2021 (4) TMI 635 - AT - Income Tax

Deduction u/s 80P(2) - as per AO assessee being a primary co-operative bank was hit by the provisions of Sec. 80P(4), and thus, was not eligible for claim of deduction under Sec. 80P(2)(a)(i) - contention of the assessee that it was a co-operative credit society providing banking/credit facilities only to its members and was not a co-operative bank providing banking/credit facility to the public at large did not find favour with the A.O. - HELD THAT - We are persuaded to subscribe to the observations of the CIT(A) that as the assessee which is a co-operative credit society is not a primary co-operative bank, hence, it would not be hit by the provisions of Sec.80P(4) as had been made available on the statute vide the Finance Act, 2006 w.e.f 01.04.2007. Our said view is fortified by the fact that it is absolutely mandatory for a co-operative society to seek a licence from the Reserve Bank of India to form and operate as a co-operative bank. Further, a perusal of Circular No. 312 of the Reserve Bank of India reveals the process involved for conversion of a co-operative society into a primary co-operative bank. Admittedly, in the case before us as the assessee being a co-operative credit society is neither authorized nor had undertaken any of the banking business activities as are carried out by a primary co-operative bank, but had only provided financial assistance/credit to its members, therefore, it can safely be concluded that it cannot be held to be a co-operative bank. Apart from that, we find that as stated by the ld. A.R, and rightly so, the issue involved in the present appeal in squarely covered by the orders of the Tribunal in the assessee‟s own case for the preceding years 2018 (6) TMI 1746 - ITAT MUMBAI and 2021 (1) TMI 1108 - ITAT MUMBAI We are persuaded to be in agreement with the observations of the CIT(A) that the assessee would not be hit by the provisions of Sec. 80P(4) of the Act. We, thus, being in agreement with the view taken by the CIT(A) that the claim of the assessee under Sec. 80P(2)(a)(i) was in order, uphold the same. - Decided in favour of assessee.

Summary

Issues:
- Interpretation of Sec. 80P(2)(a)(i) of the Income Tax Act, 1961
- Eligibility of a co-operative credit society for deduction under Sec. 80P(2)
- Application of Sec. 80P(4) to determine eligibility for deduction

Analysis:

Interpretation of Sec. 80P(2)(a)(i) of the Income Tax Act, 1961:
The case involved a co-operative credit society claiming deduction under Sec. 80P(2)(a)(i) of the Income Tax Act, 1961. The Assessing Officer (A.O) contended that the society did not qualify for the deduction as it was considered a primary co-operative bank under Sec. 80P(4). The A.O's decision was based on the conditions specified in Sec. 56(c)(ccv) of the Banking Regulation Act, 1949, which the society was deemed to fulfill. However, the society argued that it was not engaged in banking activities for the public but only provided financial assistance to its members, thus not meeting the criteria of a co-operative bank.

Eligibility of a co-operative credit society for deduction under Sec. 80P(2):
The Commissioner of Income Tax (Appeals) [CIT(A)] analyzed the nature of the society's operations and concluded that it did not meet the criteria to be classified as a primary co-operative bank. The CIT(A) referred to previous judgments and upheld the society's eligibility for the deduction under Sec. 80P(2)(a)(i). It was highlighted that the society's activities were limited to providing credit facilities to its members and not to the public at large, which was a key factor in determining its eligibility for the deduction.

Application of Sec. 80P(4) to determine eligibility for deduction:
The A.O's application of Sec. 80P(4) to deny the deduction was challenged by the society, emphasizing that it did not operate as a co-operative bank and therefore should not be subject to the restrictions imposed by the provision. The ITAT Mumbai, after considering the arguments from both sides and reviewing relevant precedents, upheld the CIT(A)'s decision that the society was not covered by Sec. 80P(4) and was entitled to the deduction under Sec. 80P(2)(a)(i). The Tribunal's decision was based on the society's business model, which focused on serving its members rather than engaging in general banking activities.

In conclusion, the ITAT Mumbai dismissed the revenue's appeal, affirming the society's eligibility for the deduction under Sec. 80P(2)(a)(i) of the Income Tax Act, 1961. The judgment highlighted the distinction between a co-operative credit society and a co-operative bank, emphasizing that the society's operations aligned with the criteria for the deduction, as it primarily served its members without engaging in broader banking activities for the public.