2014 (10) TMI 401 - HC - Income Tax

Stay application Applicability of guidelines for staying demand - Held that - Assessee rightly contended that in Commissioner of Income Tax Versus Jafari Momin Vikas Co-Op Credit Society Ltd. 2014 (2) TMI 28 - GUJARAT HIGH COURT it has been rightly held that they are not doing banking activities and they do not fall within the definition of banking as defined under Section 5(b) of the Banking Regulation Act, nor do they possess license u/s 22 of the Act, which is the mandatory requirement - As per the clarification issued by the CBDT dated 01.12.2009, detailed instructions have been given as to how and under what circumstances, stay of demand could be granted - the guidelines are binding upon the Officer, while considering the application for grant of stay. The petitioner is the Co-operative Society registered under the provisions of the Tamil Nadu Co-operative Societies Act - The bye-laws of the Society have clearly shows that the Society has to work and function for the benefit of its members - Unlike any other private organization, the Society operates on the strict parameters in accordance with the provisions of the Tamil Nadu Co-operative Societies Act, 1983 and the Tamil Nadu Co-operative Societies Rules, 1988 - if the entire tax levied is directed to be remitted, it would undoubtedly cause severe financial hardship and it would also cripple their entire activities assessee has made out a case for grant of interim stay Stay granted.

Summary

Issues:
- Disallowance of deduction under Section 80P(2)(a)(i) of the Income Tax Act to a Co-operative Society providing credit facility
- Denial of stay of collection of demand by the Commissioner of Income Tax

Analysis:
1. Disallowance of Deduction under Section 80P(2)(a)(i):
The petitioner, a Co-operative Society, derived income from credit facility, house property, selling plots, and dividends. The assessments for four years disallowed the deduction under Section 80P(2)(a)(i) of the Income Tax Act, claiming the Society was conducting banking business and thus ineligible for the deduction. The petitioner contended it was a credit society, not a bank under the Banking Regulation Act, and thus, eligible for the deduction. Reference was made to the Gujarat High Court decision supporting the petitioner's position. The petitioner argued that not holding a banking license and focusing on housing needs exempted them from Section 80P(4) applicability.

2. Denial of Stay of Collection of Demand:
The petitioner filed stay petitions due to pending appeals against the disallowance. Initially, the 1st respondent directed payment of 25% demand immediately. Subsequently, the 2nd respondent rejected further stay requests, stating that filing an appeal was not sufficient reason for stay and no financial stringency was proven. The petitioner highlighted the Finance Act, 2006 amendment and CBDT circular, emphasizing that the Society was not a co-operative bank but a credit society. The petitioner argued that the decision of the Hon'ble Gujarat High Court favored them, establishing a prima facie case. The Court noted the freeze on the Society's bank account causing severe financial hardship and granted an interim stay until the appeal's disposal by the Commissioner of Income Tax (Appeals).

In conclusion, the High Court allowed the writ petitions, setting aside the impugned orders and granting an interim stay of tax collection for the four assessment years until the appeal's resolution. The Court emphasized the Society's operations for its members' benefit under the Co-operative Societies Act, highlighting the potential irreparable hardship if the tax was enforced immediately. The judgment considered the petitioner's arguments, the Gujarat High Court decision, and the financial implications on the Society, leading to the decision to grant an interim stay.