2015 (8) TMI 1450 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - rejection of claim on the ground that the assessee was a cooperative bank, and hence, not entitled to claim deduction by virtue of sec. 80P(4) - Held that - AO could not point out any specific error in the above quoted orders of the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) has allowed the claim of deduction under sec. 80P(2)(a)(i) of the Act by following the decisions in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha (2015 (1) TMI 821 - KARNATAKA HIGH COURT) and in the case of General Insurance Employees Cooperative Credit Society Ltd. (2014 (6) TMI 912 - KARNATAKA HIGH COURT). No contrary decision could be cited by the Departmental Representative. We, therefore, do not find any good and justifiable reason to interfere with the orders of the Commissioner of Income Tax (Appeals), which are hereby confirmed and the ground of appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Interpretation and applicability of Section 80P(4) of the Income Tax Act, 1961.
3. Definition and classification of the assessee as a "Primary Co-operative Bank" under the Banking Regulation Act, 1949.

Detailed Analysis:

Issue 1: Eligibility for Deduction under Section 80P(2)(a)(i)
The primary issue in this appeal is whether the assessee, a co-operative society, is entitled to a deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee claimed this deduction on the grounds that it is a cooperative society engaged in the business of banking or providing credit facilities to its members. The Assessing Officer (AO) rejected this claim, arguing that the assessee is a cooperative bank and thus not eligible for the deduction by virtue of Section 80P(4).

Issue 2: Interpretation and Applicability of Section 80P(4)
The AO's decision was based on the interpretation of Section 80P(4), which excludes "co-operative banks" from the benefits of Section 80P. The AO concluded that the assessee meets the criteria of a "Primary Co-operative Bank" as defined under Section 5(ccv) of the Banking Regulation Act, 1949. This conclusion was drawn from the fact that the assessee's primary business is banking, it has a paid-up share capital and reserves of at least one lakh rupees, and its bye-laws do not permit the admission of any other cooperative society as a member.

Issue 3: Definition and Classification as a "Primary Co-operative Bank"
The Commissioner of Income Tax (Appeals) overturned the AO's decision by carefully analyzing the statutory provisions and relevant case laws. The Commissioner noted that the assessee is not registered with the Reserve Bank of India (RBI) as a bank and does not issue cheques, drafts, or pay orders, which are essential characteristics of banking as defined under Section 5(b) of the Banking Regulation Act, 1949. The Commissioner also referred to several judicial precedents, including decisions from the Karnataka High Court and the Gujarat High Court, which have consistently held that cooperative societies providing credit facilities to their members are not "co-operative banks" and are thus eligible for the deduction under Section 80P(2)(a)(i).

Conclusion:
The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, confirming that the assessee is not a "co-operative bank" but a cooperative society engaged in providing credit facilities to its members. Therefore, the assessee is entitled to the deduction under Section 80P(2)(a)(i). The Tribunal dismissed the Revenue's appeals and the assessee's cross-objection as infructuous.

Order:
The appeals of the Revenue and the cross-objection of the assessee are dismissed. The decision was pronounced in the court on August 5, 2015, at Goa.

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