2015 (11) TMI 802 - HC - Income Tax

Entitlement to deduction under Section 80P(2)(a)(i) - ITAT allowed the claim - Whether the Tribunal is correct in holding that the assessee is not a Co-operative Bank but only a Co-operative society engaged in providing credit facilities to its members? - 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. See THE COMMISSIONER OF INCOME TAX vs. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA, BAGALKOT 2015 (1) TMI 821 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 80P of the Income Tax Act, 1961 - Applicability to co-operative banks vs. credit co-operative societies.

Analysis:
1. The main issue in this case revolved around the interpretation of Section 80P of the Income Tax Act, specifically whether sub-section (4) applies solely to co-operative banks or also to credit co-operative societies. The Tribunal held that sub-section (4) of Section 80P is applicable only to co-operative banks and not to credit co-operative societies. The appellant challenged this decision, raising substantial questions of law for consideration.

2. The substantial questions of law raised included whether the Tribunal erred in directing the assessing officer to grant deduction under Section 80P(2)(a)(i) for the appellant, considering an earlier order by ITAT on a similar issue. The Tribunal's classification of the appellant as a co-operative society providing credit facilities, not a co-operative bank, was also contested.

3. The Tribunal differentiated between co-operative banks and societies based on various factors like registration under different acts, nature of business activities, filing of returns, and regulatory oversight. Notably, co-operative banks, as defined under the Banking Regulation Act, have specific privileges and obligations that distinguish them from co-operative societies under state laws.

4. Referring to a previous judgment in a similar context, the Court emphasized that if an entity is not exclusively engaged in banking business and lacks a license from the Reserve Bank of India, it cannot be considered a co-operative bank. Instead, it would fall under the category of a co-operative society providing credit facilities to members, eligible for benefits under Section 80P(2)(a)(i).

5. Ultimately, the Court dismissed the appeal, upholding the Tribunal's decision and ruling in favor of the assessee against the revenue. The judgment reaffirmed the distinction between co-operative banks and societies, clarifying the scope of Section 80P benefits and emphasizing compliance with regulatory definitions and requirements.