2014 (6) TMI 914 - HC - Income Tax

Entitlement for deduction under Section 80P - 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 Revision u/s 263 - Held that - As when status of the assessee is a co-operative society and not a co-operative bank, the order passed by the Assessing Authority extending the benefit of the exemption from payment of tax under Section 80P(2)(a)(i) of the Ac t is correct. There is no error. When there is no error, question of order being prejudicial would not arise and therefore, the order passed by the revisional authority is not at all with jurisdiction and rightly the tribunal entertained the appeal against this order and set aside the said order. The same holds good even in this case.- Decided in favour of the assessee

Summary

Issues:
1. Deduction under Section 80P of the Income Tax Act
2. Jurisdiction of the Commissioner under Section 263 of the Act

Analysis:

Deduction under Section 80P:
The High Court considered the first issue of whether the assessee is entitled to deduction under Section 80P, disregarding the provisions of Section 80P(4) read with Section 2(24)(viia) introduced in the statute from 01.04.2007. The Court referred to a previous judgment and held that if a Co-operative Bank exclusively carries out banking business, its income from such business is taxable. However, the benefit of deduction under Section 80P is not denied to primary agricultural credit societies or primary co-operative agricultural rural development banks. The Court clarified that if the entity is not a Co-operative bank exclusively engaged in banking business and lacks a license from the Reserve Bank of India, it falls under a Co-operative society covered under Section 80P(2)(a)(i). The Court concluded that the amendment did not intend to exclude the benefit under Section 80P(1) from such societies. Therefore, the issue was decided in favor of the assessee and against the revenue.

Jurisdiction under Section 263:
Regarding the second issue of the jurisdiction of the Commissioner under Section 263, the Court reiterated its earlier judgment stating that if the assessee is a co-operative society and not a co-operative bank, the order granting exemption under Section 80P(2)(a)(i) is correct and without error. In such cases, where no error exists, the question of the order being prejudicial to the revenue does not arise. The Court emphasized that the revisional authority's order was without jurisdiction, and the Tribunal rightfully set aside the order. The Court held that this reasoning applied to the current case as well. Consequently, the substantial question of law was resolved in favor of the assessee and against the revenue.

In conclusion, the High Court upheld the Tribunal's decision granting deduction under Section 80P and rejecting the Commissioner's exercise of jurisdiction under Section 263, ruling in favor of the assessee in both issues.