2019 (7) TMI 851 - AT - Income Tax

Benefit of section 80P(2)(a)(i) - Whether the assessee being a co-operative credit society, in view of its function in providing credit facilities to its members, is into the business of banking and is it not being impeded or hit by the provisions of section 80P(4) of IT Act 1961? - HELD THAT - As held by Hon ble jurisdictional High Court in EKTA CO-OP CREDIT SOCIETY LTD. 2018 (1) TMI 1244 - GUJARAT HIGH COURT and JAFARI MOMIN VIKAS CO-OP CREDIT SOCIETY LTD. 2014 (2) TMI 28 - GUJARAT HIGH COURT the benefit of section 80P(2)(a)(i) cannot be denied in these cases of co-operative credit societies, in view of their functions of providing credit facilities to the members, and the same is not hit by the provisions of section 80P(4) of the Act. The questions before us must be answered in favour of the assessee. The first question before us is answered in affirmative and in favour of the assessee, and the second question before us is answered in negative and in favour of the assessee. As this is the only issue in appeals before us, challenging the relief granted by the CIT(A), with the consent of the parties, we dispose of the appeals on merits. The grievances raised by the Revenue in appeals, in the light of the above discussions, must be dismissed, and the relief granted by the CIT(A) on this point must be upheld. We, therefore, uphold the relief granted by the CIT(A) in all these cases and decline to interfere in the matter.

Summary

Issues:
1. Whether a co-operative credit society providing credit facilities to its members is considered to be in the business of banking and affected by section 80P(4) of the IT Act 1961?
2. Can a co-operative credit society providing credit facilities to its members be classified as performing banking functions, leading to the denial of benefits under section 80P(2)(a)(i) by invoking section 80P(4)?

Analysis:
Issue 1:
The case involved determining if a co-operative credit society, by providing credit facilities to its members, falls under the business of banking and if it is impacted by section 80P(4) of the IT Act 1961. The jurisdictional High Court decisions of PCIT Vs. Ekta Co-operative Credit Society Ltd and CIT Vs. Jafari Momin Vikas Co-operative Credit Society Ltd favored the assessee. The Assessing Officer's stance was countered by the decisions of the Hon'ble High Court. The Tribunal concurred with the view that a cooperative credit society limited is not a bank as defined under the Banking Regulation Act, thus exempting it from the provisions of section 80P(4).

Issue 2:
The second issue revolved around whether a co-operative credit society providing credit facilities to its members could be considered as engaging in banking functions, thereby potentially losing the benefits under section 80P(2)(a)(i) due to section 80P(4). The Hon'ble jurisdictional High Court clarified that the exclusion under section 80P(4) does not apply to entities that are not cooperative banks. The Central Board of Direct Taxes Circular No. 133 of 2007 further clarified that the exclusion under section 80P(4) is limited to cooperative banks as defined in the Banking Regulation Act. The Tribunal upheld the benefit of section 80P(2)(a)(i) for co-operative credit societies, emphasizing that such societies providing credit facilities to members are not affected by section 80P(4).

The judgments highlighted the clear legal position that co-operative credit societies, engaged in providing credit facilities to members, are not considered as engaging in banking business under section 80P(4). The decisions favored the assessee, leading to the dismissal of appeals and cross-objections. The relief granted by the CIT(A) was upheld, emphasizing that the exclusion under section 80P(4) is not applicable to co-operative credit societies, thereby affirming the benefits under section 80P(2)(a)(i).