2010 (8) TMI 1068 - AT - Income Tax

Revision u/s 236 - Applicability of deduction u/s 80P(2)(a)(i) - whether assessee being a regional rural bank established under RRB Act 1976 was to be treated as a co-operative bank or could be considered as a co operative society? - CIT considered sub-section (4) of section 80P which was applicable to co-operative banks as applicable to assessee also - as per assessee AO was very well aware that assessee was a rural bank under RRB Act 1976 and it was only after considering relevant provisions he had decided that the assessee was equivalent to a co operative society eligible for deduction u/s 80P(2)(a)(i) HELD THAT - There is much strength in the argument of the assessee that it is to be treated as co-operative society in view of the provisions contained in RRB Act 1976. If so it would be eligible under section 80P(2)(a)(i) of the Act. In present case the AO had carefully considered the claim of the assessee and allowed deduction u/s 80P(2)(a)(i). AO was very well aware that assessee was a rural bank under RRB Act 1976 and it was only after considering relevant provisions he had decided that the assessee was equivalent to a co operative society eligible for deduction u/s 80P(2)(a)(i). Thus the issue whether assessee was qualified for deduction u/s 80P(2)(a)(i) was very well within the contemplation of the AO and it was only after applying his mind over it that he decided that assessee had to be treated as co-operative society for income tax purpose. May be the order was cryptic but application of mind is clearly discernible. AO had adopted one of the courses permissible in law and even if such a course resulted in loss to the Revenue it could not be deemed as erroneous and prejudicial to the interest of the revenue. This position of law has been clearly laid down by Hon ble Apex Court in the case of CIT v. Max India Ltd. 2007 (11) TMI 12 - SUPREME COURT . Thus CIT was only trying to substitute his view for a lawful view taken by the AO in this regard. This is not possible u/s 263. Hence the order of CIT passed u/s 263 is quashed. Appeal filed by the assessee stands allowed. In the result the appeal filed by the assessee stands allowed.

Summary

Issues:
1. Interpretation of section 80P of the Income-tax Act, 1961 regarding applicability to a regional rural bank.
2. Determination of whether the regional rural bank qualifies as a cooperative society for income tax purposes.
3. Review of the Commissioner of Income Tax's order under section 263 of the Act.

Analysis:
1. The appeal concerned the interpretation of section 80P of the Income-tax Act, specifically whether sub-section (4) applied to a regional rural bank. The assessee contended that as it was not a cooperative bank, sub-section (4) of section 80P should not be applicable to it. The CIT argued that the deductions under section 80P(2)(a)(i) should be withdrawn as the bank did not fall under the exceptions mentioned in the Act.

2. The main issue revolved around whether the regional rural bank could be considered a cooperative society for income tax purposes. The CIT's contention was that the bank, although rendering banking services, did not qualify as a cooperative society. The CIT highlighted the distinction between a cooperative bank and a cooperative society, emphasizing that the bank enjoyed deductions applicable to cooperative societies under the RRB Act, 1976, and CBDT Circular 319 dated 11.01.1982. The CIT's findings suggested that the legislative intent was to subject cooperative banks to income tax as of 01.04.2007.

3. The Assessing Officer had initially allowed the deduction under section 80P(2)(a)(i) after considering the relevant provisions and deeming the bank as a cooperative society. The Tribunal noted that the Assessing Officer's decision was lawful and based on a possible interpretation of the law. The Tribunal held that the CIT's attempt to substitute his view for that of the Assessing Officer was not permissible under section 263 of the Act, ultimately quashing the CIT's order and allowing the appeal filed by the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, determining that the regional rural bank could be treated as a cooperative society for income tax purposes, thereby qualifying for the deduction under section 80P(2)(a)(i) of the Income-tax Act. The judgment emphasized the importance of the Assessing Officer's lawful interpretation and rejected the CIT's attempt to override it under section 263 of the Act.