2015 (9) TMI 1716 - HC - Income Tax

Deduction u/s 80 P (2) (a) (i) - AO denied deduction as activity of the respondent was covered by Section 2 (24 (vii a) of the IT Act which requires the inclusion of profits and gains of any business of banking (including providing credit facilities) carried on by a co- operative society - Whether the benefit of deduction under Section 80 P (2) (a) (i) of the IT Act could be denied to the assessee on the footing that though the respondent was said to be a Co- operative Society it was in fact a co-operative bank within the meaning as assigned to such bank under Part V of the BR Act.? - whether Authorities under the IT Act were competent and possessed the jurisdiction to resolve the controversy as to whether the assessee was a co-operative society or co-operative bank as defined under the provisions of the BR Act? - HELD THAT - We are in respectful agreement with the general view taken as to the interpretation of the relevant provisions of law by the co-ordinate bench of this court in the above and several other judgments adopting the same view. However it is to be noticed that there is a seriously disputed question of fact which the Authorities under the IT Act have taken upon themselves to interpret in the face of the BR Act prescribing that in the event of a dispute as to the primary object or principal business of any co-operative society referred to in clauses (cciv) (ccv) and (ccvi) of Section 56 of the BR Act a determination thereof by the Reserve Bank shall be final would require the dispute to be resolved by the Reserve Bank of India before the authorities could term the assessee as a co-operative bank for purposes of Section 80 P of the IT Act. Any opinion expressed therefore is tentative and is not final. The view expressed by this court however as to the assessee being a co-operative society and not a co-operative bank in terms of Section 80P (4) of the IT Act shall hold the field and shall bind the authorities unless held otherwise by the Reserve Bank of India. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for deduction under Section 80P(2)(a)(i) of the IT Act.
2. Jurisdiction of IT Act authorities to determine whether the assessee is a co-operative society or a co-operative bank under the BR Act.

Detailed Analysis:

1. Eligibility for Deduction under Section 80P(2)(a)(i) of the IT Act:

The primary issue was whether the assessee, a co-operative society, was entitled to a deduction under Section 80P(2)(a)(i) of the IT Act. The Assessing Officer denied this deduction, arguing that the assessee was essentially a co-operative bank as per Section 2(24)(viia) of the IT Act and Section 5(ccv) of the BR Act. The Tribunal, however, found that the assessee did not meet all the conditions to be classified as a primary co-operative bank under Section 5(ccv) of the BR Act, specifically noting that the bye-laws of the society permitted other co-operative societies to become members. Consequently, the Tribunal ruled that the assessee was not a co-operative bank and was thus eligible for the deduction under Section 80P(2)(a)(i).

2. Jurisdiction of IT Act Authorities:

The second issue was whether the authorities under the IT Act had the jurisdiction to determine if the assessee was a co-operative society or a co-operative bank as defined under the BR Act. The court referenced the BR Act, which states that any dispute regarding the primary object or principal business of a co-operative society should be determined by the Reserve Bank of India (RBI). Thus, the court concluded that the IT authorities did not have the jurisdiction to make this determination. The court emphasized that a final determination by the RBI would be required to classify the assessee as a co-operative bank for the purposes of Section 80P of the IT Act.

Conclusion:

The court upheld the Tribunal's decision, agreeing that the assessee was not a co-operative bank and was entitled to the deduction under Section 80P(2)(a)(i) of the IT Act. The court also clarified that the IT authorities did not have the jurisdiction to resolve the classification dispute, which should be determined by the RBI. The appeal by the revenue was dismissed, and the questions of law were answered in favor of the assessee.