2019 (6) TMI 1293 - AT - Income Tax

Deduction u/s 80P(2)(i) - assessee is not a recognized bank in view of the provision of the Reserve Bank of India (RBI) - HELD THAT - Assessee nowhere fall within the definition of the Co-operative Bank. The assessee is not a recognized bank in view of the provision of the Reserve Bank of India (RBI). There is a difference between the Co-operative bank and in the Credit Co-operative Society. If the Assessee is not in the banking business then in the said circumstances no doubt the assessee is entitled to raise the claim of deduction u/s 80P of the Act. . The facts are not distinguishable at this stage also. The assessee is not doing the banking business. The CIT(A) has relied upon the decision of Bombay High Court in the case of Quepem Urban Co-operative Credit Society Ltd. Vs. ACIT 2015 (6) TMI 573 - BOMBAY HIGH COURT . No law contrary to the law relied by the Ld. CIT(A) in his order has been produced before us. - Decided in favour of the assessee against the revenue.

Summary

Issues Involved:
1. Justification of CIT(A) in allowing the deduction u/s 80P(2)(a)(i) of the Income-tax Act, 1961.
2. Applicability of section 56(c)(ccv) of Part V of the Banking Regulation Act, 1949 to the assessee.
3. Relevance of the judgment of Hon'ble Bombay High Court in the case of Quepem Urban Cooperative Credit Society Vs. ACIT.
4. Request to set aside the order of CIT(A) and restore the Assessing Officer's order.
5. Appellant's right to amend or add new grounds.

Issue-wise Detailed Analysis:

1. Justification of CIT(A) in allowing the deduction u/s 80P(2)(a)(i):
The CIT(A) allowed the deduction of ?69,60,770/- claimed by the assessee under section 80P(2)(a)(i) of the Income-tax Act, 1961. The assessee, a co-operative Credit Society, filed its return declaring total income as Nil and claimed deductions under Chapter VIA. The Assessing Officer (AO) disallowed the claim, considering the assessee to be in the banking business. However, the CIT(A) observed that the AO disallowed the claim without bifurcating deductions under sections 80P(2)(a)(i) and 80P(2)(d). The CIT(A) clarified that the legislative intent behind section 80P(4) was to exclude co-operative banks from the benefit of deduction, not credit co-operative societies. The CIT(A) relied on judicial pronouncements, including the Hon'ble Supreme Court's interpretation of "attributable to" in Cambay Electric Supply Industrial Co. Ltd., which has a wider impact than "derived from."

2. Applicability of section 56(c)(ccv) of Part V of the Banking Regulation Act, 1949:
The CIT(A) examined whether the assessee qualifies as a co-operative bank under the Banking Regulation Act, 1949. The definitions of "Co-Operative Bank" and "Credit Co-Operative Society" in Part V of the Act were considered. The CIT(A) concluded that these are distinct entities with different functions and activities. The assessee, being a Credit Co-Operative Society, does not meet the criteria to be classified as a co-operative bank under the Banking Regulation Act and hence is eligible for the deduction under section 80P(2)(a)(i).

3. Relevance of the judgment of Hon'ble Bombay High Court in the case of Quepem Urban Cooperative Credit Society Vs. ACIT:
The CIT(A) referenced the Bombay High Court's decision in Quepem Urban Cooperative Credit Society Ltd. vs. ACIT, which held that a co-operative credit society cannot be considered a co-operative bank for the purposes of section 80P(4) unless specific conditions are met. These conditions include the principal business being banking, paid-up share capital and reserves not being less than ?1 lakh, and bye-laws not permitting the admission of any other co-operative society as a member. The CIT(A) found that the assessee did not meet these conditions and thus could not be classified as a co-operative bank.

4. Request to set aside the order of CIT(A) and restore the Assessing Officer's order:
The revenue's appeal requested that the CIT(A)'s order be set aside and the AO's order be restored. However, the tribunal found that the CIT(A) had judiciously decided the matter based on the facts and applicable laws. The tribunal noted that the assessee is not recognized as a bank by the Reserve Bank of India and is not engaged in banking business, thus eligible for the deduction under section 80P.

5. Appellant's right to amend or add new grounds:
The appellant reserved the right to amend or add new grounds, but no such amendments or additions were made during the proceedings.

Conclusion:
The tribunal upheld the CIT(A)'s decision, confirming that the assessee, a Credit Co-Operative Society, is eligible for the deduction under section 80P(2)(a)(i) and does not fall under the exclusion of section 80P(4). The appeal filed by the revenue was dismissed. The order was pronounced in the open court on 25/06/2019.