1990 (11) TMI 132 - HC - Income Tax

Summary

Issues Involved:
1. Whether the interest income earned by the assessee on advances made to its members for constructing houses would be exempt u/s 80-P of the Income-tax Act.
2. Whether the assessee-co-operative society was carrying on the business of providing credit facilities to its members, although it was functioning as a co-operative housing society.

Summary:

Issue 1: Exemption of Interest Income u/s 80-P

The court examined whether the interest income earned by the assessee on advances made to its members for constructing houses would be exempt u/s 80-P of the Income-tax Act. The assessee, a co-operative housing society, claimed that its interest income should be deducted u/s 80P(1) and (2)(a)(i) of the Act, as it was engaged in providing credit facilities to its members. The Income-tax Officer initially rejected this claim, stating that the advances for house construction did not constitute the provision of credit facilities. However, the Tribunal later concluded that the assessee-society was indeed engaged in the business of providing credit facilities to its members and was entitled to the benefit of deduction u/s 80P(1) and (2)(a)(i) of the Act. The court upheld this view, noting that the activity of lending money to members for house construction was a distinct and independent business activity of the society, thus qualifying for the exemption.

Issue 2: Business of Providing Credit Facilities

The court also addressed whether the assessee-co-operative society was carrying on the business of providing credit facilities to its members. The Revenue argued that the primary object of the society was house building, and the extension of credit facilities was merely a means to that end. However, the court found that the objects of the society, as outlined in its bye-laws, included lending money to its members as a separate and independent activity. The court noted that the society provided credit facilities not only to members who secured sites from the society but also to those who had their own sites. This activity was carried out systematically as a business activity, making the society eligible for the benefits u/s 80P(1) and (2)(a)(i) of the Act. The court distinguished this case from others cited by the Revenue, where the primary object of the societies was different, and the provision of credit facilities was incidental.

Conclusion:

The court answered both questions in the affirmative and against the Revenue, affirming that the assessee-society was entitled to the benefits of deduction u/s 80P(1) and (2)(a)(i) of the Income-tax Act. The assessee was also awarded costs for the references.