2025 (6) TMI 484 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest on savings account with ICICI and miscellaneous income - HELD THAT - We have considered the explanation offered by the assessee that the said Savings Bank account was opened to give various facilities to the members who are availing loan such as NEFT / RTGS and online transactions. Even though the account was opened for the benefit of the members of the society we cannot accept the contention that the interest income earned through the said Savings Bank Account could be treated as an income received from the business of the society. We therefore held that the interest income received from ICICI Bank would not be eligible for deduction u/s. 80P(2)(a)(i) of the Act. Miscellaneous income collected from the members while granting loans - There is no contra evidences available with the AO to treat the said miscellaneous income as income from other sources. When the assessee is able to demonstrate that the said miscellaneous income is received while granting credit facilities to its members the said income would be a business income and eligible for deduction u/s. 80P(2)(a)(i). We therefore set aside the finding given by the CIT(A) insofar as this portion of the miscellaneous income is concerned and remitted the matter to the file of the AO for verifying the records and satisfy himself about the genuineness of the claim made by the assessee and if the assessee was able to prove that the miscellaneous income was received from the members for granting the credit facilities allow the said claim u/s. 80P(2)(a)(i) of the Act. Printing charges and courier service charges - We are remitting this issue also to AO for considering the issue afresh and to decide the same in accordance with the earlier directions given above. Miscellaneous income received from the ambulance - As considered the submission of the assessee that the ambulance income received by the assessee is part of the social security activity and considered the fact that the assessee had incurred an expenditure towards the ambulance and therefore the net income has to be taken as income from the ambulance service. The said ground raised by the assessee seems to be a reasonable one since the entire gross income should not be taxed without giving proper deductions to the expenses incurred towards getting the said income. Therefore this issue required a reconsideration by the AO. To compute the correct income this issue is also remitted to the file of the AO with the direction to consider the issue afresh. Appeal filed by the assessee is partly allowed.

Summary

The core legal issues considered by the Tribunal in this appeal pertain to the eligibility of certain incomes for deduction under section 80P(2) of the Income Tax Act, 1961. Specifically, the issues are:

1. Whether interest income earned from a savings bank account maintained with a commercial bank (ICICI Bank) for business operations qualifies for deduction under section 80P(2)(a)(i) as business income of a primary agricultural credit society.

2. Whether miscellaneous income comprising loan processing fees, Gehan charges, court fee stamp charges, printing and courier charges collected from members in connection with credit facilities qualifies as business income eligible for deduction under section 80P(2)(a)(i).

3. Whether income earned from ambulance services, considered as part of the society's social security activities, should be assessed on a net basis after deducting attributable expenses, and whether such net income qualifies for deduction under section 80P(2)(c)(ii).

Issue 1: Deduction of Interest Income from Savings Bank Account with ICICI Bank under Section 80P(2)(a)(i)

The legal framework revolves around section 80P(2)(a)(i), which allows deduction of income earned by primary agricultural credit societies from their business activities. The assessee argued that the savings bank account was maintained with ICICI Bank solely for facilitating business operations such as NEFT/RTGS transactions for members, and thus the interest income of Rs. 1,18,632/- earned therefrom should be treated as business income eligible for deduction.

The Court examined the nature of the account and its purpose, acknowledging that the account was opened for operational convenience to benefit members. However, it held that mere facilitation of business transactions does not transform interest income from a savings bank account into business income of the society. The interest earned on such deposits does not arise from the core business of the society but is incidental income from financial assets.

Consequently, the Tribunal upheld the denial of deduction under section 80P(2)(a)(i) for the interest income from the ICICI Bank savings account, distinguishing it from interest earned on investments with cooperative banks, which was allowed deduction under section 80P(2)(d).

Issue 2: Deduction of Miscellaneous Income Related to Credit Facilities under Section 80P(2)(a)(i)

The miscellaneous income of Rs. 26,65,254/- included amounts collected as loan processing fees, Gehan charges, court fee stamp charges, printing charges, courier charges, and MDS income, all connected with the provision of credit facilities to members.

The assessee contended that these incomes are integral to the business of granting credit and thus qualify for deduction under section 80P(2)(a)(i). The Revenue initially treated these as income from other sources, disallowing the deduction.

The Tribunal analyzed the nature of these receipts and found that the charges were directly linked to the credit services provided to members. There was no evidence on record contradicting the assessee's claim that these incomes arose from business activities. Therefore, the Tribunal held that such miscellaneous income should be treated as business income eligible for deduction under section 80P(2)(a)(i).

However, the Tribunal did not decide the quantum of allowable deduction but remitted the matter to the Assessing Officer (AO) for verification of genuineness and proper assessment based on records. The AO was directed to reconsider the printing and courier charges similarly.

Issue 3: Treatment of Ambulance Income under Section 80P(2)(c)(ii)

The assessee earned gross ambulance income of Rs. 13,13,891/- as part of its social security activities, incurring expenses of Rs. 12,17,639.27/- related to the ambulance service. The assessee argued that the net income (gross income less expenses) should be considered for tax purposes and that deduction under section 80P(2)(c)(ii) should be allowed up to Rs. 50,000/-.

The Tribunal found the assessee's contention reasonable, emphasizing that taxing the gross income without allowing expenses would be inequitable. It recognized that the ambulance service income is distinct from core credit business income and falls under other income eligible for deduction under section 80P(2)(c)(ii).

The Tribunal remitted this issue to the AO for fresh consideration, directing the AO to assess the net income after deducting attributable expenses and to allow the deduction under section 80P(2)(c)(ii) up to the prescribed limit.

Significant Holdings and Core Principles

The Tribunal established the principle that for income to qualify for deduction under section 80P(2)(a)(i), it must arise from the business activities of the primary agricultural credit society, specifically the credit facilities provided to members. Incidental or financial income such as interest from savings bank accounts maintained for operational convenience does not qualify.

It further clarified that miscellaneous charges directly connected with credit facilities are business income and eligible for deduction, subject to verification of genuineness and proper accounting by the AO.

Regarding income from social security activities like ambulance services, the Tribunal emphasized the need to assess net income after deducting related expenses and allowed deduction under the relevant provision of section 80P(2)(c)(ii).

Verbatim, the Tribunal stated: "We therefore held that the interest income received from ICICI Bank would not be eligible for deduction u/s. 80P(2)(a)(i) of the Act," and "When the assessee is able to demonstrate that the said miscellaneous income is received while granting credit facilities to its members, the said income would be a business income and eligible for deduction u/s. 80P(2)(a)(i) of the Act."

It also noted: "The last dispute raised by the assessee... seems to be a reasonable one since the entire gross income should not be taxed without giving proper deductions to the expenses incurred towards getting the said income."

The final determination was that the appeal is partly allowed. The deduction claim for interest income from the ICICI Bank savings account was denied, while the miscellaneous income related to credit facilities and the net ambulance income were remitted to the AO for reassessment and appropriate allowance of deductions under section 80P(2).