2016 (12) TMI 115 - HC - Income Tax

Eligibility for the benefit of section 80P(2)(a)(i) - interest received from members - Assessee is a Co-operative Marketing Society - whether the Tribunal was right holding that the assessee society engaged in selling of agricultural produce of the members is eligible for the benefit of section 80P(2)(a)(i)? - Held that - view of our concurrence that the Assessee is a mere Co-operative Credit Society but not a Co-operative Bank, we are of the view that the order passed by the Assessing Officer as well as the Appellate Authority and the conclusion arrived at by the Tribunal are not erroneous and hence there is no merit in these appeals and accordingly the appeal stands rejected - Decided against revenue

Summary

Issues:
1. Eligibility of a cooperative society engaged in selling agricultural produce for deduction under section 80P(2)(a)(i) in respect of interest received from members.
2. Eligibility of a cooperative society for deduction under section 80P(2)(a)(i) when not engaged in banking or providing credit facilities to members.

Analysis:
1. The case involves the appellant, the Revenue, challenging the order of the Income Tax Appellate Tribunal regarding the eligibility of a cooperative society for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The key issue is whether the society, engaged in selling agricultural produce of its members, qualifies for the benefit of this section concerning interest received from members. The judgment delves into the interpretation of section 80P, which provides for deductions in the income of cooperative societies. It emphasizes the distinction between cooperative banks and credit societies and the conditions under which income generated by such societies is liable for deduction.

2. The judgment further explores the definition of "banking" under the Banking Regulation Act, 1949, to differentiate between a cooperative credit society and a cooperative society engaged in banking activities. It clarifies that for an entity to be considered a cooperative bank and fall under the provisions of section 80P(4), it must accept deposits from the general public and be regulated accordingly. The analysis highlights the specific criteria that determine whether an institution qualifies as a cooperative bank and is subject to the restrictions outlined in the Act.

3. The learned Standing Counsel for the Income Tax Department raised concerns about the Tribunal's reasoning in the impugned order, suggesting that the focus should have been on determining whether the society meets the criteria of a cooperative bank to restrict its benefits under section 80P. While acknowledging the criticism, the judgment ultimately affirms that the appellant is a cooperative credit society, not a cooperative bank, and therefore entitled to the deductions provided under section 80P. Consequently, the order passed by the Assessing Officer and the Appellate Authority, upheld by the Tribunal, is deemed correct, leading to the rejection of the appeals with no costs incurred.

In conclusion, the judgment thoroughly analyzes the eligibility of a cooperative society for deductions under section 80P of the Income Tax Act based on its activities and classification as a credit society or a bank, providing clarity on the application of relevant legal provisions and the differentiation between the two types of institutions.