2014 (6) TMI 913 - HC - Income Tax

Deduction u/s 80P - Whether the Tribunal was correct in holding that the provision of sub-section (4) of Section 80P of the Income Tax Act are applicable only to co-operative Banks and not to credit Co-operative Societies, which are engaged in business of banking, including providing credit facilities to their members? - 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:
1. Interpretation of sub-section (4) of Section 80P of the Income Tax Act, 1961 regarding its applicability to co-operative banks and credit co-operative societies.

Analysis:
The High Court of Karnataka heard an appeal by the revenue challenging a Tribunal order that sub-section (4) of Section 80P of the Income Tax Act applies only to co-operative banks and not credit co-operative societies. The main issues revolved around whether the Tribunal correctly interpreted the provision and whether the assessee was a co-operative society or a co-operative bank. The Tribunal differentiated between co-operative banks and societies based on registration, nature of business, filing of returns, inspection, applicability of Part V of the Banking Regulation Act, and use of certain words.

In a prior case, the Court had ruled that if a co-operative bank exclusively conducts banking business, the income from that business is taxable and not eligible for deduction under Section 80P. The judgment clarified that the benefit under Section 80P is not extended to co-operative banks exclusively engaged in banking activities. It emphasized that co-operative societies engaged in lending money to members fall under Section 80P(2)(a)(i) for providing credit facilities. Therefore, the amendment intended to distinguish between co-operative banks and societies based on their primary activities and licensing by the Reserve Bank of India.

Consequently, the High Court upheld the Tribunal's decision and dismissed the appeal, ruling in favor of the assessee and against the revenue. The judgment provided clarity on the distinction between co-operative banks and societies under Section 80P of the Income Tax Act, ensuring that the benefits are appropriately applied based on the nature of the entity's operations and regulatory approvals.