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2014 (2) TMI 990 - AT - Income TaxClaim of Deduction u/s 80P(2)(a)(i) of the Act - Co-operative society Whether the gross total income of a cooperative society includes income from carrying on the business of banking or providing credit facilities to its members and is allowed as deduction or not Held that - The decision in ACIT, Circle 3(1), Bangalore v. M/s. Bangalore Commercial Transport Credit Co-operative Society Ltd. 2011 (4) TMI 1222 - ITAT BANGALORE followed - section 80P(4) is applicable only to cooperative banks and not to credit cooperative societies - The intention of the legislature of bringing in cooperative banks into the taxation structure was mainly to bring in par with commercial banks - the assessee is a cooperative society and not a cooperative bank, the provisions of section 80P(4) will not have application in the assessee s case thus, it is entitled to deduction u/s 80P(2)(a)(i) of the Act. The Revenue s contention cannot be accepted 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 thus, the 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.
Issues Involved: Applicability of deduction under Section 80P(2)(a)(i) of the Income Tax Act to a co-operative society engaged in banking business after the insertion of Sub-section (4) by the Finance Act, 2006.
Issue-wise Detailed Analysis: 1. Applicability of Section 80P(2)(a)(i) to Co-operative Societies: The assessee, a co-operative society engaged in banking, claimed deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer (AO) contended that due to the insertion of Sub-section (4) to Section 80P by the Finance Act, 2006, effective from 1-4-2007, the assessee, being a co-operative bank, was not entitled to this deduction. The AO's position was based on the nature of the assessee's activities, which he deemed to be banking in nature, and thus falling within the scope of a co-operative bank as per the Banking Regulation Act, 1949. The AO highlighted features such as open membership, acceptance of deposits for investment and lending, and issuance of pay orders, which aligned the assessee with banking institutions. 2. CIT(Appeals) Decision: Upon appeal, the CIT(Appeals) allowed the assessee's claim for deduction under Section 80P(2)(a)(i), relying on previous ITAT decisions which distinguished between co-operative societies and co-operative banks. The CIT(A) referenced cases such as ACIT, Circle-3(1), Bangalore v. M/s Bangalore Commercial Transport Credit Co-operative Society Ltd., and others, which concluded that Section 80P(4) applies only to co-operative banks and not to credit co-operative societies. 3. Tribunal's Analysis: The Tribunal upheld the CIT(A)'s decision, reiterating that Section 80P(4) is applicable exclusively to co-operative banks and not to credit co-operative societies. The Tribunal emphasized the legislative intent behind introducing Section 80P(4), which was to bring co-operative banks on par with commercial banks, not to deny benefits to credit co-operative societies. The Tribunal cited its own earlier rulings and the Central Board of Direct Taxes (CBDT) Circular No. 133/06/2007-TPL dated 9th May 2007, which clarified that Section 80P(4) does not apply to co-operative societies that are not co-operative banks. 4. Gujarat High Court Judgment: The Tribunal also referenced the Gujarat High Court judgment in CIT Vs. Jafari Momin Vikas Co-op Credit Society Ltd., which addressed a similar issue. The High Court ruled that Section 80P(4) excludes only co-operative banks from the benefits of Section 80P and not credit co-operative societies. The court relied on the CBDT circular to conclude that the exclusion under Section 80P(4) does not extend to credit co-operative societies. Conclusion: The Tribunal dismissed the revenue's appeal, affirming that the assessee, being a credit co-operative society and not a co-operative bank, is entitled to the deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Tribunal's decision was based on the distinction between co-operative banks and credit co-operative societies, the legislative intent behind Section 80P(4), and supporting judicial precedents and CBDT clarifications. Pronouncement: The judgment was pronounced in the open court on 7th February 2014.
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