2020 (2) TMI 1352 - AT - Income Tax

Deduction u/s.80P(2) - Whether assessee-society is a Cooperative Society or Primary Cooperative Bank - HELD THAT - DR could not controvert that the assessee does not possess a banking license from the RBI which is essential for an entity to engage in banking business. Since the society is not a primary co-operative bank, it would be eligible for deduction u/s. 80P(2) of the Act - No infirmity in the order of the ld CIT(A), which is hereby confirmed and grounds of appeal of the revenue are rejected. Appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Interpretation of the nature of the assessee - Cooperative Society or Cooperative Bank.
2. Eligibility of the assessee for deduction under section 80P(2) of the Income Tax Act.
3. Compliance with the conditions of a Cooperative Bank under the Banking Regulation Act, 1949.

Analysis:

Issue 1: Interpretation of the nature of the assessee - Cooperative Society or Cooperative Bank.
The appeal by the revenue contested the CIT(A)'s classification of the assessee as a "Cooperative Society" rather than a "Primary Cooperative Bank" under section 80P(4) of the IT Act. The AO initially denied section 80P(2) benefits to the assessee, considering it a Cooperative bank as per the Banking Regulation Act, 1949. However, the CIT(A) analyzed the bye-laws of the society and concluded that the assessee did not meet the criteria of a Cooperative Bank as defined in the Act. The absence of evidence supporting the engagement in banking activities for non-members or the public led to the determination that the assessee was not a Primary Cooperative Bank.

Issue 2: Eligibility of the assessee for deduction under section 80P(2) of the Income Tax Act.
The CIT(A) ruled that the assessee was entitled to deductions under section 80P(2) of the Act, emphasizing the distinction between a Cooperative Society and a Cooperative Bank. The absence of a banking license from the RBI indicated that the assessee was not a Primary Cooperative Bank, making it eligible for the deductions under section 80P(2). The decision highlighted the necessity to meet all conditions specified in the Banking Regulation Act, 1949, to be classified as a Primary Cooperative Bank.

Issue 3: Compliance with the conditions of a Cooperative Bank under the Banking Regulation Act, 1949.
The judgment emphasized that for an entity to be considered a Primary Cooperative Bank, it must fulfill all conditions outlined in clause 5(CCV) of the Banking Regulation Act, 1949. The failure to satisfy any one condition would disqualify the entity from being classified as a Primary Cooperative Bank. The absence of evidence supporting banking activities for non-members or the public, coupled with the lack of a banking license from the RBI, led to the conclusion that the assessee did not meet the requirements to be considered a Primary Cooperative Bank.

In conclusion, the ITAT confirmed the CIT(A)'s decision, dismissing the revenue's appeal and affirming the eligibility of the assessee for deductions under section 80P(2) of the Income Tax Act.