by In a recent ruling by the Income-Tax Appellate Tribunal (ITAT), Jaipur “SMC” Bench, the question of whether a deduction under Section 80P(2)(a)(i) of the Income Tax Act can be denied solely because the assessee adopted the status of an Association of Persons (AOP) was addressed. The case, reported as [2024] 112 ITR (Trib) 289, provides valuable insights into the interpretation of statutory provisions and the eligibility criteria for claiming deductions.
Background
Section 80P of the Income Tax Act, 1961, provides tax deductions to cooperative societies for their income. Specifically, Section 80P(2)(a)(i) allows a deduction for the income derived from a cooperative society’s activity of providing credit to its members.
In the case at hand, the assessee, a cooperative credit society, had adopted the status of an AOP. The question arose whether the deduction under Section 80P(2)(a)(i) could be denied on the grounds that the assessee had chosen a status different from that of a cooperative society.
Key Issues
Status of the Assessee: The central issue was whether the deduction under Section 80P(2)(a)(i) can be claimed by an entity that has adopted the status of an AOP instead of that of a cooperative society.
Applicability of Section 80P: The legal question was whether the deduction under Section 80P(2)(a)(i) is conditional upon the assessee maintaining its status as a cooperative society or if the provision applies regardless of the chosen status.
Judgment Summary
The ITAT Jaipur “SMC” Bench delivered a judgment emphasizing the following points:
Cooperative Society Status: The Tribunal reiterated that Section 80P(2)(a)(i) specifically applies to cooperative societies, and the benefits are tied to the cooperative nature of the entity. This means that the deduction is inherently linked to the entity being a cooperative society.
AOP Status vs. Cooperative Society: The Tribunal clarified that if an entity, originally a cooperative society, changes its status to an AOP, it loses the eligibility for deductions under Section 80P(2)(a)(i). The provisions of Section 80P are designed to benefit entities that function as cooperative societies and not those functioning under different statuses like AOP.
Judicial Precedents: The judgment referred to previous decisions where similar issues were addressed. The Tribunal highlighted that the fundamental requirement of Section 80P is that the entity must be a cooperative society to qualify for the deduction.
Denial of Deduction: Given that the assessee in this case had adopted the status of an AOP, the Tribunal concluded that the deduction under Section 80P(2)(a)(i) was correctly denied. The change in status from a cooperative society to an AOP was a valid ground for denying the deduction.
Conclusion
The ITAT Jaipur “SMC” Bench’s judgment underscores the importance of maintaining the cooperative society status to avail of the deductions under Section 80P(2)(a)(i). The ruling clarifies that the benefits under this provision are exclusive to cooperative societies, and any change in status to an AOP or other entity type disqualifies the assessee from claiming such deductions. This decision reinforces the adherence to the specific eligibility criteria set out in the Income Tax Act for claiming deductions, ensuring that only those entities meeting the statutory requirements can benefit from tax exemptions.
For entities considering changes in their legal status or seeking to understand their eligibility for tax benefits, this judgment serves as a critical reminder of the importance of aligning with statutory definitions and requirements.
