2016 (11) TMI 1462 - AT - Income Tax

Exemption/deduction u/s 80P(2)(a)(i) - interest earned from surplus fund parked in FDs with other cooperative banks - allowability of relief u/s 80P in respect of the income of the assessee when the assessee is a credit cooperative society - Held that - Such lending activities do not constitute banking activities as the same are transacted between the cooperative society and the members of the society. Since no public is involved the definition of banking does not cover such activities. As such there is no Reserve Bank of India s approval for conducting such banking activities in this case As the assessee demonstrated that the members of the Credit Cooperative Society do not constitute public and there is no depositing withdrawal by cheque or draft etc. After considering the said judgment of the Hon ble jurisdictional High Court in the case of Quepem Urban Cooprative Credit Society 2015 (6) TMI 573 - BOMBAY HIGH COURT we are of the opinion that decision of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly issue raised in the Revenue s appeal is dismissed.

Summary

Issues:

1. Allowability of relief under section 80P of the Income Tax Act for a credit cooperative society.

Analysis:

Issue 1: Allowability of relief under section 80P of the Income Tax Act for a credit cooperative society

The judgment dealt with two appeals filed by the Revenue for the assessment years 2011-2012 and 2012-2013. The appeals were clubbed together due to common issues raised. The main contention was whether interest earned from surplus funds parked in fixed deposits with other cooperative banks was eligible for exemption under section 80P(2)(a)(i) of the Act. The Revenue argued that the lending and borrowing activities between the members of the society constituted banking activities, thus making the income eligible for deduction under section 80P. However, the CIT (A) concluded that the assessee was a credit cooperative society, not a bank, and therefore, section 80P(4) did not apply. The CIT (A) highlighted that the society's activities were limited to its members, and it did not provide banking facilities to the general public. The order cited relevant case laws and decisions to support this conclusion.

During the proceedings, the Revenue sought to reverse the CIT (A)'s order, emphasizing the banking activities between the society and its members. On the other hand, the assessee's counsel relied on the CIT (A)'s order and relevant case laws, arguing that the society's activities did not qualify as banking under the Banking Regulation Act. The counsel referred to a judgment of the jurisdictional High Court to support the argument that lending activities between the society and its members did not constitute banking activities.

The Tribunal, after considering the arguments and the cited judgment, upheld the CIT (A)'s decision, stating that the society's activities did not involve the public and did not meet the criteria of banking activities as defined in the Banking Regulation Act. Consequently, the appeals of the Revenue were dismissed, affirming the eligibility of the credit cooperative society for deduction under section 80P(2)(a)(i) and 80P(2)(d).

In conclusion, the judgment clarified the distinction between a credit cooperative society and a bank for the purpose of claiming deductions under section 80P of the Income Tax Act, emphasizing the limited scope of activities and the absence of public involvement in the society's operations.