2015 (10) TMI 2593 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) eligibility - Held that - The Commissioner of Income Tax (Appeals) has allowed the claim of deduction under sec. 80P(2)(a)(i) of the Act by following the decisions of the Hon ble Karnataka High Court in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot (2015 (1) TMI 821 - KARNATAKA HIGH COURT ) and in the case of General Insurance Employees Cooperative Credit Society Ltd. (2014 (6) TMI 912 - KARNATAKA HIGH COURT ) wherein held when the status of the assessee is a Co-operative society and is not a Co- operative bank, the order passed by the Assessing Authority extending the benefit of exemption from payment of tax under Section 80P(2)(a)(i) of the Act is correct. No contrary decision could be cited by the Departmental Representative. We, therefore, do not find any good and justifiable reason to interfere with the order of the Commissioner of Income Tax (Appeals), which is hereby confirmed and the ground of appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) erred in allowing deduction to the assessee under sec. 80P(2)(a)(i) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deduction under sec. 80P(2)(a)(i):

The sole issue in this appeal is the eligibility of the assessee, a cooperative society, for deduction under sec. 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee claimed a deduction of Rs. 76,30,025/- under this section, asserting that it is a cooperative society engaged in the business of banking or providing credit facilities to its members. However, the Assessing Officer (AO) denied this deduction, categorizing the assessee as a cooperative bank, thereby invoking sec. 80P(4) which excludes cooperative banks from such deductions.

2. Assessing Officer's Interpretation:

The AO's decision was based on the interpretation of sec. 80P(4) and relevant sections of the Banking Regulation Act, 1949. The AO concluded that the assessee met the criteria of a "Primary Co-operative Bank" as defined in Clause (ccv) of Section 5 of the Banking Regulation Act, 1949, which includes:
1. The primary object or principal business is the transaction of banking business.
2. The paid-up share capital and reserves are not less than one lakh rupees.
3. The bye-laws do not permit the admission of any other cooperative society as a member.

3. Commissioner of Income Tax (Appeals) Decision:

Upon appeal, the Commissioner of Income Tax (Appeals) overturned the AO's decision, allowing the deduction under sec. 80P(2)(a)(i). The Commissioner reasoned that the assessee, being a cooperative society providing credit facilities to its members and not registered as a bank with the RBI, does not fall under the category of a "cooperative bank" as per sec. 80P(4). The Commissioner cited several judicial precedents supporting this view, including:
- CIT Vs Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot (Karnataka High Court)
- General Insurance Employees Cooperative Credit Society Ltd (Karnataka High Court)
- Vasavi Multipurpose Souharda Sahakari Niyamita (Karnataka High Court)
- Jafari Mom in Vikas Coop Credit Society Ltd (Gujarat High Court)

4. Legal Interpretations and Precedents:

The Commissioner highlighted that the legislative intent behind sec. 80P(4) was to exclude only cooperative banks that function at par with commercial banks, not all cooperative societies. The Commissioner also noted that the assessee does not possess a banking license from the RBI and is not engaged in banking business as per the definition in the Banking Regulation Act, 1949.

5. Tribunal's Decision:

The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, agreeing that the assessee is not a cooperative bank but a cooperative society providing credit facilities to its members. The Tribunal found no error in the Commissioner's order and noted that the Departmental Representative could not cite any contrary decision. Consequently, the appeal of the Revenue was dismissed.

Conclusion:

The Tribunal confirmed that the assessee, being a cooperative society and not a cooperative bank, is entitled to the deduction under sec. 80P(2)(a)(i) of the Income Tax Act, 1961. The appeal of the Revenue was dismissed, and the order of the Commissioner of Income Tax (Appeals) was upheld.