2014 (11) TMI 683 - AT - Income Tax

Grant of deduction u/s 80P(2)(a)(i) Income earned from various loans Nature of assessee cooperative bank or not - Whether the assessee is a cooperative bank which will disentitle from claiming deduction u/s 80P(2)(a)(i) or it is a cooperative credit society extending benefit to its members only - Held that - The cooperative society allows its members to open savings account only for nomenclature purposes but cheque facility is not permitted as for normal banking operations - The 17 items listed under the aims and objectives of the cooperative society do not include any item for carrying on the business of banking - section 80P(4) cannot be applied to the assessee since neither has its obtained a license for banking from the RBI nor does it carry on any banking business as envisaged under the Banking Regulation Act, 1949 following the decision in Jyoti Cooperative Credit Society Limited Versus Income Tax Officer 2014 (11) TMI 177 - ITAT BANGALORE - 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 - Since 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 and therefore, it is entitled to deduction u/s 80P(2)(a)(i) of the Act thus, the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Whether the assessee is a cooperative bank or a cooperative credit society.
2. Eligibility for deduction under Section 80P(2)(a)(i) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Whether the assessee is a cooperative bank or a cooperative credit society:
The primary issue revolves around the classification of the assessee as either a cooperative bank or a cooperative credit society. The Assessing Officer (AO) contended that the assessee, despite being registered as a cooperative society, engaged in activities akin to a cooperative bank, thereby disqualifying it from deductions under Section 80P(2)(a)(i). The AO highlighted the interest income from various loans and the nature of the society's operations, such as accepting deposits and issuing pay orders, as indicative of banking activities. However, the CIT (A) and the Tribunal found that the assessee did not possess a banking license from the RBI, did not issue cheques, and did not perform typical banking operations like a cooperative bank. The Tribunal emphasized that the assessee's activities were confined to providing credit facilities to its members, distinguishing it from a cooperative bank as defined under the Banking Regulation Act, 1949.

2. Eligibility for deduction under Section 80P(2)(a)(i) of the Income Tax Act:
The second issue concerns the eligibility for deduction under Section 80P(2)(a)(i). The AO argued that the insertion of sub-section (4) in Section 80P by the Finance Act, 2006, excluded cooperative banks from such deductions. However, the CIT (A) and the Tribunal clarified that this exclusion applied specifically to cooperative banks and not to cooperative credit societies. The Tribunal referred to the Central Board of Direct Taxes (CBDT) clarification No. 133/06/2007-TPL dated 9th May 2007, which stated that Section 80P(4) applies only to cooperative banks. The Tribunal cited previous judgments, including the case of Yeswanthpur Credit Cooperative Society Ltd and the Gujarat High Court's decision in CIT Vs. Jafari Momin Vikas Co-op Credit Society Ltd., affirming that cooperative credit societies are entitled to deductions under Section 80P(2)(a)(i) as they do not fall under the definition of cooperative banks.

Conclusion:
The Tribunal concluded that the assessee is a cooperative credit society, not a cooperative bank, and thus eligible for deductions under Section 80P(2)(a)(i). The appeal by the Revenue was dismissed, upholding the CIT (A)'s order. The judgment emphasized the distinction between cooperative banks and cooperative credit societies, reinforcing the eligibility of the latter for tax deductions under the specified section of the Income Tax Act.