2015 (10) TMI 2437 - AT - Income Tax

Deduction under sec. 80P(2)(a)(i) - as per revenue the assessee is a cooperative society which carries on banking business, and hence a primary cooperative bank as per sec. 5(ccv) of the Banking Regulation Act, 1949 - CIT(A) allowed the claim - Held that - The Departmental Representative has simply relied on the order of the Assessing Officer. He could not point out any specific error in the order of the Commissioner of Income Tax (Appeals). He also could not bring any material on record to show that the decision of the Hon ble Karnataka High Court in the case of Shri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot (2015 (1) TMI 821 - KARNATAKA HIGH COURT) relied on by the Commissioner of Income Tax (Appeals) has been set aside by the Hon ble Supreme Court. Further, we find that the Authorized Representative of the assessee has filed, before us, the order of the Hon ble Bombay High Court at Goa in the case of M/s. The Quepem Urban Cooperative Credit Society Ltd. (2015 (6) TMI 573 - BOMBAY HIGH COURT) which is on the same lines as that of the Hon ble Karnataka High Court in the case of Shri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot (supra). As the assessee is not a Cooperative bank earning on exclusively banking business and as it does not possess a licence from Reserve Bank of India to earn on business, it is not a Co-operative bank. It is a Cooperative 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 facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(1) to such - the above facts and circumstances of the case, we find no good reason to interfere with the order of the Commissioner of Income Tax (Appeals) which is confirmed and the ground of appeal of the Revenue is dismissed. - Decided in favour of assessee.

Summary

Issues:
- Interpretation of sec. 80P(2)(a)(i) for deduction eligibility
- Classification of cooperative society as a primary cooperative bank
- Application of sec. 80P(4) in determining deduction eligibility

Analysis:
1. Interpretation of sec. 80P(2)(a)(i) for deduction eligibility:
The appeal and cross objection were filed concerning the Commissioner of Income Tax (Appeals) order dated 27/02/2015. The Revenue contended that the deduction under sec. 80P(2)(a)(i) was wrongly allowed to the assessee, a cooperative society, by the Commissioner of Income Tax (Appeals). The Assessing Officer argued that post the amendment, the income of any banking business carried out by a cooperative society with its members falls under the definition of income. However, the Commissioner of Income Tax (Appeals) relied on the interpretation of sec. 80P(4) and a High Court judgment to allow the deduction, stating that the society was engaged in banking for providing credit facilities to its members, thus qualifying for the deduction.

2. Classification of cooperative society as a primary cooperative bank:
The Assessing Officer classified the cooperative society as a primary cooperative bank due to the amendment including banking income in the definition of income. However, the Commissioner of Income Tax (Appeals) disagreed, citing a High Court judgment that clarified the legislative intent. The judgment highlighted that the legislative amendment aimed to differentiate between cooperative banks exclusively carrying out banking business and those engaged in lending money to members. As the society did not exclusively conduct banking business and lacked an RBI license for banking operations, it was deemed a cooperative society eligible for sec. 80P(2)(a)(i) deduction, not a cooperative bank.

3. Application of sec. 80P(4) in determining deduction eligibility:
The dispute revolved around the application of sec. 80P(4) to deny the deduction under sec. 80P to the assessee. The Assessing Officer relied on this section to disallow the deduction, considering the society as a primary cooperative bank. Conversely, the Commissioner of Income Tax (Appeals) interpreted sec. 80P(4) in conjunction with the Banking Regulation Act and relevant case law to support the eligibility of the cooperative society for the deduction under sec. 80P(2)(a)(i). The Tribunal upheld the Commissioner's decision, emphasizing the absence of a valid challenge or contradictory evidence to overturn the appellate order.

In conclusion, the Tribunal dismissed the appeal of the Revenue and the Cross Objection of the assessee, affirming the Commissioner of Income Tax (Appeals) decision to allow the deduction under sec. 80P(2)(a)(i) to the cooperative society. The judgment underscored the importance of legislative intent, proper classification, and adherence to statutory provisions in determining the eligibility of cooperative entities for tax deductions under relevant sections.