2014 (11) TMI 148 - HC - Income Tax

Interim stay petition - Appeal pending before CIT(A) Prima facie case for stay - CBDT instruction No.1914 dated 02.12.1993 not considered - Held that - Assessee contended that with effect from 01.04.2007, the benefit of deduction available to certain co-operative banks were withdrawn by insertion of new sub-section(4) to provide that the provisions of this section will not apply in relation to any co-operative bank other than a primary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 assessee submitted that it is a co-operative credit society, providing credit facilities to its members and not a Bank under Banking Regulation Act - It does not have license to act as Bank and the object of society is to help its members only and hence deduction under Section 80P(2)(a)(i) cannot be denied assessee in the stay petition has specifically raised that the decision of the Hon ble Gujarat High Court is fully in their favour - Therefore, they have raised the issue to establish prima facie case - 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 said 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 assessee has made out a case for grant of interim stay till the appeal is heard, disposed of by the CIT(A) Stay granted.

Summary

Issues Involved:
- Disallowance of deduction under Section 80P(2)(a)(i) of the Income Tax Act
- Rejection of stay petition for collection of demand
- Interpretation of law regarding co-operative societies and co-operative banks
- Application of Section 80P(4) of the Income Tax Act
- Consideration of guidelines for staying demand
- Prima facie case, balance of convenience, and irreparable loss or hardship in granting interim stay

Detailed Analysis:

1. Disallowance of deduction under Section 80P(2)(a)(i) of the Income Tax Act:
The petitioner, a Co-operative Society deriving income from banking activities, was assessed for five years disallowing the deduction under Section 80P(2)(a)(i) on the ground of providing credit facility to its members. The petitioner contended that it is a credit co-operative society, not a bank, and relied on a Gujarat High Court decision to support its eligibility for the deduction.

2. Rejection of stay petition for collection of demand:
The petitioner filed a stay petition against the demand based on the Gujarat High Court decision and CBDT instructions, but it was rejected by the Commissioner of Income Tax. The rejection was based on the lack of financial stringency and the view that filing an appeal is not a valid ground for deferring recovery proceedings.

3. Interpretation of law regarding co-operative societies and co-operative banks:
The petitioner argued that it does not fall under the definition of a bank as per the Banking Regulation Act, as it does not hold a banking license. It emphasized that its primary objective is to help members with credit facilities, distinguishing itself from a bank.

4. Application of Section 80P(4) of the Income Tax Act:
The petitioner highlighted the amendment in Section 80P by the Finance Act, 2006, excluding certain co-operative banks from the deduction benefit. It argued that the Society's activities do not align with the definition of a co-operative bank, thus making it eligible for the deduction.

5. Consideration of guidelines for staying demand:
The petitioner sought a stay based on CBDT guidelines, emphasizing the High Court decision supporting its case. The Court noted the guidelines for granting a stay, focusing on valid reasons and conflicting interpretations of law by different authorities.

6. Prima facie case, balance of convenience, and irreparable loss or hardship in granting interim stay:
The Court analyzed the petitioner's case, considering the Gujarat High Court decision and the potential financial hardship if the demand was enforced. It found that the petitioner established a prima facie case, balance of convenience favored the petitioner, and enforcing the demand would cause irreparable hardship.

In conclusion, the High Court allowed the writ petitions, setting aside the impugned orders and granting an interim stay of tax collection for the five assessment years until the appeal is disposed of by the Commissioner of Income Tax (Appeals).