2016 (9) TMI 952 - HC - Income Tax

Claim of deduction u/s 80P - Assessee is a Co-operative Society - whether the Assessee falls within the ambit and four corners of the expression Co-operative Bank or it is merely a credit society which is carrying on its business by making available credit facilities to its members? - Held that - If we spare a look at the provisions of Tamil Nadu Co-operative Societies Act, 1983 henceforth called as Co-operative Societies Act, 1983 as well as its immediate predecessor namely Tamil Nadu Co-operative Societies Act, 1961, which have provided for the registration of Co-operative Societies. Under Section 4 of the 1983 Act, a society can be registered which has as its objects of promotion of the economic interests or general welfare of its members in accordance with the Co-operative Principles or a society established with the object to facilitate the operations of such society by the society registered under the Act with limited or unlimited liability. Thus if a society is interested in extending certain credit facilities on the basis of Co-operative Principles, such a credit society is liable to be registered under the provisions of the 1983 Act as well as its predecessor 1961 Act. As is now made out such societies essentially render certain services or facilities for purposes of the benefit and promotion of the welfare of its members. In other words the basic theme behind the formation of such a society and its registration is to promote the objectives for which it is established for the benefit of its members only. In contrast to the above principles, if we examine the expression banking as defined in Section 5 (b) of the Banking Regulation Act, 1949 the distinction between a Co-operative Credit Society and a Co-operative Society carrying on banking business becomes imminently clear. Thus, banking means accepting of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise and such acceptance of money is intended for the purpose of lending or investment by itself. Therefore, the crucial expression relevant for making one answer the description of banking is that it is capable of accepting money from the general public but not necessarily confined to its members. Any such activity carried on by anybody requires, apart from licensing, to answer the regulatory domain prescribed under the 1949 Act. Even a Co-operative Bank which carries on banking activity requires to be regulated by the provisions of the 1949 Act. Section 80P(4) therefore is clearly attractive to such an institution. But not to credit society. Even while dealing with a Co-operative Bank sub-section (4) has taken care to ensure that the Primary Agricultural Credit Societies and Primary Co-operative Agricultural and Rural Development Banks are kept out of the purview of the said provision. Sub-section (4) of Section 80P therefore, in its application is confined in relation to Co-operative Banks only. In the instant case the Assessee being, a Co-operative Credit Society which in turn is providing for certain credit facilities to its members alone but not to the general public at large and which also does not receive monies by way of deposit from the general public, it does not answer the description of a Co-operative Bank. Consequently, the main provision contained under sub-section (i) of Section 80P gets attracted and consequently the Assessee is entitled to seek the deduction which has been provided for under Section 80P. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 80P of the Income Tax Act, 1961 regarding deduction for Co-operative Societies.
2. Determining whether the Assessee qualifies as a Co-operative Bank or a Co-operative Credit Society.
3. Assessing the correctness of the Income Tax Appellate Tribunal's decision on granting deduction under Section 80P to the Assessee.

Issue 1: Interpretation of Section 80P
The judgment discusses the provisions of Section 80P of the Income Tax Act, which allows for deductions in the income of Co-operative Societies. It clarifies that the income of a Co-operative Society engaged in banking or providing credit facilities to its members is eligible for deduction. However, sub-section (4) of Section 80P excludes certain Co-operative Banks from this benefit. The key question is whether the Assessee falls under the category of a Co-operative Bank or a credit society providing facilities to its members.

Issue 2: Qualification of Assessee
The judgment analyzes the distinction between a Co-operative Credit Society and a Co-operative Bank based on the Tamil Nadu Co-operative Societies Act and the Banking Regulation Act, 1949. It highlights that a Co-operative Bank, as per the Banking Regulation Act, accepts deposits from the public for lending or investment purposes, while a credit society primarily serves its members without accepting deposits from the general public. The Assessee, being a Co-operative Credit Society, does not meet the criteria of a Co-operative Bank and is entitled to the deduction under Section 80P.

Issue 3: Tribunal's Decision
The judgment acknowledges the criticism raised by the Income Tax Department's counsel regarding the reasoning of the Income Tax Appellate Tribunal. While agreeing with some of the points raised, the court ultimately upholds the Tribunal's decision that the Assessee is a Co-operative Credit Society and not a Co-operative Bank. Consequently, the court rejects the appeals, affirming the correctness of the Assessing Officer and the Appellate Authority's conclusions.

In conclusion, the judgment provides a detailed analysis of the interpretation of Section 80P, the qualification of the Assessee as a Co-operative Credit Society, and the validation of the Tribunal's decision. It clarifies the eligibility criteria for deductions under the Income Tax Act for Co-operative Societies engaged in banking activities, emphasizing the distinction between Co-operative Banks and credit societies.