2014 (12) TMI 387 - AT - Income Tax

Entitlement for deduction u/s 80P Assessee is a co-operative society registered under the Goa Co-operative Societies Act 2001 - Whether the Assessee is entitled for deduction u/s 80P(2)(a)(i) and whether the Assessee is hit by the provisions of Sec. 80P(4) which was introduced in the statute by the Finance Act 2006 w.e.f. 1.4.2007 - Held that - If the co-operative society is engaged in carrying of business of banking or providing credit facilities to its members the co-operative society is entitled for deduction on whole of the income relating to any one or more of such business - the provisions of Sec. 80P(4) mandates that the provisions of Sec. 80P will not apply to any co-operative bank other than a primary agricultural credit society or primary co-operative agricultural and rural development bank but as per the provisions of Sec. 80P(2)(a)(i) a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members is entitled for deduction. Whether the Assessee is a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank Held that - Once the Assessee will not fall within the provisions of Sec. 80P(4) the Assessee will be eligible to get deduction u/s 80P(2)(a)(i) in respect of whole of the income which the Assessee derives from carrying on the business of banking or providing credit facilities to its members - the assessee can receive the deposits from any person - The bye-law does not restrict the assessee for receiving the deposit only from members - the Assessee society was carrying on banking business as it was accepting deposits from the persons who were not members and was advancing loans to the non-members - the paid up share capital and reserves in the case of the Assessee is more than 1 lac - therefore the Assessee satisfies the second condition. Sec. 21 of The Goa Co-operative Societies Act 2001 permits admission of any other co-operative society as a member - only society registered can become the member not the co-operative society. Section 5 clause (CCV) of Banking Regulation Act 1949 requires that the bye-laws should not permit any co-operative society to become member - The society and the co-operative societies both are different and are being registered and regulated by the different statute - Thus the third condition for becoming primary co-operative bank is also complied with - Since the assessee society does complies with all the three conditions therefore the assessee society does become a primary co-operative bank and in view of explanation (a) of section 80P(4) it has to be regarded as a co-operative bank and is hit by section 80P(4). The Assessee has to be regarded to be a primary co-operative bank as all the three basic conditions are complied with therefore it is a primary co-operative bank and the provisions of Sec. 80P(4) are applicable in the case of the Assessee and Assessee is entitled for deduction u/s 80P(2)(a)(i) thus the order of the CIT(A) is set aside and the AO is directed not to allow the deduction to the assessee u/s 80P(2)(a)(i) Decided in favour of revenue. Deletion of disallowance u/s 43B Held that - The AO invoked section 43B in respect of audit fee payable - audit fees cannot be regarded to be a tax duty cess or fee or the expenditure the deduction of which is restricted u/s 43B the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Deduction under Section 80P(2)(a)(i) of the Income Tax Act.
2. Applicability of Section 80P(4) to the assessee.
3. Disallowance under Section 43B of the Income Tax Act.

Detailed Analysis:

Deduction under Section 80P(2)(a)(i):
The primary issue was whether the assessee, a co-operative society, was entitled to a deduction under Section 80P(2)(a)(i). The assessee claimed this deduction, which was initially disallowed by the Assessing Officer (AO) on the grounds that the assessee was a primary co-operative bank, thus falling under the purview of Section 80P(4). The CIT(A) had partly allowed the appeal, but the revenue contested this decision.

The Tribunal examined the definition and scope of Section 80P(2)(a)(i), which allows deductions for co-operative societies engaged in banking or providing credit facilities to its members. The Tribunal concluded that the assessee fulfilled the conditions for this deduction as it was engaged in providing credit facilities to its members.

Applicability of Section 80P(4):
Section 80P(4) restricts deductions for co-operative banks, excluding primary agricultural credit societies and primary co-operative agricultural and rural development banks. The Tribunal had to determine if the assessee qualified as a co-operative bank under this section.

The Tribunal analyzed the definition of a "co-operative bank" under the Banking Regulation Act, 1949, and concluded that the assessee met the criteria of a primary co-operative bank. This conclusion was based on three conditions:
1. The primary business was banking.
2. The paid-up share capital and reserves were more than Rs. 1 lakh.
3. The bye-laws did not permit admission of any other co-operative society as a member.

Since the assessee met all three conditions, the Tribunal held that the assessee was a primary co-operative bank and, therefore, Section 80P(4) applied, disqualifying it from the deduction under Section 80P(2)(a)(i).

Disallowance under Section 43B:
The AO had disallowed certain expenses under Section 43B, specifically audit fees payable. The Tribunal examined whether audit fees fell under the purview of Section 43B, which restricts deductions for certain expenses unless they are paid within the financial year.

The Tribunal concluded that audit fees do not constitute a tax, duty, cess, or fee under Section 43B, and thus, the disallowance was incorrect. The CIT(A)'s decision to delete the disallowance was upheld.

Conclusion:
The Tribunal allowed the revenue's appeal regarding the deduction under Section 80P(2)(a)(i), holding that the assessee was a primary co-operative bank and thus not entitled to the deduction. However, the Tribunal dismissed the revenue's appeal concerning the disallowance under Section 43B, confirming that audit fees do not fall under this section. The appeals were partly allowed, and the order was pronounced in the open court on 26.11.2014.