2016 (8) TMI 328 - HC - Income Tax

Eligibility for deduction under section 80P - Income attributable to banking activities carried on with non-members - Held that - On a plain reading of Section 80P(2)(a)(i) that a co-operative society engaged in carrying on the business of banking and a co-operative society engaged in the business of providing credit facilities to its members have been treated differently, and in that perspective the view taken is correct when they held that there was no reason why the conjunction or should be read as and . In the case of Commissioner of Income Tax, Kolkata XVIII vs. Contai Cooperative Bank Limited question arose whether interest earned by the co-operative bank on non-statutory deposit was deductible. That question was answered by this Bench in the affirmative. For the aforesaid reasons, we are of the opinion that the learned Tribunal has taken a correct view of the matter that in order to be eligible to claim exemption u/s. 80P(2)(a)(i), a co-operative bank need not carry on the business of banking only with its members. Income attributable to banking activities carried on with non-members will also be entitled to special deduction under this section. - Decided against revenue

Summary

Issues:
Interpretation of Section 80P(2)(a)(i) for cooperative banks regarding eligibility for deduction under Income Tax Act.

Analysis:
The High Court of Calcutta addressed the challenge to a judgment and order passed by the Income Tax Appellate Tribunal regarding the eligibility of a cooperative bank for exemption under Section 80P(2)(a)(i) of the Income Tax Act. The Tribunal had dismissed the appeals by the revenue based on a previous judgment of the Hyderabad Bench, which stated that a cooperative bank need not deal only with its members to be eligible for exemption under this section. The court highlighted that exemption under this section is not granted solely on the principle of mutuality, and separate exemption provisions are not required for receipts satisfying this principle. The court emphasized that income attributable to banking activities with non-members is also entitled to special deduction under Section 80P(2)(a)(i). The court upheld the Tribunal's decision and dismissed the appeal by the revenue.

The question of law raised in the appeal pertained to whether the Tribunal was justified in treating interest income from non-members, nominal members, trading in securities, and other receipts as eligible for deduction under Section 80P of the Income Tax Act. The court referred to previous judgments, including one involving Nawanshahar Central Co-operative Bank Ltd., which held that investments made by a banking concern are part of the business of banking and income from such investments is deductible under Section 80P(2)(a)(i). The court noted that there is no doubt that income earned by the assessee from various sources is eligible for deduction under this section. Both counsels representing the parties did not dispute this position.

The court observed that Section 80P(2)(a)(i) treats cooperative societies engaged in banking and those providing credit facilities to members differently. The court agreed with the Hyderabad Bench's interpretation that the conjunction "or" in the section should not be read as "and," indicating that cooperative banks need not restrict their banking activities only to members to claim exemption. Citing a previous case involving Contai Cooperative Bank Limited, where interest earned on non-statutory deposits was held to be deductible, the court reaffirmed that the Tribunal's view was correct. Consequently, the court found no reason for interference and ruled in favor of the assessee, dismissing the appeal by the revenue.