2015 (8) TMI 1571 - AT - Income Tax

Exemption u/s. 80P(2)(a)(i) - AO noticed that the nature of the activity of the assessee, though registered as a credit co-operative society, is that of a banking institution notwithstanding the fact that receipt of and lending money is limited to its members - assessee submitted that the AO erred in treating the assessee as a commercial banking institution and in denying the deduction available to it u/s 80P(2)(a)(i) of the Act in respect of income arising from the transactions only with its members - Whether assessee is a co-operative society and not a cooperative bank and therefore the provisions of section 80P(4) of the Act are not applicable? - CIT(A) allowed exemption - HELD THAT - As the issue under consideration has already been considered and decided by this Tribunal in the case of M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. 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) We are of the view that the assessee society is entitled to deduction u/s. 80P(2)(a)(i) of the Act. We uphold the order of the ld CIT(Appeals). Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility of the assessee for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
2. Applicability of Section 80P(4) to the assessee.
3. Classification of the assessee as a cooperative society or a cooperative bank.

Detailed Analysis:

1. Eligibility for Deduction under Section 80P(2)(a)(i):
The primary issue revolves around whether the assessee, a cooperative society registered under the Karnataka Souhardha Cooperative Act, 1997, is entitled to a deduction under Section 80P(2)(a)(i) of the Income Tax Act for the assessment year 2010-11. The assessee claimed a deduction of Rs. 49,56,911, which the Assessing Officer (AO) denied on the grounds that the assessee operates as a cooperative bank, thereby falling under the purview of Section 80P(4).

2. Applicability of Section 80P(4):
Section 80P(4), introduced by the Finance Act, 2006, states that the provisions of Section 80P shall not apply to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. The AO argued that the assessee functions like a banking institution, accepting deposits and lending money to its members, and thus should not be eligible for the deduction under Section 80P(2)(a)(i). The AO's interpretation was based on the activities and financial structure of the assessee, which he considered akin to a banking institution.

3. Classification as Cooperative Society or Cooperative Bank:
The CIT(A) overturned the AO's decision, holding that the assessee is a cooperative society and not a cooperative bank. This decision was based on the Tribunal's ruling in the case of Bangalore Commercial Transport Coop. Society Ltd., where it was held that Section 80P(4) applies only to cooperative banks and not to credit cooperative societies. The CIT(A) agreed with the assessee's submission that the AO erred in treating it as a commercial banking institution.

The Tribunal upheld the CIT(A)'s decision, reiterating that the legislative intent behind Section 80P(4) was to bring cooperative banks on par with commercial banks for taxation purposes, and not to affect credit cooperative societies. The Tribunal referenced the CBDT Circular No. 133/06/2007-TPL dated 9th May 2007, which clarified that Section 80P(4) does not apply to cooperative societies that are not cooperative banks.

Relevant Case Laws and Tribunal Observations:
- Bangalore Commercial Transport Coop. Society Ltd. Case: The Tribunal held that Section 80P(4) is applicable only to cooperative banks and not to credit cooperative societies. The Tribunal emphasized the distinction between cooperative banks and cooperative societies, noting that the latter cannot perform banking activities like issuing cheques, demand drafts, or acting as clearing agents.
- Gujarat High Court in CIT Vs. Jafari Momin Vikas Co-op Credit Society Ltd.: The court ruled that Section 80P(4) does not apply to credit cooperative societies, and the exclusion clause of Section 80P(4) is applicable only to cooperative banks.
- Karnataka High Court in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot: The court upheld that a cooperative society, not being a cooperative bank, is entitled to the benefits under Section 80P(2)(a)(i).

Conclusion:
The Tribunal concluded that the assessee, being a cooperative society and not a cooperative bank, is entitled to the deduction under Section 80P(2)(a)(i) of the Income Tax Act. The appeal by the Revenue was dismissed, and the order of the CIT(A) was upheld, affirming that the provisions of Section 80P(4) do not apply to the assessee. The judgment reinforces the distinction between cooperative societies and cooperative banks, emphasizing that the legislative intent was to exclude only cooperative banks from the benefits of Section 80P, not credit cooperative societies.