2015 (1) TMI 874 - HC - Income Tax

Section 80P(4) - difference between the co-operative bank and society - whether applicable only for the assessment year 2008-09 onwards inspite of the fact that the explanatory notes of the Finance Act 2006 makes it abundantly clear that this provision is applicable from assessment year 2007-08? - Held that - If a Co-operative Bank is exclusively carrying banking business then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. 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 license 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 facilitates to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(i) to the society. - Decided in favour of assessee.

Summary

Issues:
Interpretation of Section 80P of the Income Tax Act, 1961 for cooperative banks and credit cooperative societies.

Analysis:
The High Court of Karnataka dealt with an appeal challenging a Tribunal order that Section 80P(4) of the Income Tax Act, 1961 applies only to cooperative banks and not credit cooperative societies. The main question raised was whether the Tribunal was correct in holding that the provision is applicable from the assessment year 2008-09 onwards despite the Finance Act 2006 indicating its applicability from the assessment year 2007-08. The Tribunal distinguished between cooperative banks and societies based on registration, nature of business, filing of returns, inspection, applicability of Part V of the Banking Regulation Act, and the use of specific words like "bank" and "banker."

In a previous case, the court held that if a cooperative bank exclusively conducts banking business, the income derived from that business is taxable and not eligible for deduction. The court clarified that the benefit under Section 80P(1) is not to be extended to cooperative banks exclusively engaged in banking activities. However, cooperative societies engaged in lending money to members fall under Section 80P(2)(a)(i) for providing credit facilities. The amendment aimed to exclude the benefit under Section 80P(1) from cooperative banks exclusively conducting banking business, not to remove the benefit from societies.

Consequently, the court dismissed the appeal, affirming the Tribunal's decision and ruling in favor of the assessee against the revenue. The judgment provides clarity on the application of Section 80P to cooperative banks and societies, emphasizing the distinction based on the nature of operations and the legislative intent behind the provision.