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2015 (2) TMI 1035 - AT - Income TaxEntitlement to deduction u/s 80P(2)(a)(i) - whether the society being a co-operative bank providing banking facilities to members is not eligible to claim deduction u/s 80P(2)(a)(i) after the introduction of sub-section (4) to section 80P? - Held that - Assessee has not to be regarded to be a primary co-operative bank as all the three basic conditions are not complied with, therefore, it is not a co-operative bank and the provisions of Sec. 80P(4) are not applicable in the case of the Assessee and Assessee is entitled for deduction u/s 80P(2)(a)(i). We, therefore direct the assessing officer to allow deduction to the assessee u/s 80P(2)(a)(i) on the income generated for providing banking or credit facilities to its members. - Decided in favour of assessee.
Issues Involved:
1. Entitlement of the Assessee for deduction under Section 80P(2)(a)(i). 2. Applicability of Section 80P(4) to the Assessee. Analysis of the Judgment: Entitlement of the Assessee for Deduction under Section 80P(2)(a)(i): The core issue was whether the Assessee, a co-operative society, is entitled to a deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Tribunal noted that Section 80P(2)(a)(i) allows a co-operative society engaged in the business of banking or providing credit facilities to its members to claim a deduction on the whole of the amount of profits and gains attributable to such activities. The Tribunal emphasized that the Assessee must be engaged in these activities specifically for its members to qualify for the deduction. Applicability of Section 80P(4) to the Assessee: The Tribunal examined whether the Assessee is a "co-operative bank" as defined under Section 80P(4), which would disqualify it from claiming the deduction. Section 80P(4) excludes co-operative banks, other than primary agricultural credit societies or primary co-operative agricultural and rural development banks, from the benefits of Section 80P. The Tribunal analyzed the definitions provided in the Banking Regulation Act, 1949, and concluded that the Assessee does not meet all three conditions required to be classified as a "primary co-operative bank." Specifically, the Assessee's bye-laws permit the admission of other co-operative societies as members, which disqualifies it from being a primary co-operative bank. Detailed Findings: 1. Primary Object or Principal Business: The Tribunal reviewed the Assessee's bye-laws and found that the Assessee's primary object is to promote the economic interest of its members and to lend money to its members for various purposes. The Tribunal concluded that the Assessee's primary business is not the transaction of banking business as defined under the Banking Regulation Act, 1949, which involves accepting deposits from the public, repayable on demand, and withdrawable by cheque or draft. 2. Paid-up Share Capital and Reserves: The Tribunal acknowledged that the Assessee's paid-up share capital and reserves exceed one lakh rupees, satisfying the second condition. 3. Membership Restrictions: The Tribunal noted that the Assessee's bye-laws allow the admission of other co-operative societies as members, which violates the third condition for being classified as a primary co-operative bank. Conclusion: The Tribunal held that since the Assessee does not fulfill all the conditions to be classified as a primary co-operative bank, it is not a co-operative bank under Section 80P(4). Consequently, the Assessee is entitled to the deduction under Section 80P(2)(a)(i) for the income derived from providing banking or credit facilities to its members. The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s decision allowing the deduction. Final Order: The appeal filed by the revenue was dismissed, and the Assessee was granted the deduction under Section 80P(2)(a)(i). The order was pronounced in the open court on 11.02.2015.
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