2016 (5) TMI 1545 - AT - Income Tax

Deduction u/s 80P in respect of interest received from the schedule bank - HELD THAT - As relying on QUEPEM URBAN CO-OPERATIVE CREDIT SOCIETY LTD. 2015 (6) TMI 573 - BOMBAY HIGH COURT where assessee-cooperative society could not be regarded as Cooperative Bank on mere fact that an insignificant proposition of revenue was coming from non-members and thus was entitled for deduction under section 80P(2)(a)(i) - Decided against revenue. Deduction of interest and dividend received from cooperative bank u/s 80P(2)(d) - Assessee that the disputed amounts from the alleged banks are not investment but is a current account and the finding of the ld. Commissioner of Income Tax (Appeals) for Assessment Year 2012-13 and also in the absence of any contrary decision more specifically from the Revenue side the assessee being a cooperative society therefore providing credit facilities to its members is an allowable deduction u/s 80P(2) of the Act. However in terms of section 80P the meaning of the words cooperative Bank has to be the meaning assign to it in chapter V of the Banking Regulation Act 1949. A cooperative bank is defined in section 5(cci) of the Banking Regulation Act to mean a state cooperative bank a central cooperative band and a primary cooperative bank. Admittedly the assessee is neither a state cooperative bank nor central cooperative bank but a cooperative society. So far as the contention of the Revenue that the assessee deals with non-members is concerned we are of the view that section 80P(1) restrict the benefit of deduction of income of cooperative society to the extent it is earned by providing credit facilities to its members therefore to the extent of income earned is attributable to the dealings with non-members are concerned the benefit of section 80P will not be available thus while giving effect to the order the authorities would restrict the benefit of deduction u/s 80P only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members. With this rider the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Applicability of section 80P(4) and sub-clause (viia) to section 2(24) of the Income Tax Act, 1961.
2. Allowability of deduction of interest and dividend u/s 80P(2)(d) of the Income Tax Act, 1961.

Detailed Analysis:

1. Applicability of section 80P(4) and sub-clause (viia) to section 2(24) of the Income Tax Act, 1961:

The Revenue's appeal (ITA No.2936/Mum/2014) contended that the assessee, being a "primary Cooperative Bank" as per the Banking Regulation Act, is not entitled to deduction u/s 80P(2)(a)(i) due to the insertion of section 80P(4). The Tribunal referenced the decision in the case of Punjab National Bank Employees Credit Society Ltd. (ITA No.3415 & 2935/Mum/2014) and found that the CIT (A)'s decision, which granted relief to the assessee, was fair and reasonable. The Tribunal noted that not all societies engaged in deposit activities are banks and upheld the CIT (A)'s decision, dismissing the Revenue's appeal.

2. Allowability of deduction of interest and dividend u/s 80P(2)(d) of the Income Tax Act, 1961:

In the assessee's appeal (ITA No.3414/Mum/2014), the issue was the deduction of interest and dividend received from cooperative banks amounting to ?13,38,674/-. The Tribunal referred to various decisions, including the jurisdictional High Court decision in Quepem Urban Cooperative Credit Society Ltd. vs. ACIT [2015] 377 ITR 272 (Bom), which held that lending activities between a cooperative society and its members do not constitute banking activities. The Tribunal found merit in the assessee's contention that these were current accounts and not investments. The Tribunal concluded that the assessee, being a cooperative society providing credit facilities to its members, is entitled to deduction u/s 80P(2)(d). However, the Tribunal clarified that the benefit of section 80P is restricted to income earned from dealings with members only, excluding income from non-members.

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, emphasizing that the deduction u/s 80P is applicable only to income earned from providing credit facilities to members. The Tribunal's decision was pronounced in the open court at the conclusion of the hearing on 23/05/2016.