2014 (6) TMI 912 - HC - Income Tax

Entitlement to deduction under Section 80P(2)(a)(i) - Held that - As in the case of THE COMMISSIONER OF INCOME TAX vs. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA, BAGALKOT 2015 (1) TMI 821 - KARNATAKA HIGH COURT decided if a Co-operative Bank is exclusively carrying banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural rural development bank. The Legislature did not want to deny the said benefit to a primary agricultural credit society or a primary co- operative agricultural and rural development bank. They did not want to extend the said benefit to a co-operative bank which is exclusively carrying on banking business i.e., the purport of the amendment. If the assessee is not a Co-operative bank carrying on exclusively banking business and if it does not possess a license from the Reserve Bank of India to carry on business, then it is not a Co-operative bank. It is a Co-operative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e., carrying on the business of banking for providing credit facilitates to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(i) to the society - Decided in favour of the assessee

Summary

Issues:
Interpretation of Section 80P of the Income Tax Act - Applicability to cooperative banks vs. credit cooperative societies.

Analysis:

1. Interpretation of Section 80P:
The High Court addressed the issue of whether sub-section (4) of Section 80P of the Income Tax Act, 1961 applies solely to cooperative banks and not to credit cooperative societies. The Tribunal's order was challenged by the revenue. The key question raised was whether the society in question is entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act.

2. Difference between Cooperative Bank and Society:
The Tribunal highlighted the distinctions between a cooperative bank and a cooperative society. It emphasized that a cooperative bank, registered under the Banking Regulation Act, 1949, has specific privileges such as opening various accounts, issuing financial instruments, and acting as a clearing agent under RBI regulations. In contrast, a cooperative society, registered under the Karnataka Cooperative Societies Act, 1959, operates based on its bylaws, lacks certain banking functions, and is regulated under cooperative societies' rules.

3. Precedent and Legal Interpretation:
Referring to a previous case, the Court clarified that if a cooperative bank exclusively conducts banking activities, its income is taxable, excluding it from Section 80P benefits. However, a cooperative society engaged in lending money to members for credit facilities falls under Section 80P(2)(a)(i). The judgment emphasized that the legislative intent was not to deny benefits to societies but to differentiate between cooperative banks and societies based on their operations and licensing status.

4. Judicial Decision and Outcome:
In light of the precedent and legal interpretation provided, the Court dismissed the appeal by the revenue and ruled in favor of the assessee. The substantial question of law was answered in favor of the society and against the revenue, affirming that the society is entitled to the deduction under Section 80P(2)(a)(i) of the Income Tax Act.

5. Conclusion:
The judgment reaffirmed the distinction between cooperative banks and credit cooperative societies concerning the applicability of Section 80P benefits. It clarified that the legislative intent was to differentiate based on the nature of operations and licensing, ensuring that societies providing credit facilities to members are eligible for deductions under the Income Tax Act.