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2014 (3) TMI 647 - AT - Income TaxRejection of claim of deduction u/s 80P(2)(a)(i) of the Act Held that - Sec. 80P(2)(a)(i) provides two types of activities in which the co-operative society must be engaged to be eligible for deduction under sub- clause (i) - The two activities are not alternate ones because the section allows deduction to the co-operative society on the whole of profits and gains of business attributable to any one or more of such activities - This pre-supposes that eligible co-operative society can carry on either one of these two businesses or can carry both these businesses for the members - If the Assessee co-operative society carries on one or both of the activities, it will be eligible for deduction. If a co-operative society is engaged in carrying on these activities/facilities for the persons other than its members, the co-operative society, will not be eligible for deduction u/s 80P(2)(a)(i) on the income which it derives from carrying on the activities not relating to its members - where a co-operative society is engaged in carrying on business of banking facilities to its members and to the public or providing credit facilities to its members or to the public, the income which relates to the business of banking facilities to its members or providing credit facilties to its members will only be eligible for deduction u/s 80P(2)(a)(i) - There is no prohibition u/s 80P not to allow deduction to such co- operative societies in respect of business relating to its members. Nature of Assessee - Application of section 80P(4) of the Act on society - Whether the Assessee is a co-operative bank or not Held that - The Assessee did not file the copy of the bye-laws - neither are the provisions of Sec. 17 of The Karnataka State Co-operative Societies Act, 1959 - In the absence of the copy of the bye-laws we are unable to express any opinion whether the Assessee complies with the third condition or not thus, the matter is remitted back to the AO for examination to look into the rules and bye-laws of the Assessee co-operative society In case the AO finds that the bye-laws do not permit the admission of any other co-operative society, in our opinion, the Assessee will be regarded as a primary co-operative bank and will not be entitled for deduction u/s 80P(2)(a)(i) - Decided in favour of Assessee.
Issues Involved:
1. Rejection of deduction claim under Section 80P(2)(a)(i). 2. Application of Section 80P(4) to the appellant society. 3. Distinction between a co-operative bank and a co-operative society. Issue-wise Detailed Analysis: 1. Rejection of Deduction Claim under Section 80P(2)(a)(i): The Assessee, a co-operative society registered under the Karnataka State Co-operative Societies Act, filed a return declaring gross total income and claimed a deduction under Section 80P(2)(a)(i), showing net taxable income as nil. The Assessing Officer (AO) denied this deduction, assessing the income at Rs. 23,65,850/-, arguing that the Assessee is a primary co-operative bank and thus, Section 80P(4) applied. The Assessee appealed to the CIT(A), which upheld the AO's decision. The Tribunal had to determine whether the Assessee was entitled to the deduction under Section 80P(2)(a)(i) and whether it was affected by Section 80P(4), introduced by the Finance Act, 2006, effective from 1.4.2007. 2. Application of Section 80P(4) to the Appellant Society: Section 80P(4) excludes co-operative banks, other than primary agricultural credit societies or primary co-operative agricultural and rural development banks, from deductions under Section 80P. The Tribunal noted that Section 80P(2)(a)(i) allows deductions for co-operative societies engaged in banking or providing credit facilities to members. The Tribunal emphasized that not all co-operative societies engaged in banking are co-operative banks. The Tribunal had to decide if the Assessee was a co-operative bank, which would disqualify it from the deduction under Section 80P(2)(a)(i). 3. Distinction between a Co-operative Bank and a Co-operative Society: The Tribunal examined whether the Assessee met the criteria of a primary co-operative bank as defined under Section 5(ccv) of the Banking Regulation Act, 1949. The criteria include: - The primary object or principal business is banking. - Paid-up share capital and reserves of not less than one lakh rupees. - By-laws do not permit admission of any other co-operative society as a member. The Tribunal found that the Assessee accepted deposits from non-members for lending to members, satisfying the first condition. The Assessee's paid-up share capital and reserves exceeded one lakh rupees, meeting the second condition. However, the Tribunal lacked the Assessee's by-laws to determine the third condition. Therefore, the Tribunal remanded the issue to the AO to verify if the by-laws permitted admission of other co-operative societies. If the by-laws allowed such admissions, the Assessee would not be a primary co-operative bank and would be entitled to the deduction under Section 80P(2)(a)(i). Otherwise, the Assessee would be considered a primary co-operative bank and ineligible for the deduction. Conclusion: The Tribunal set aside the CIT(A)'s order, remanding the issue to the AO to ascertain the Assessee's by-laws regarding the admission of other co-operative societies. The Assessee's appeal was allowed for statistical purposes, pending the AO's verification. The Tribunal's decision emphasized the distinction between co-operative societies and co-operative banks, affecting eligibility for deductions under Section 80P.
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