2015 (1) TMI 1062 - AT - Income Tax

Eligible for deduction under section 80P(2)(a)(i) - Held that - Section 80P(4) clearly excludes primary agriculture credit society from its domain. As already stated that section 80P(2)(a)(i) nowhere talks of co-operative credit society and therefore the distinction made under the Banking Regulation Act cannot be imported u/s 80P(2)(a)(i). We have also gone through the decision of Tararani Mahila Co-operative Credit Society Ltd 2014 (3) TMI 293 - ITAT PANJI to which the undersigned is the author similar finding as has been given in this are given in that case also. The decision of Karnataka High Court in the case of CIT vs Sri Biluru Gurubasava Pattana Sahakari Sangh Niyamitha 2015 (1) TMI 821 - KARNATAKA HIGH COURT relates to an appeal filed against the order passed u/s 263 and the question involved was whether the Revisional Authority was justified in invoking his power u/s 263 without the foundational fact of the assessee being co-operative bank. Therefore, this decision is not applicable. We, therefore, in view of our aforesaid discussion hold that 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 co-operative bank and the provisions of Sec. 80P(4) are applicable in the case of the Assessee and Assessee is not entitled for deduction u/s 80P(2)(a)(i). We, therefore, set aside the order of the CIT(A) allowing deduction u/s 80P(2)(a)(i) to the assessee. - Decided in favour of revenue.

Summary

Issues Involved:
1. Eligibility of the assessee for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Applicability of section 80P(4) to the assessee.
3. Definition and classification of the assessee as a "primary co-operative bank" under the Banking Regulation Act, 1949.
4. Interpretation of the Karnataka State Co-operative Societies Act, 1959 and the Karnataka Societies Registration Act, 1960 concerning the assessee's status.

Detailed Analysis:

1. Eligibility for Deduction under Section 80P(2)(a)(i):
The primary issue was whether the assessee, a co-operative society, was entitled to deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. This section allows deduction for co-operative societies engaged in "carrying on the business of banking or providing credit facilities to its members." The assessee claimed this deduction, but the Assessing Officer (AO) denied it, arguing that the assessee was a primary co-operative bank and thus ineligible for the deduction due to section 80P(4).

2. Applicability of Section 80P(4):
Section 80P(4) was introduced by the Finance Act, 2006, effective from 1.4.2007, and states that the provisions of section 80P do not apply to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The AO's contention was that the assessee fell under the definition of a co-operative bank, thereby precluding it from claiming the deduction under section 80P(2)(a)(i).

3. Definition and Classification as a Primary Co-operative Bank:
The Tribunal examined whether the assessee met the criteria of a "primary co-operative bank" as defined under section 5(ccv) of the Banking Regulation Act, 1949. The three conditions to be classified as a primary co-operative bank are:
- The primary object or principal business is the transaction of banking business.
- The paid-up share capital and reserves are not less than one lakh of rupees.
- The bye-laws do not permit the admission of any other co-operative society as a member.

The Tribunal found that the assessee satisfied all three conditions:
- The assessee's primary object was banking business, as it accepted deposits from non-members.
- The paid-up share capital and reserves exceeded one lakh rupees.
- The bye-laws did not permit the admission of other co-operative societies as members.

4. Interpretation of Relevant Acts:
The Tribunal discussed the relevance of the Karnataka State Co-operative Societies Act, 1959, and the Karnataka Societies Registration Act, 1960. The assessee argued that it was a co-operative society under the Karnataka State Co-operative Societies Act, 1959, and not a co-operative bank. However, the Tribunal noted that the bye-laws of the assessee did not permit the admission of other co-operative societies as members, aligning with the definition of a primary co-operative bank under the Banking Regulation Act, 1949.

Conclusion:
The Tribunal concluded that the assessee met all the conditions to be classified as a primary co-operative bank. Consequently, the provisions of section 80P(4) applied, making the assessee ineligible for the deduction under section 80P(2)(a)(i). The appeal filed by the revenue was allowed, and the order of the CIT(A) granting the deduction was set aside.

Judgment:
The appeal by the revenue was allowed, and the assessee was not entitled to the deduction under section 80P(2)(a)(i) due to the applicability of section 80P(4). The order pronounced on 19.11.2014.