2014 (8) TMI 1010 - AT - Income Tax

Entitlement to deduction under section 80P(2)(a)(i) - whether the assessee is a co-operative society which fulfills all the three conditions of being held a Primary Cooperative Bank as given in section 5(ccv) of the Banking Regulation Act, 1949? - Held that - The bye-laws of society does permit the admission of other co-operative society as member. Thus the third condition for becoming primary co-operative bank is not complied with. Since the assessee society did not comply all the three conditions, therefore, in our opinion the assessee society cannot be regarded to be a primary co-operative bank as all the three conditions as discussed by us in the preceding paragraphs are not complied with and in consequence it is not a co-operative bank and the assessee is not hit by the provision of section 80P(4). Assessee has not to be regarded to be a primary co-operative bank as all the three basic conditions are not complied with, therefore, it is not a co-operative bank and the provisions of Sec. 80P(4) are not applicable in the case of the Assessee and Assessee is entitled for deduction u/s 80P(2)(a)(i). We, therefore, confirm the order of the CIT(A) and direct the assessing officer to allow deduction to the assessee u/s 80P(2)(a)(i) on the income generated for providing banking or credit facilities to its members. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee is a primary cooperative bank under Section 5(ccv) of the Banking Regulation Act, 1949.
2. Eligibility for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
3. Applicability of Section 80P(4) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Primary Cooperative Bank Definition:
The revenue argued that the assessee is a primary cooperative bank as per Section 5(ccv) of the Banking Regulation Act, 1949. To qualify as a primary cooperative bank, three conditions must be met:
- The primary object or principal business must be the transaction of banking business.
- The paid-up share capital and reserves must not be less than one lakh rupees.
- The bye-laws must not permit the admission of any other cooperative society as a member.

The tribunal examined the bye-laws and found that the assessee's primary object was not exclusively banking business, and it accepted deposits only from members, not the public. Therefore, the first condition was not satisfied. The second condition regarding the paid-up share capital was met. However, the third condition was not met as the bye-laws allowed the admission of other cooperative societies as members. Consequently, the assessee did not qualify as a primary cooperative bank.

2. Eligibility for Deduction under Section 80P(2)(a)(i):
Section 80P(2)(a)(i) provides deductions to cooperative societies engaged in banking or providing credit facilities to their members. Despite the introduction of Section 80P(4), which excludes cooperative banks from such deductions, the tribunal noted that the assessee was not a cooperative bank. Therefore, the assessee was eligible for deduction under Section 80P(2)(a)(i) for income derived from providing banking or credit facilities to its members.

3. Applicability of Section 80P(4):
Section 80P(4) denies deductions to cooperative banks except for primary agricultural credit societies or primary cooperative agricultural and rural development banks. Since the assessee did not qualify as a primary cooperative bank, Section 80P(4) was not applicable. As a result, the assessee was entitled to deductions under Section 80P(2)(a)(i).

Conclusion:
The tribunal concluded that the assessee did not meet the criteria to be classified as a primary cooperative bank. Therefore, the provisions of Section 80P(4) did not apply, and the assessee was eligible for deductions under Section 80P(2)(a)(i). The appeals filed by the revenue were dismissed, and the order of the CIT(A) allowing the deduction was upheld.

Order:
The appeals filed by the revenue were dismissed, and the order was pronounced in the open court on 08.08.2014.