2008 (2) TMI 498 - AT - Income Tax

Summary

Issues Involved:
1. Violation of provisions of section 13(1)(d) due to deposits with Dr. Dada Gujar Co-operative Patsanstha Ltd.
2. Coverage of deposits under section 11(5)(iii).
3. Interpretation of "co-operative society engaged in the business of banking" under section 11(5)(iii).

Summary:

Issue 1: Violation of Provisions of Section 13(1)(d)
The assessee trust was found to have made deposits with Dr. Dada Gujar Co-operative Patsanstha Ltd., which the Assessing Officer (AO) deemed a violation of section 13(1)(d) of the Income-tax Act. Consequently, the AO denied the exemption u/s 11. The CIT(A) upheld this decision, asserting that the Patsanstha was not a co-operative society engaged in the business of banking as per section 11(5)(iii).

Issue 2: Coverage of Deposits under Section 11(5)(iii)
The primary issue was whether the deposits made by the assessee with Dr. Dada Gujar Co-operative Patsanstha Ltd. were covered by section 11(5)(iii). The assessee argued that the Patsanstha was a co-operative society engaged in the business of banking, relying on the judgment of the Hon'ble Madras High Court in the case of State Bank of India Staff Cooperative Society Ltd. v. ITO [1998] 234 ITR 104. The AO and CIT(A) disagreed, stating that the Patsanstha was not governed by the Banking Regulation Act and thus did not qualify under section 11(5)(iii).

Issue 3: Interpretation of "Co-operative Society Engaged in the Business of Banking"
The Tribunal noted that section 11(5) includes "deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking." The Tribunal referred to the Madras High Court's decision, which held that a co-operative society engaged in accepting deposits and lending money to its members qualifies as being engaged in the business of banking. The Tribunal emphasized that this interpretation should apply equally to the Income-tax Act, despite the AO and CIT(A)'s reliance on the Banking Regulation Act.

Conclusion:
The Tribunal concluded that the deposits with Dr. Dada Gujar Co-operative Patsanstha Ltd. were indeed covered by section 11(5)(iii), and thus, the provisions of section 13(1)(d) were complied with. The Tribunal allowed all four appeals, granting the assessee the exemption u/s 11.