2015 (4) TMI 507 - HC - Income Tax

Applicability of provisions of the said Section 80P(4)- difference between the Co-operative Bank and Co-operative Society - whether the assessee is not a co-operative bank but only a cooperative society engaged in providing credit facilities to its members? - Held that - As decided in CIT vs. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA, BAGALKOT 2015 (1) TMI 821 - KARNATAKA HIGH COURT 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 cooperative 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:
1. Interpretation of Section 80P of the Income Tax Act, 1961 regarding its applicability to cooperative banks and credit cooperative societies.

Analysis:
The High Court of Karnataka heard an appeal by the revenue challenging a Tribunal's order that Section 80P(4) of the Income Tax Act applies only to co-operative banks, not credit cooperative societies. The main issues raised were whether the assessee was a co-operative bank or a cooperative society providing credit facilities and whether the Tribunal correctly interpreted the law. The Tribunal distinguished between co-operative banks and societies, concluding that the provision did not apply to the assessee as it was a cooperative society.

In a previous judgment, the Court clarified that if a co-operative bank exclusively conducts banking business, its income is taxable and not eligible for deduction under Section 80P. The amendment aimed to exclude benefits for cooperative banks exclusively engaged in banking activities, not societies providing credit to members. The Court emphasized that the amendment did not intend to deny benefits to societies providing credit facilities to members under Section 80P(2)(a)(i). Consequently, the Court ruled in favor of the assessee in that case.

The Court applied the principles established in the previous judgment to the current case. Consequently, the Court dismissed the appeal, holding that the substantial questions of law were decided in favor of the assessee and against the revenue. The judgment reaffirmed that Section 80P(4) does not apply to cooperative societies like the assessee, which provide credit facilities to members and are not exclusively engaged in banking activities.