2012 (8) TMI 185 - AT - Income Tax

Applicability of provisions of sub-section(4) of section 80P whether the provision applicable only to co-operative banks and not to credit co-operative societies Held that - New proviso to section 80P(4) which is brought into statute is applicable only to co-operative banks and not to credit co-operative societies - intention of the legislature of brining in co-operative banks into the taxation structure was mainly to bring in par with commercial banks. Since the assessee is a co-operative society and not a co-operative bank, the provisions of section 80P(4) will not have application in the assessee s case and therefore, it is entitled to deduction u/s 80P(2)(a)(i) of the Act

Summary

Issues Involved:
1. Applicability of sub-section (4) of section 80P to co-operative societies.
2. Definition and distinction between a co-operative bank and a co-operative society under the Banking Regulation Act, 1949.
3. Eligibility of the assessees for deduction under section 80P(2)(a)(i) post amendment.

Issue-wise Detailed Analysis:

1. Applicability of sub-section (4) of section 80P to co-operative societies:
The primary issue was whether the provisions of sub-section (4) of section 80P apply only to co-operative banks and not to credit co-operative societies engaged in banking, including providing credit facilities to their members. The Tribunal noted that section 80P(4) states, "The provision of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank." The explanation for this sub-section defines "Co-operative bank" and "primary agricultural society" as per Part V of the Banking Regulation Act, 1949. The Tribunal concluded that section 80P(4) applies exclusively to co-operative banks and not to credit co-operative societies, thus allowing the assessees to claim deductions under section 80P(2)(a)(i).

2. Definition and distinction between a co-operative bank and a co-operative society under the Banking Regulation Act, 1949:
The Tribunal examined the definitions provided in Part V of the Banking Regulation Act, 1949. A "Co-operative bank" includes a state co-operative bank, a central co-operative bank, and a primary co-operative bank. The Tribunal clarified that for a co-operative society to be considered a primary co-operative bank, it must meet three conditions:
1. The primary object or principal business must be the transaction of banking business.
2. The paid-up share capital and reserves must be not less than one lakh rupees.
3. The bye-laws must not permit the admission of any other co-operative society as a member.

The Tribunal observed that while the assessees met the second and third conditions, they did not satisfy the first condition as their primary object was not the transaction of banking business as defined under section 5(b) of the Banking Regulation Act, 1949. Thus, the assessees were not considered primary co-operative banks.

3. Eligibility of the assessees for deduction under section 80P(2)(a)(i) post amendment:
The Tribunal noted that the assessees, Jayalaxmi Mahila Vividodeshagala Souharda Sahakari Ltd. and Dwarka Souharda Credit Sahakari Ltd., were previously allowed deductions under section 80P(2)(a)(i) for interest income earned from loans advanced to their members. Post amendment, section 80P(4) excluded co-operative banks from such deductions. However, since the assessees were not classified as co-operative banks, they were not affected by section 80P(4). The Tribunal upheld the CIT(A)'s decision that the assessees were entitled to deductions under section 80P(2)(a)(i), emphasizing that the legislative intent was to exclude only co-operative banks from these benefits, not credit co-operative societies.

Conclusion:
The Tribunal dismissed all appeals filed by the revenue, confirming that the assessees were entitled to deductions under section 80P(2)(a)(i) as they were not classified as co-operative banks under the Banking Regulation Act, 1949. The Tribunal's decision was based on a detailed analysis of the definitions and legislative intent, ensuring that the provisions of section 80P(4) were correctly interpreted and applied.