2018 (12) TMI 1672 - AT - Income Tax

Deduction u/s 80P - AR submitted that the assessee is not having the banking licence and therefore is entitled to the benefit of Section 80P - HELD THAT - As per Hon ble Supreme Court in Citizen Cooperative Society 2017 (8) TMI 536 - SUPREME COURT it is incumbent upon any society / bank to have the licence from RBI for the purposes of doing the business of banking. In the case before the Hon ble Supreme Court the assessee had obtained a certificate from the RBI clarifying that the assessee s business does not fall under the category of cooperative bank. In our view it will be equitable in the interest of justice if the matter is remanded back to the file of the AO with a direction to verify the activities of the assessee and further the assessee is directed to furnish the certificate / circular from the RBI to the effect that the activity / business functions of the assessee do not attract the Banking Regulations Act and hence do not require any licence from RBI. Needless to say if the assessee furnishes the certificate from the RBI clarifying that the activity of the assessee do not fall under the activity of cooperative bank then the AO shall allow the claim of deduction u/s.80P(4) of the Act. Whether the assessee is a cooperative society or not? - HELD THAT - In many cases the Tribunal has held that the stand of the Revenue that a Souharda is a cooperative but not a co operative society under the ACT and hence not eligible for deduction u/s.80P. In a recent order in the matter of M/s. Udaya Souharda Credit Co operative Society Ltd 2018 (8) TMI 1063 - ITAT BANGALORE it was noted that Karnataka State has notified Karnataka Co Operative Societies Act 1959 as well as the Karnataka Souharda Sahakari Act 1997 and both Acts are in force. Therefore conversion from one into another is possible. Thereafter the Tribunal held that the deduction u/s.80P can only be applied to a cooperative society registered under the Karnataka Co- Operative Societies Act 1959 and thereafter the matter was restored back to the AO for fresh decision after making necessary enquiry and investigation. - Decided in favour of assessee for statistical purpose

Summary

Issues:
- Disallowance of eligible deduction under section 80P for assessment years 2013-14 and 2014-15
- Classification of the assessee as a cooperative bank under section 80P(4)
- Denial of deduction under section 80P(2)(a)(i) for interest income
- Verification of the assessee's status as a cooperative society
- Requirement of banking license for claiming deduction under section 80P

Analysis:
For the assessment years 2013-14 and 2014-15, the assessee contested the denial of eligible deduction under section 80P. The Assessing Officer classified the assessee as a cooperative bank under section 80P(4), disallowing the deduction for interest income. The CIT (A) upheld this decision based on the activities falling within the realm of a cooperative bank. The Tribunal noted the contention that the assessee lacked a banking license, citing the Supreme Court's judgment in Citizen Cooperative Society. The Tribunal directed a remand to the AO to verify the activities and obtain a certificate from the RBI to confirm non-applicability of banking regulations.

Regarding the status of the assessee as a cooperative society, the Tribunal referred to previous cases where conversion between cooperative types was possible. Citing the Udaya Souharda Credit Co-operative Society case, the Tribunal remanded the issue back to the AO for further examination. The Tribunal emphasized the need to consider the mutuality aspect in determining eligibility for deduction under section 80P.

In conclusion, the Tribunal allowed the assessee's appeals for statistical purposes, based on the observations and directions provided in the judgment. The matter was remanded back to the AO for detailed examination in line with relevant legal principles and previous decisions, ensuring a fair assessment of the assessee's eligibility for deductions under section 80P.