2014 (2) TMI 681 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) of the Act Applicability of Sec.80P(4) of the Act Held that -CIT(A) was of the view that the provisions of section 80P(4) has got its application only to cooperative banks - Section 80P(4) does not define the word cooperative society . -The existing sub-section 80P(2)(a)(i) shall be applicable to a cooperative society carrying on credit facility to its members -This view is also clarified by Central Board of Direct Tax vide its clarification No.133/06/2007-TPL dated 9th May, 2007 - Subsection( 4) of section 80P will not apply to an assessee which is not a co-operative bank - Circular clarified that the entity not being a cooperative bank, section 80P(4) of the Act would not apply to it - the Revenue s contention cannot be entertained that section 80P(4) would exclude not only the cooperative banks other than those fulfilling the description contained therein but also credit societies, which are not cooperative banks - assessee is not a credit co-operative bank but a credit cooperative society - Exclusion clause of sub-section(4) of section 80P would not apply Decided against Revenue.

Summary

Issues:
1. Interpretation of Sec. 80P(2)(a)(i) of the Income Tax Act.
2. Applicability of Sec. 80P(4) to cooperative societies engaged in banking business.
3. Distinction between cooperative banks and credit cooperative societies for tax deduction purposes.

Analysis:
1. The primary issue in this case was the interpretation of Sec. 80P(2)(a)(i) of the Income Tax Act, which allows deductions for cooperative societies engaged in banking or credit activities. The Revenue argued that the appellant, a cooperative society engaged in banking business, was not entitled to this deduction due to the insertion of sub-section (4) by the Finance Act, 2006. The AO contended that the appellant's activities fell within the definition of a banking institution, making them ineligible for the deduction.

2. The second issue revolved around the applicability of Sec. 80P(4) to cooperative societies engaged in banking activities. The AO held that the appellant, being a cooperative bank, did not qualify for the deduction under Sec. 80P(2)(a)(i). However, the CIT(Appeals) allowed the deduction based on precedents where it was clarified that Sec. 80P(4) applied only to cooperative banks and not credit cooperative societies. The Tribunal further emphasized that the legislative intent was to bring cooperative banks in line with commercial banks, not credit cooperative societies.

3. The final issue addressed the distinction between cooperative banks and credit cooperative societies for tax deduction purposes. The Tribunal reiterated that the provisions of Sec. 80P(4) were intended for cooperative banks specifically defined in the Banking Regulation Act, excluding entities like credit cooperative societies. The CBDT circular clarified that if an entity did not fall within the definition of a cooperative bank as per the Banking Regulation Act, Sec. 80P(4) would not apply. Therefore, the Tribunal dismissed the Revenue's contention that Sec. 80P(4) would exclude credit societies that were not cooperative banks, affirming that the appellant, as a credit cooperative society, was entitled to the deduction under Sec. 80P(2)(a)(i).

In conclusion, the Tribunal upheld the CIT(Appeals) decision, emphasizing that the appellant, being a credit cooperative society and not a cooperative bank, was eligible for the deduction under Sec. 80P(2)(a)(i) of the Income Tax Act. The judgment clarified the legislative intent behind the provisions and distinguished between different types of cooperative entities for tax purposes, ultimately dismissing the Revenue's appeal.