2017 (10) TMI 1524 - AT - Income Tax

Deduction u/s 80P - whether the assessee is eligible for deduction under section 80 P of the income tax act or not for assessment year 2007 08? - DR submitted that it has been clarified wide circular dated 25/08/2006 wherein it has been stated that regional rural banks would not be eligible for deduction under section 80 P of the income tax act from assessment year 2007 08 - HELD THAT - As decided in Circular No. 6/2010 dated 20/09/2010 despite the amended provisions some Regional Rural Banks continue to claim deduction under section 80P on the ground that they are cooperative societies covered by section 80P(1) read with Boards Circular No. 319 dated 11-1-1982. It is therefore reiterated that Regional Rural Banks are not eligible for deduction under section 80P of the Income-tax Act 1961 from the assessment year 2007-08 onwards. Further more the Circular No. 319 dated 11-1-1982 deeming any Regional Rural Bank to be cooperative society stands withdrawn for application with effect from assessment year 2007-08. The field officers may take note of this position and take remedial action if required. As the Ld. CIT appeal has decided this issue without considering the above circular we set aside the whole issue back to the file of the Ld. CIT appeal to verify whether the assessee is eligible for deduction under section 80 P of the income tax act or not. Appeal of the revenue is allowed for statistical purposes accordingly.

Summary

Issues:
1. Interpretation of Section 80P of the IT Act regarding deduction for cooperative banks.
2. Applicability of circulars clarifying eligibility of regional rural banks for deduction under Section 80P.
3. Assessment of exemption for dividend income from cooperative societies under Section 80P for Assessment Year 2007-08.

Analysis:

Issue 1: Interpretation of Section 80P
The Revenue contended that Section 80P of the IT Act was amended by the Finance Act, 2006, introducing subsection (4) which specified that the provisions of Section 80P would not apply to any cooperative bank, thereby excluding regional rural banks from claiming deduction under Section 80P for the Assessment Year 2007-08. This interpretation was supported by circulars issued by the Board, emphasizing that regional rural banks were not eligible for deduction under Section 80P from the mentioned assessment year onwards.

Issue 2: Applicability of Circulars
Circular No. 6/2010 clarified the eligibility of deduction under Section 80P for regional rural banks. It highlighted that despite earlier circulars deeming regional rural banks as cooperative societies for the purpose of Section 80P, the amended provisions from the Finance Act, 2006, explicitly excluded regional rural banks from claiming such deductions. The circular reiterated that regional rural banks were not eligible for deduction under Section 80P from the Assessment Year 2007-08 onwards.

Issue 3: Assessment of Exemption for Dividend Income
The assessee, engaged in banking business, claimed exemption for dividend income from cooperative societies under Section 80P(2)(d). The Ld. CIT (A) allowed the claim, emphasizing that the provisions of Section 80P covered the exemption. However, the Tribunal set aside the issue back to the Ld. CIT (A) for reevaluation in light of the circulars clarifying the ineligibility of regional rural banks for deduction under Section 80P from the specified assessment year.

In conclusion, the Tribunal's decision emphasized the importance of adhering to the amended provisions of the IT Act and the relevant circulars in determining the eligibility of regional rural banks for deduction under Section 80P. The case highlighted the significance of statutory amendments and circulars in interpreting tax laws and granting exemptions, ensuring compliance with the legislative intent.