2019 (1) TMI 1977 - AT - Income Tax

Deduction u/s 80P - assessee society is a cooperative society registered under Tamilnadu Cooperative Societies Act, 1983 - As per AO assessee bank may not function as a normal scheduled bank. But it functions as a bank specialized in re-finance. The business of banking cannot be narrowly taken to the definition of banking as per the Banking Regulations Act. The assessee bank gets loans from NABARD, State Governments, raises debentures and finance to its members - HELD THAT - The provisions of Sec.80P envisages exemption of income from tax for a cooperative society in the case of cooperative societies engaged in the business by providing credit facility to its members and the sub Sec.4 of the Sec.80P carves out an exception to this provision by providing that the exemption u/s.80P shall not be available to a Cooperative bank. However, primary agricultural cooperative societies which are engaged in agricultural and rural development bank whose business operations are confined to taluk level, the deduction would be available. In the present case, the AO had not gone into the question of verifying whether the Respondent-assessee-society is a mere cooperative society or a cooperative bank. In case, it is engaged in the activities of cooperative bank, and activities are not confined to the taluk level, it is clearly hit by provisions of Sub.Sec.4 of Sec.80P of the Act. It is also requires to be verified whether the activities of the Respondent-society are confined to its Members and non-members also. In these circumstances, we are of the considered opinion that the matter should be restored to the file of the AO for the purpose of carrying out exercise of verification of business activities of the appellant on the above lines and accordingly we remit the issue to the file of the AO for examining the applicability of the decision of the Hon ble Apex Court in the case of Citizen Co-operative Society Ltd. 2017 (8) TMI 536 - SUPREME - Appeal filed by the Revenue is partly allowed for statistical purposes.

Summary

Issues:
- Appeal against CIT(A) order for AY 2010-11
- Eligibility of assessee for deduction U/s. 80(P)(2) of the Act

Analysis:
1. The appeal was filed by the Revenue against the CIT(A)'s order for AY 2010-11. The Revenue raised various grounds of appeal, challenging the eligibility of the assessee for deduction U/s. 80(P)(2) of the Act.

2. The Revenue contended that the assessee, a cooperative society, may not function as a normal scheduled bank but as a specialized bank in re-finance. The CIT(A) was criticized for not recognizing that the bank's lending activities extend beyond its members, contrary to Sec. 80P(2) provisions.

3. The Tribunal noted a delay in filing the appeal, which was condoned due to reasons beyond the Revenue's control. The facts revealed that the assessee society was formed under the Tamilnadu Cooperative Societies Act, catering to agricultural needs by providing loans to primary Cooperative Agricultural and Rural Development Banks.

4. The AO disallowed certain provisions made by the assessee, leading to a total income of 'NIL' after setting off losses. The CIT(A) allowed the deduction U/s. 80P based on a Tribunal decision from the previous year. The Revenue argued that the society's business operations were not limited to a taluk level, affecting its eligibility for the deduction.

5. The Tribunal deliberated on whether the assessee was entitled to the deduction U/s. 80P. It highlighted the exemption for cooperative societies providing credit to members, with an exception for cooperative banks. The issue revolved around determining if the assessee was a cooperative society or a bank, and if its operations were confined to a taluk level.

6. The Tribunal remitted the matter to the AO for further verification of the nature of the assessee's business activities to ascertain its eligibility for the deduction. The decision of the Hon'ble Supreme Court in a relevant case was cited for consideration.

7. Ultimately, the appeal filed by the Revenue was partly allowed for statistical purposes, with the order pronounced in Chennai on 2nd January 2019.