2016 (6) TMI 1226 - HC - Income Tax

Entitled to deduction under section 80P(2)(a)(i) - whether assessee is a co-operative bank mainly involved in lending credit facilities to its members in nature of bank transaction treated on par with the new clause introduced in the definition of income in section 2(24)(viia) and comes under the purview of section 80P(4), with effect from April 1, 2007 - Held that - 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 licence 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 facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under section 80P(1) to the society. See CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot 2015 (1) TMI 821 - KARNATAKA HIGH COURT - Decided in favour of the assessee and against the Revenue.

Summary

Issues:
Interpretation of section 80P(2)(a)(i) of the Income-tax Act, 1961 for co-operative banks and societies.

Analysis:
The judgment addresses the issue of whether a co-operative bank, mainly involved in lending credit facilities, is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. The Tribunal's decision was challenged, arguing that the Tribunal erred in holding that the assessee-society is eligible for the deduction. The court referred to previous decisions where it was established that if a co-operative bank exclusively carries out banking business, the income derived from such business is taxable and not eligible for deduction under section 80P(2)(a)(i). The court differentiated between co-operative banks and societies based on their nature of business, registration, filing of returns, inspection, and use of certain terms like "bank." It was concluded that the benefit under section 80P(1) is not extended to co-operative banks exclusively carrying on banking business. Therefore, the issue was decided in favor of the assessee and against the Revenue.

The court also highlighted a previous judgment where a similar issue was addressed, emphasizing that if an entity is not a co-operative bank exclusively carrying on banking business and lacks a license from the Reserve Bank of India, it is considered a co-operative society eligible for the deduction under section 80P(2)(a)(i) for providing credit facilities to its members. The legislative intent was to exclude the benefit under section 80P(1) from co-operative banks exclusively engaged in banking activities. Consequently, the court dismissed the appeal and ruled in favor of the assessee, emphasizing that the substantial question of law was answered in favor of the assessee and against the Revenue.

In conclusion, the court found no substantial questions of law to consider as the appeal was dismissed. The judgment clarified the distinction between co-operative banks and societies regarding their eligibility for deductions under section 80P(2)(a)(i) of the Income-tax Act, 1961. The decision was based on the nature of business operations and the legislative intent to differentiate between entities exclusively engaged in banking activities and those providing credit facilities to members.