and trading operations and other activities, derived interest on securities and income from its properties in respect of which it claimed exemption under section 14(3)(iv) of 1922 Act for the assessment year 1961-62 and under section 81(v) of 1961 Act for the assessment year 1962-63. The finding of the ITO who refused the exemption sought by the assessee was that the total income of the assessee did exceed twenty thousand rupees. But that finding was reversed by the AAC, who recorded a finding that such total income did not exceed twenty thousand rupees, and that finding was also affirmed by the Tribunal. But the ITO refused the exemption on the additional ground that the assessee was an urban consumers’ society within the meaning of that expression occurring in both the Acts and that view taken by him was shared by the AAC and the Tribunal. On reference :

It would not be right to understand the expression ‘urban consumers’ society’ occuring in the 1961 Act, and the 1922 Act in the way in which the consumers’ society has been defined by either the Delhi Co-operative Societies Act or by the Maharashtra Co-operative Societies Act. Those definitions are definitions for the purposes of those Acts only and should not be read into the 1922 Act or the 1961 Act, since those Acts themselves contain what may properly be regarded as an exhaustive definition of the expression ‘urban consumers’ co-operative society’ in one case and ‘urban consumers’ society’ in the other. The Explanation to section 14(3)(iv) of the 1922 Act and to section 81(v) of the 1961 Act, is complete definition of an urban consumers’ co-operative society, and if that definition did not insist on the distribution of profits in that way among its members and other customers’, it was scarcely possible for the assessee to sustain its plea that the mere fact that it was a society for the benefit of the consumers within the limits of the Mysore municipality did not make it an urban consumers’ co-operative society. There were no reasons to think that the view taken by the Tribunal that the assessee was an urban consumers co-operative society was for any reason unsustainable.

If a society carried on the activity of an urban consumers’ co-operative society, it is for that reason alone an urban consumers’ co-operative society, and the mere fact that it carries on some other kind of business does not make available to it an argument that it is not an urban consumers’ co-operative society. The refusal of the exemption under the one law or under the other is not restricted only to those societies which carry on exclusively the operations to which they refer.

Therefore, the Tribunal was right in holding that the assessee was an urban consumers co-operative society and, therefore, not entitled to the exemption claimed in respect of its income from interest on security and from property. [In favour of revenue] (Related Assessment years : 1961-62 & 1962-63) – [Mysore Co-Operative Society Ltd. v. CIT (1970) 75 ITR 445 (Mysore)]

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Member Since: 12 Apr 2020 | Total Posts: 32
Born on 27 June, 1958 in Narnaul, Haryana joined Income-tax Department in the year 1983 and retired as Income Tax Officer on 30.06.2018. Have so far author of 31 books on Income Tax and also writer of his own blog https://ramduttsharma.blogspot.com/. Privileged to be recipient of first-ever Finance View Full Profile

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