2014 (11) TMI 177 - AT - Income Tax

Denial of deduction u/s 80P(2)(a)(i) Nature of assessee Cooperative bank or not Held that - Following the decision in The Asst. Commissioner of Income Tax Versus M/s Bangalore Commercial Transport Credit Co-operative Society Ltd. 2011 (4) TMI 1222 - ITAT BANGALORE wherein it has been held that section 80P(4) 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 - 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 Since the assessee is a cooperative society and not a cooperative bank, the provisions of section 80P(4) will not have application in the assessee s case and it is entitled to deduction u/s 80P(2)(a)(i) of the Act thus, the AO is directed to grant deduction u/s 80P(2)(a)(i) Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of deduction under Section 80P(2)(a)(i) of the Income Tax Act.
2. Classification of the assessee as a cooperative bank under Section 80P(4).

Detailed Analysis:

Denial of Deduction under Section 80P(2)(a)(i):

The primary issue in this case is the denial of deduction under Section 80P(2)(a)(i) of the Income Tax Act. The assessee, a cooperative society, filed its return for the assessment year 2008-09, declaring nil income after claiming a deduction of Rs. 18,38,548 under Section 80P(2)(a)(i). The assessee claimed that it was engaged in providing credit facilities to its members and thus eligible for the deduction. However, the Assessing Officer (AO) rejected this claim, classifying the assessee as a cooperative bank under Section 80P(4), which excludes cooperative banks from such deductions.

Classification of the Assessee as a Cooperative Bank:

The AO's decision was based on the interpretation that the assessee, despite being registered as a credit cooperative society, functioned as a banking institution. The AO cited various activities and features of the assessee, such as accepting deposits, issuing pay orders, and providing credit facilities to members, to support this classification. The AO referred to Section 5(b) of the Banking Regulation Act and the assessee's bye-laws to conclude that the assessee's activities were in the nature of banking.

Tribunal's Analysis and Decision:

The Tribunal referred to its previous decision for the assessment year 2009-10, where it had allowed a similar appeal by the assessee. The Tribunal noted that Section 80P(4) applies only to cooperative banks and not to credit cooperative societies. It emphasized that the legislative intent behind Section 80P(4) was to bring cooperative banks on par with commercial banks, not to deny benefits to credit cooperative societies.

The Tribunal cited several key points:
- Section 80P(4) does not define "cooperative society," and the existing Section 80P(2)(a)(i) remains applicable to societies providing credit facilities to their members.
- The Central Board of Direct Taxes (CBDT) clarification No.133/06/2007-TPL dated 9th May 2007, which stated that Section 80P(4) applies only to cooperative banks, not to credit cooperative societies.
- The distinction between cooperative banks and cooperative societies as outlined in the Banking Regulation Act and the Karnataka Cooperative Society Act.

Supporting Judicial Precedents:

The Tribunal also referred to the Gujarat High Court's decision in the case of CIT Vs. Jafari Momin Vikas Co-op Credit Society Ltd., which held that Section 80P(4) does not apply to credit cooperative societies. The High Court emphasized that the exclusion under Section 80P(4) is specific to cooperative banks and does not extend to credit societies.

Conclusion:

Based on the above analysis and judicial precedents, the Tribunal concluded that the assessee, being a credit cooperative society and not a cooperative bank, is entitled to the deduction under Section 80P(2)(a)(i). The Tribunal allowed the appeal and directed the AO to grant the deduction.

Final Judgment:
The Tribunal allowed the appeal of the assessee and directed the Assessing Officer to grant the deduction under Section 80P(2)(a)(i) of the Income Tax Act. The order was pronounced in the open court on 31st October 2014.