2011 (4) TMI 1222 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) of the Act - Whether the CIT(A) is justified in directing the AO to grant deduction u/s 80-P(2)(a)(i) of the Act Held that - The provisions of section 80P(4) has got its application only to cooperative banks - Section 80P(4) does not define the word cooperative society - The existing sub-section 80P(2)(a)(i) shall be applicable to a cooperative society carrying on credit facility to its members - This view is clarified by Central Board of Direct Tax vide its clarification No.133/06/2007-TPL dated 9th May, 2007 - The new proviso to section 80P(4) which is brought into statute is applicable only to cooperative banks and not to credit cooperative societies - The intention of the legislature of bringing in cooperative banks into the taxation structure was mainly to bring in par with commercial banks - Since the assessee is a cooperative society and not a cooperative bank, the provisions of section 80P(4) will not have application and it is entitled to deduction u/s 80P(2)(a)(i) of the Act thus, the order of CIT(A) is correct and upheld Decided against Revenue.

Summary

Issues:
- Whether the CIT(A) was justified in directing the AO to grant deduction u/s 80-P(2)(a)(i) of the IT Act.

Analysis:
The case involved an appeal by the revenue against the order of the CIT(A)-II, Bangalore concerning the assessment year 2007-08. The main issue raised was the eligibility of the assessee, a Cooperative Society, for deduction u/s 80-P(2)(a)(i) of the IT Act. The AO had denied the deduction, considering the assessee as a cooperative bank engaged in banking business, thus not entitled to the claim due to the introduction of sub-section 4 to section 80P.

The first appellate authority allowed the appeal of the assessee after detailed reasoning. The revenue, being aggrieved, appealed to the ITAT Bangalore. The revenue contended that the assessee's activities were akin to banking transactions falling under section 80-P(4) of the Act. However, the AR supported the CIT(A)'s conclusion.

Upon hearing the submissions, the ITAT examined section 80P(4) which restricts the deduction under section 80P to specific types of cooperative banks. It clarified the definitions of "cooperative bank" and "primary agricultural credit society" under the Banking Regulation Act, 1949. The ITAT highlighted the distinction between a cooperative bank and a cooperative society, emphasizing that the new proviso under section 80P(4) applied only to cooperative banks, aligning them with commercial banks.

Given that the assessee was a cooperative society and not a cooperative bank, the ITAT concluded that section 80P(4) did not apply to the assessee. Consequently, the ITAT upheld the CIT(A)'s decision, stating that the assessee was entitled to deduction u/s 80P(2)(a)(i) of the Act. As a result, the appeal filed by the revenue was dismissed, affirming the order of the CIT(A).

In conclusion, the ITAT's judgment clarified the applicability of section 80P(4) to cooperative banks and upheld the deduction for the cooperative society in question, emphasizing the legislative intent behind the provision and the distinction between cooperative banks and societies.