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2017 (6) TMI 231 - AT - Income TaxDeduction under section 80P eligibility - whether the assessee, being a co-operative society register under the Maharashtra State Co-operative Act 1960, enables its members to obtaining loans and to make deposits as per the bye laws of the society, can be equated to be engaged in the banking business or with the co-operative bank so as to be treated under exclusionary clause of sub-section 4 of section 80IP? - Held that - We find that this issue has been decided in the case of Quepem Urban Co-Operative Credit Society Ltd vs. ACIT 2015 (6) TMI 573 - BOMBAY HIGH COURT wherein held that the contention of the revenue that the appellant is not entitled to the benefit of Section 80P(2)(a)(i) of the Act in view of the fact that it deals with non-members cannot be upheld. This for the reason that Section 80P(1) of the Act restricts the benefits of deduction of income of co-operative society to the extent it is earned by providing credit facilities to its members. Therefore, to the extent the income earned is attributable to dealings with the non-members are concerned the benefit of Section 80P of the Act would not be available. In the above view of the matter, at the time when effect has been given to the order of this Court, the authorities under Act would restrict the benefit of deduction under Section 80P of the Act only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members. - Decided in favour of assessee.
Issues Involved:
1. Deduction under Section 80P of the Income Tax Act for a cooperative society engaged in banking activities. 2. Eligibility of interest income on Fixed Deposits (FDs) for deduction under Section 80P(2)(d). Issue-Wise Detailed Analysis: 1. Deduction under Section 80P for a Cooperative Society Engaged in Banking Activities: The primary issue in the Revenue’s appeal was whether the assessee, a cooperative society registered under the Maharashtra Cooperative Societies Act, 1960, and engaged in banking activities, is eligible for deduction under Section 80P of the Income Tax Act. The Revenue argued that the assessee should be classified as a "Primary Cooperative Bank" under the Banking Regulation Act, 1949, and thus, should not be eligible for the deduction as per Section 80P(4) of the Act. The assessee contended that it operated solely with its members, accepting deposits and providing loans only to them, and thus, should be eligible for the deduction under Section 80P(2)(a)(i). The CIT(A) supported the assessee's claim, noting that the income was earned from activities with its members only and that the assessee was not engaged in banking business with the general public. The Tribunal referred to the Bombay High Court decision in the case of Quepem Urban Co-Operative Credit Society Ltd. vs. ACIT, which clarified that a cooperative society providing credit facilities to its members and not dealing with non-members is eligible for deduction under Section 80P(2)(a)(i). The High Court emphasized that the society must not be classified as a cooperative bank if it does not meet all the conditions specified under the Banking Regulation Act, particularly those relating to accepting deposits from non-members and prohibiting other cooperative societies from membership. The Tribunal concluded that the assessee did not meet the criteria to be classified as a cooperative bank and thus, was eligible for the deduction under Section 80P. Consequently, the Revenue’s appeal was dismissed. 2. Eligibility of Interest Income on FDs for Deduction under Section 80P(2)(d): The issue in the assessee’s appeal was the disallowance of deduction on interest income earned from FDs placed with cooperative and scheduled banks. The CIT(A) had disallowed the deduction, stating that the interest income was not covered under Section 80P(2)(d). The assessee argued that the interest income should be considered as profits and gains from business activities, as the funds were temporarily invested in FDs due to the lack of immediate lending opportunities to members. The assessee relied on the Karnataka High Court decision in Guttigedarara Credit Co-operative Society Ltd. vs. ITO, which held that interest income earned from temporary investments of surplus funds is attributable to the business of providing credit facilities to members and thus, eligible for deduction under Section 80P. The Tribunal, following the Karnataka High Court’s decision, ruled that the interest income from FDs is attributable to the business of providing credit facilities to members and is eligible for deduction under Section 80P(2)(d). Therefore, the assessee’s appeal was allowed. Conclusion: The Tribunal upheld the CIT(A)'s decision to allow the deduction under Section 80P(2)(a)(i) for the cooperative society, dismissing the Revenue’s appeal. Additionally, the Tribunal allowed the assessee’s appeal regarding the deduction of interest income on FDs under Section 80P(2)(d). The final order pronounced that the Revenue’s appeal was dismissed, and the assessee’s appeal was allowed.
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