2014 (9) TMI 1243 - AT - Income Tax

Deduction u/s. 80P(2)(a)(i) - assessee is a co-operative society and engaged in banking business also - HELD THAT - As decided in the case of ACIT, Circle 3(1), Bangalore v. M/s. Bangalore Commercial Transport Credit Cooperative Society Ltd. in 2011 (4) TMI 1222 - ITAT BANGALORE wherein this Tribunal held that 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). Also in the case of CIT vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha 2015 (1) TMI 821 - KARNATAKA HIGH COURT wherein it was held that where the status of the assessee is a co-operative society, also carrying on the business of lending money for providing credit facilities to its members and not a co-operative bank, the assessee is entitled to the grant of exemption u/s 80P(2)(a)(i) - Decided against revenue.

Summary

Issues Involved:
1. Eligibility of the assessee, a co-operative society, for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
2. Applicability of Section 80P(4) to the assessee.
3. Interpretation of the terms "co-operative bank" and "co-operative society" under the Banking Regulation Act, 1949.

Detailed Analysis:

1. Eligibility for Deduction under Section 80P(2)(a)(i):
The primary issue revolves around whether the assessee, a co-operative society engaged in banking activities, is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act. The assessee claimed this deduction, which is allowed for income from carrying on the business of banking or providing credit facilities to its members. The Assessing Officer (AO) denied this deduction, arguing that the assessee functions as a co-operative bank, not merely a co-operative society, thus falling under the exclusion specified in Section 80P(4).

2. Applicability of Section 80P(4):
Section 80P(4), inserted by the Finance Act, 2006, effective from 1-4-2007, states that the provisions of Section 80P shall not apply to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The AO contended that the assessee's activities, despite being limited to its members, resemble those of a banking institution, thereby making it ineligible for the deduction under Section 80P(2)(a)(i).

3. Interpretation of "Co-operative Bank" and "Co-operative Society":
The AO referred to the definitions provided in Part V of the Banking Regulation Act, 1949, to classify the assessee as a co-operative bank. The AO highlighted several features of the assessee's operations, such as open membership, acceptance of deposits repayable on demand, and issuance of pay orders, which align with typical banking activities. However, the CIT(Appeals) and subsequently the Tribunal disagreed with this interpretation, emphasizing the distinction between a co-operative society and a co-operative bank.

Tribunal's Judgment:
The Tribunal upheld the CIT(Appeals)'s decision to allow the deduction under Section 80P(2)(a)(i), referencing several precedents where similar co-operative societies were granted the deduction. The Tribunal noted that Section 80P(4) specifically applies to co-operative banks and not to co-operative societies. The Tribunal cited the following key observations:

- The intention of the legislature was to bring co-operative banks on par with commercial banks for taxation purposes, not to deny benefits to co-operative societies.
- The Central Board of Direct Taxes (CBDT) clarified in its circular No.133/06/2007-TPL dated 9th May 2007 that Section 80P(4) does not apply to co-operative societies that are not co-operative banks.
- The Tribunal differentiated between the regulatory frameworks and operational scopes of co-operative banks and co-operative societies, underscoring that co-operative societies do not fall under the stricter regulatory purview of the Reserve Bank of India (RBI) applicable to co-operative banks.

Supporting Judgments:
The Tribunal referenced several judgments to support its decision:

1. ACIT, Circle-3(1), Bangalore v. M/s Bangalore Commercial Transport Credit Co-operative Society Ltd. (ITA.No.1069/Bang/2010): The Tribunal held that Section 80P(4) applies only to co-operative banks, not to credit co-operative societies.
2. CIT Vs. Jafari Momin Vikas Co-op Credit Society Ltd. (Gujarat High Court, Tax appeal No.442 of 2013): The court ruled that Section 80P(4) does not apply to co-operative societies, reaffirming the distinction between co-operative banks and co-operative societies.
3. CIT vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha (Karnataka High Court, ITA No.5006/2013): The court held that a co-operative society engaged in providing credit facilities to its members is entitled to deduction under Section 80P(2)(a)(i).

Conclusion:
The Tribunal concluded that the assessee, being a co-operative society and not a co-operative bank, is entitled to the deduction under Section 80P(2)(a)(i). The appeals by the revenue for assessment years 2009-10 and 2010-11 were dismissed, affirming the CIT(Appeals)'s decision. The judgment was pronounced in the open court on 26th September 2014.