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2015 (11) TMI 1842 - AT - Income TaxRevision u/s 263 - Deduction u/s 80P(2)(a)(i) - assessee is a cooperative credit society and derives its income from business of accepting deposit and lending loans to its members HELD THAT - As decided in M/S BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LTD. 2011 (4) TMI 1222 - ITAT BANGALORE section 80P(4) is applicable only to cooperative banks and not to credit cooperative societies. The intention of the legislature of bringing in cooperative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a cooperative society and not a cooperative bank, the provisions of section 80P(4) will not have application in the assessee s case and therefore, it is entitled to deduction u/s 80P(2)(a)(i) of the Act. Following the decision of the coordinate Bench of the Tribunal in the case of Bangalore v. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. (supra), we quash the order u/s. 263 passed by the ld. Pr. CIT. - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 80P(4) of the Income Tax Act, 1961 to cooperative societies. 2. Definition and distinction between a cooperative bank and a cooperative society under the Banking Regulation Act, 1949. 3. Jurisdiction and authority of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961. Detailed Analysis: 1. Applicability of Section 80P(4) of the Income Tax Act, 1961 to Cooperative Societies: The primary issue in this case was whether the assessee, a cooperative credit society, was entitled to claim a deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Pr. CIT contended that the assessee's activities of accepting deposits and providing credit facilities to its members constituted "business of banking" under Section 2(24)(viia) and thus should be considered as income from banking. Consequently, the Pr. CIT argued that Section 80P(4), which excludes cooperative banks from availing deductions under Section 80P, should apply to the assessee. However, the Tribunal found that the issue had already been decided in favor of similar cooperative societies in previous cases, such as ACIT, Circle 3(1), Bangalore v. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. It was held that Section 80P(4) applies only to cooperative banks and not to credit cooperative societies. The Tribunal reiterated that the legislative intent behind Section 80P(4) was to bring cooperative banks at par with commercial banks, not to affect cooperative societies providing credit facilities to their members. 2. Definition and Distinction between a Cooperative Bank and a Cooperative Society under the Banking Regulation Act, 1949: The Pr. CIT argued that the assessee should be considered a cooperative bank based on the definitions provided in Part V of the Banking Regulation Act, 1949. Specifically, the Pr. CIT highlighted that a cooperative credit society with a paid-up capital and reserves of Rs. 1 lakh or more, primarily engaged in banking business, automatically qualifies as a primary cooperative bank under Sections 5(ccii) and 5(ccvi) of the Banking Regulation Act. The Tribunal, however, referred to the distinction between cooperative banks and cooperative societies as clarified by the Central Board of Direct Taxes (CBDT) in its Circular No. 133/06/2007-TPL dated 9th May 2007. The Tribunal emphasized that cooperative societies registered under the Cooperative Societies Act, 1959, do not fall within the definition of cooperative banks as per the Banking Regulation Act. Therefore, the provisions of Section 80P(4) do not apply to such societies. 3. Jurisdiction and Authority of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961: The Pr. CIT invoked Section 263 to revise the assessment order passed by the Assessing Officer (AO), arguing that the AO failed to examine the applicability of Section 80P(4) in conjunction with the Banking Regulation Act. The Pr. CIT deemed the AO's order as erroneous and prejudicial to the interests of revenue. The Tribunal, however, quashed the Pr. CIT's order under Section 263, citing the Karnataka High Court's decision in CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot. The High Court held that for the Pr. CIT to exercise jurisdiction under Section 263, the order must be both erroneous and prejudicial to the interests of revenue. In this case, since the assessee was a cooperative society and not a cooperative bank, the AO's order allowing deduction under Section 80P(2)(a)(i) was correct and not erroneous. Consequently, the Tribunal concluded that the Pr. CIT's invocation of Section 263 was unjustified. Conclusion: In conclusion, the Tribunal held that the assessee, being a cooperative society and not a cooperative bank, was entitled to the deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Pr. CIT's order under Section 263 was quashed, and the appeal by the assessee was allowed. The Tribunal's decision was consistent with previous judgments and CBDT clarifications, reinforcing the distinction between cooperative banks and cooperative societies for tax purposes.
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