2019 (8) TMI 1131 - HC - Income Tax

Deduction u/s 80P(2) - interest income derived from deposits, made with Regional Rural Bank (RRB) - Assessee, a milk cooperative society - scope of CBDT Circular (No.6/2010 dated 20.9.2010) - Section 22 of the Regional Rural Banks Act, 1976 - HELD THAT - CBDT reasoning appears to be that Section 80P was amended w.e.f. 1.4.2007 introducing specifically that the benefit of exemption would not apply to any cooperative bank other than Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank. The circular then stated that in the light of this inclusion to Section 80P by way of introduction of Section 80P(4), the exemption could not be availed of by the banks invested in Regional Rural Banks. This Court is of the opinion that the revenue s contention is unsustainable. Section 22 in uncertain terms categorically deems Regional Rural Banks (of which description Baroda Rajasthan Regional Rural Banks answer to) as Cooperative Societies for the purposes of Income Tax Act. In the absence of non-obstante clause, the mere fact that a restrictive condition was imposed in relation to a Cooperative Bank for regulating the benefit of Section 80P, does not in any manner, alter the pre-existing situation. By virtue of Section 22, Regional Rural Banks continue to be deemed Cooperative Societies and all the contingent consequences that flow from it - no substantial question of law involved.

Summary

Issues:
1. Grant of exemption under Section 80P(2) of the Income Tax Act, 1961 to a milk cooperative society.

Analysis:
The judgment dealt with the issue of whether a milk cooperative society was entitled to exemption under Section 80P(2) of the Income Tax Act, 1961. The assessee had deposited amounts with a Regional Rural Bank and earned interest. The Assessing Officer disallowed the exemption, but the ITAT set aside this decision. The key contention was based on a CBDT Circular stating that interest income from deposits in Regional Rural Banks did not qualify for the benefit under Section 80P(2). However, Section 22 of the Regional Rural Banks Act, 1976 deems Regional Rural Banks as cooperative societies for the purposes of the Income Tax Act.

The Court analyzed the CBDT Circular's reasoning, which introduced an amendment to Section 80P in 2007, specifying that the exemption would not apply to cooperative banks other than specified types. Despite this amendment, the Court emphasized that Section 22 unequivocally deems Regional Rural Banks as cooperative societies. The absence of a non-obstante clause meant that the imposition of a restrictive condition on cooperative banks did not change the status of Regional Rural Banks as cooperative societies for tax purposes.

Consequently, the Court held that Regional Rural Banks continued to be deemed as Cooperative Societies under Section 22, and the pre-existing situation remained unchanged. As a result, the Court concluded that there was no substantial question of law involved in the appeal and dismissed it.