2017 (9) TMI 1815 - HC - Income Tax

Deduction u/s 80P - actual carrying on of the business activity viz., banking - AO issued show cause notices proposing to refuse deduction on the ground that the appellant was carrying on banking businesses and was accepting deposits from non-members - HELD THAT - The entitlement of an assessee to the benefit of deduction u/s 80P(2), does not depend upon either the name of the assessee or the objects for which the assessee was established. The entitlement to deduction under the said provision would depend upon the actual carrying on of the business activity viz., banking. The fact that all cooperative banks would necessarily be cooperative societies, cannot lead to the presumption that all cooperative societies are also cooperative banks. There are different types of cooperative societies, many of whom may not be transacting any banking business. Let us take for instance an agricultural society. They may be indulging in the buying and selling of agricultural produce or seeds. In a way, the same could also be termed as a commercial or banking activity. But the same would not make such societies banks within the meaning of the Banking Regulations Act, 1949. The place where the Tribunal went wrong was that without reference to a single transaction that the appellant had with any non-member, the Tribunal upheld the findings of the Assessing Officer merely on the basis of the name of the appellant and one of the objects clause in the Bye-laws of the appellant/Society. Therefore, the finding of the Tribunal is obviously perverse and such a finding could not have been recorded on the basis of the material available on record. Hence, the questions of law are to be answered in favour of the appellant/assessee.

Issues involved:
1. Interpretation of Section 80P(2) of the Income Tax Act, 1961 regarding deduction for cooperative societies.
2. Determination of whether the appellant cooperative society qualifies for the deduction under Section 80P(2) based on its activities and nature of business.
3. Assessment of whether the appellant was carrying on banking business and accepting deposits from non-members.
4. Analysis of the Tribunal's decision on the appellant's eligibility for deduction under Section 80P(2) based on the name and objects of the society.

Analysis:
1. The appellant, a cooperative society established in 1963, filed appeals under Section 260A of the Income Tax Act, 1961, claiming deduction under Section 80P(2) as it operated on the principle of mutuality with its members only.
2. The Assessing Officer initially refused the deduction, citing the society's past name including the word "Bank," its incorporation details, and the provision treating cooperative societies engaged in banking as income under Section 2(24)(viia).
3. The CIT (Appeals) had conflicting decisions for different assessment years, with one year's decision favoring the appellant and another year's decision against, based on the society's activities with non-members.
4. The Tribunal dismissed one appeal but allowed two others, focusing on the society's name change and objects indicating dealings with non-members, leading to a reversal of CIT (Appeals) findings.
5. However, the Tribunal's decision was deemed as perverse as it lacked evidence of actual dealings with non-members, emphasizing that the society's name or objects alone do not determine banking activities eligibility for deduction under Section 80P(2).
6. The judgment highlighted that cooperative societies vary in activities, and mere inclusion of certain activities in the objects clause does not automatically classify them as banks, emphasizing the need for actual business activities to qualify for the deduction.
7. Ultimately, the Tribunal's decision was overturned in favor of the appellant, emphasizing the importance of factual evidence over assumptions based on name or objects, leading to the allowance of the appeals under Section 80P(2) for the appellant cooperative society.

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