P.Krishna, J. - (1.) The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law, at the instance of the Chief Commissioner of Income-tax for the opinion to this court, under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") "Whether, on the facts and in the circumstances of the case, the assessee is entitled to deduction under Section 80P(2)(c) of the Income-tax Act, 1961 ?"
(2.) The facts of the case in brief are as follows :
(3.) The respondent-assessee is a co-operative society. The assessment year involved in the case is 1977-78. During the year under consideration, the sugar factory was under construction. No business was done. The assessee received interest on deposits with banks and post offices. A return of net loss of Rs. 7,643 was filed. The deduction claimed by the assessee towards the expenses was disallowed by the Income-tax Officer. He computed the interest income after rejecting the claim put forward by the assessee with regard to the deduction towards the expenses on the ground that the expenditure incurred was in the nature of capital expenditure. The assessee's claim of deduction under Section 80P(2)(c) was disallowed on the ground that in the relevant previous year it did not carry on any activities. The sugar mill was under construction. No business was done by the assessee during the relevant assessment year. On appeal the Appellate Assistant Commissioner allowed the claim of the assessee with regard to the exemption under Section 80P(2)(c) of the Act. This order has been confirmed by the Income-tax Appellate Tribunal in the appeal filed by the Department.;