THE COIMBATORE CO-OPERATIVE HOUSING SOCIETY LTD.,COIMBATORE vs. DCIT, COIMBATORE

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 2, Coimbatore, dated 28.09.2016 relevant to the assessment year 2012-13. The only effective ground raised in the appeal of the assessee is that the ld. CIT(A) has erred in granting deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 [“Act” in short].

Brief facts of the case are that the assessee is a cooperative society registered under the Tamilnadu Co-operative Societies Act as a housing society. In the return filed for the assessment year 2012-13, the assessee has claimed deduction of its profits under section 80P(2)(a)(i) of the Act and declared Nil income. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, the case was taken up for scrutiny and notice under section 143(2) of the Act dated 03.09.2014 was issued and served on the assessee on 10.09.2014. On perusal of the details filed by the assessee, the Assessing Officer has noticed that the assessee was carrying out the activity of providing and facilitating the housing to its members at an affordable cost and for that purpose, the society was collecting fund from its members for the allotted housing as per section 45(2) of Tamilnadu Co- operative Societies Act. Having noted this activity, the Assessing Officer was of the opinion that the assessee is not eligible for deduction under section 80P(2)(a)(i) of the Act as this deduction was actually meant for cooperative societies engaged in providing credit facilities to its members. The Assessing Officer has further observed that though the profit of the assessee arose from interest earnings from its members, this activity of providing credit facilities to its members is an allied activity, whereas, its main object was providing housing to the members. Since in the audit report also, the assessee has been described as a housing society, by following various decisions, the Assessing Officer has concluded that the assessee is not a credit society and therefore not eligible for deduction under section 80P(2)(a)(i) of the Act.

The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee and by following the decision of the Tribunal in the case of ITO v. Modern Engineering Construction Co- operative Society [2011] 16 taxmann.com 158 (Chennai), the ld. CIT(A) has held that the assessee is not eligible for claiming deduction under section 80P(2)(a)(i) of the Act, though the ld. CIT(A) has observed that as per clause (6), one of the objects of the society was to advance loans to the members for construction of new dwelling houses or for additions and repairs, maintenance to their existing houses and discharge of prior debts.

On being aggrieved, the assessee is in appeal before the Tribunal and the ld. Counsel for the assessee has vehemently contended that even though the ld. CIT(A) has observed that as per clause (6), one of the objects of the society was to advance loans to the members for construction of new dwelling houses or for additions and repairs, maintenance to their existing houses and discharge of prior debts, he was not legally correct to deny the deduction claimed by the assessee under section 80P(2)(a)(i) of the Act and pleaded that the assessee should allowed to claim deduction under section 80P(2)(a)(i) of the Act since one of the main objects of the assessee was to offer credit facilities to its members for construction of dwelling houses, its repair, etc.

On the other hand, the ld. DR strongly supported the orders of authorities below.

We have heard both sides, perused the materials available on record and gone through the orders of authorities below. Admittedly, the assessee’s society is a cooperative society registered under the Tamilnadu Co-operative Societies Act as a housing society and not a credit society. Therefore, the Assessing Officer has denied claiming deduction under section 80P(2)(a)(i) of the Act. As per bye-laws of the society, the ld. CIT(A) has reproduced the objects of the society in the appellate order, in which, as per clause (6), one of the objects of the society was to advance loans to the members for construction of new dwelling houses or for additions and repairs, maintenance to their existing houses and discharge of prior debts. It is immaterial to see that title of the assessee society rather than the business activities of the society. In the case of CIT v. Madras Autorickshaw Drivers’ Co-operative Society Ltd. in T.C.A. No. 1234 & 1246 of 1977 (Mad), which was affirmed by the Hon’ble Supreme Court, there was no object of the society to offer credit facilities and the only object of the society was “to promote the economic interests of the members of the society by purchasing autorickshaw vehicles and selling them on hire purchase terms to the members and similarly, in the case of ITO v. Modern Engineers Construction Co-op. Society 16 taxmann.com 158 the assessee was only a labour contract society, employing graduates and taking up engineering works from the PWD. Therefore, in both the cases, the claim of deduction under section 80P(2)(a)(i) of the Act was denied. However, in the present case, one of the main objects of the assessee, as per clause (6) of the bye-law, was offering credit facility for construction of new dwelling houses as well as additions, repairs and maintenance to their existing houses. Therefore, the above case law have no application to the facts of the present case. Further, As per the above clause (6) in the objects of the society and by referring to the profit and loss account for the year ended 31.03.2012 of the society, the ld. Counsel for the assessee has submitted that the society is offering credit facility for construction of new dwelling houses as well as additions, repairs and maintenance to their existing houses, thereby the society earns interest income over the credits. We have also perused the profit and loss accounts statement. However, the assessee has not filed any detailed break-up of the interest receipt. In view of the above, we direct the Assessing Officer to verify the accounts of the assessee as to whether the assessee has actually offered credit facility to its members for the purpose of construction of houses, etc. and received interest thereon and thereafter, decide the issue afresh in accordance with law by giving sufficient opportunities of being heard to the assessee. The assessee is also directed to furnish complete details before the Assessing Officer for verification. Thus, the ground raised by the assessee is allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on the 23rd June, 2017 at Chennai.