2015 (7) TMI 1287 - AT - Income Tax

Allowability to deduction to the assessee u/s 80P(2)(a)(i) - Held that - Commissioner of Income Tax(Appeals) has allowed the claim of deduction under sec. 80P(2)(a)(i) of the Act by following the decisions of the Hon ble Karnataka High Court 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 confirmed and the ground of appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Whether the assessee is entitled to 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 a "Primary Co-operative Bank" under the Banking Regulation Act, 1949.
4. Jurisdictional High Court decisions and their applicability to the case.

Issue-Wise Detailed Analysis:

1. Entitlement to Deduction under Section 80P(2)(a)(i):
The primary issue was whether the assessee, a cooperative society, was entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee claimed this deduction on the grounds that it was 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 was a cooperative bank and thus not entitled to the deduction by virtue of Section 80P(4).

2. Interpretation and Applicability of Section 80P(4):
Section 80P(4) states that the provisions of Section 80P shall not apply to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. The AO interpreted this to mean that the assessee, being a cooperative bank, was excluded from the benefits of Section 80P(2)(a)(i). The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, noting that the assessee did not meet the criteria of a "Primary Co-operative Bank" as defined in the Banking Regulation Act, 1949, and thus was not excluded by Section 80P(4).

3. Definition and Classification of "Primary Co-operative Bank":
The CIT(A) analyzed the definitions under the Banking Regulation Act, 1949, particularly Section 5(ccv), which defines a "Primary Co-operative Bank" as a cooperative society whose primary business is banking, has a paid-up share capital and reserves of at least one lakh rupees, and whose bye-laws do not permit the admission of any other cooperative society as a member. The CIT(A) concluded that the assessee did not meet these criteria, as it was not engaged in banking business as defined, did not accept deposits from the public, and was not registered with the Reserve Bank of India (RBI) as a bank.

4. Jurisdictional High Court Decisions:
The CIT(A) and the ITAT relied on several High Court decisions, including:
- Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot (Karnataka High Court): Held that a cooperative society not registered with the RBI and not exclusively engaged in banking business is entitled to deduction under Section 80P(2)(a)(i).
- General Insurance Employees Cooperative Credit Society Ltd (Karnataka High Court): Affirmed the entitlement to deduction for cooperative societies providing credit facilities to members.
- Vasavi Multipurpose Souharda Sahakari Niyamita (Karnataka High Court): Similar ruling in favor of the assessee.
- CIT Vs Jafari Mom in Vikas Coop Credit Society Ltd (Gujarat High Court): Supported the assessee's claim for deduction under Section 80P(2)(a)(i).

The ITAT confirmed the CIT(A)'s order, noting that the Departmental Representative could not cite any contrary decisions. The appeals filed by the Revenue were dismissed, and the cross objections filed by the assessees were deemed infructuous and also dismissed.

Conclusion:
The ITAT upheld the CIT(A)'s decision, allowing the assessee's claim for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee was not classified as a "Primary Co-operative Bank" and thus not excluded by Section 80P(4). The decision was consistent with several High Court rulings that supported the assessee's entitlement to the deduction. The appeals of the Revenue and the cross objections of the assessees were dismissed.