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2017 (8) TMI 658 - AT - Income TaxEligibility for the benefits of u/s 80P(2)(a)(i) - co-operative society engaged in the business of banking or providing credit facilities to its members - Held that - The claim of the assessee for exemption u/s 80P(2)(a)(i) of the Act is on account of it being engaged in the business of providing credit facilities to its members, and not the business of banking. Factually speaking, find no infirmity in the claim of the assessee inasmuch as there is no case made out by the Assessing Officer that the assessee society has a banking licence to carry on business of banking. The only point made out by the Assessing Officer is that the activities of credit society are akin to a society carrying on banking business. In my considered opinion, it is a complete misnomer on the part of the Assessing Officer to treat the assessee as a co-operative bank within the meaning of Sec. 80P(4) of the Act without establishing that the assessee is a co-operative bank in the eyes of law. Therefore, the CIT(A) made no mistake in allowing the claim of assessee for exemption u/s 80P(2)(a)(i) of the Act and accordingly, Revenue fails in this aspect. Claim for exemption u/s 80P(2)(d) with respect to interest on deposits with other co-operative banks - Held that - In view of the clear phraseology of Sec. 80P(2)(d) of the Act and the judgment of the Hon ble Karnataka High Court in the case of M/s. The Totgars Cooperative Sale Society Limited (2017 (1) TMI 1100 - KARNATAKA HIGH COURT ), the amount of interest earned by the assessee from deposits with other co-operative banks is eligible for exemption. Accordingly, on this aspect also, order of CIT(A) is set-aside and the Assessing Officer is directed to allow the claim of the assessee.
Issues:
1. Interpretation of Sec. 80P(2)(a)(i) of the Income Tax Act, 1961 regarding exemption for co-operative societies. 2. Application of Sec. 80P(4) of the Act to determine eligibility for exemption. 3. Eligibility of interest income under Sec. 80P(2)(d) of the Act based on mutuality principle. Issue 1: Interpretation of Sec. 80P(2)(a)(i) of the Income Tax Act, 1961 regarding exemption for co-operative societies: The case involved cross-appeals by the assessee and the Revenue against the order of CIT(A)-33, Mumbai, relating to the Assessment Year 2013-14. The Assessing Officer denied the assessee's claim of exemption u/s 80P(2)(a)(i) of the Act, contending that the assessee was akin to a cooperative bank and not eligible for the exemption. However, the CIT(A) disagreed, emphasizing that the assessee, a cooperative credit society, was eligible for the benefits of u/s 80P(2)(a)(i) of the Act. The CIT(A) highlighted distinctions between a cooperative bank and a cooperative credit society, ruling in favor of the assessee. The Tribunal upheld the CIT(A)'s decision, stating that the assessee was engaged in providing credit facilities to its members, not banking activities, and thus qualified for the exemption. Issue 2: Application of Sec. 80P(4) of the Act to determine eligibility for exemption: The Assessing Officer invoked Sec. 80P(4) of the Act to deny the assessee's exemption claim under Sec. 80P(2)(a)(i) of the Act, considering the activities akin to banking. However, the Tribunal found the Assessing Officer's classification as a cooperative bank without legal basis. The Tribunal held that the Assessing Officer failed to establish that the assessee had a banking license, concluding that the CIT(A) rightly allowed the exemption claim under Sec. 80P(2)(a)(i) of the Act. Consequently, the Revenue's appeal on this aspect was dismissed. Issue 3: Eligibility of interest income under Sec. 80P(2)(d) of the Act based on mutuality principle: Regarding the interest income of &8377; 20,58,272/- earned by the assessee, the CIT(A) denied the exemption under Sec. 80P(2)(d) of the Act, citing that it was earned from a third party, i.e., a bank. The Tribunal, however, disagreed with the CIT(A) and allowed the claim for exemption. The Tribunal differentiated the case from a precedent involving interest income from a bank, highlighting that the interest in question was earned from other cooperative banks, falling within the scope of Sec. 80P(2)(d) of the Act. Relying on the judgment of the Hon'ble Karnataka High Court, the Tribunal directed the Assessing Officer to allow the exemption claim for interest earned from deposits with other cooperative banks. As a result, the assessee's appeal was allowed on this issue. In conclusion, the Tribunal dismissed the Revenue's appeal while allowing the assessee's appeal, emphasizing the correct interpretation of the provisions of Sec. 80P(2)(a)(i) and Sec. 80P(2)(d) of the Income Tax Act, 1961.
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