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2015 (6) TMI 573 - HC - Income TaxEntitlment to the benefit of Section 80P(2)(a)(i)denied - whether assessee is a Primary Co-operative Bank, thus hit by the exclusion provided in Section 80P(4)? - Held that - As rightly pointed out on behalf of the appellant the word society as referred to bye law 9(d) would include the co-operative society. This is so as the definition of a society under the Co-operative Act is co-operative society registered under the Cooperative Act. Besides the qualifying condition 3 for being considered as a primary Cooperative bank is that the bye laws must not permit admission of any other cooperative society. This is a mandatory condition i.e. the bye laws must specifically prohibit admission of any other cooperative society to its membership. The Revenue has not been able to show any such prohibition in the bye laws of the appellant. Thus even the aforesaid qualifying condition (3) for being considered as a primary cooperative bank is not satisfied. Thus, the three conditions as provided under Section 5 (CVV) of the Banking Regulation Act, 1949, are to be satisfied cumulatively and except condition (2) the other two qualifying conditions are not satisfied. Ergo, appellant cannot be considered to be a co-operative bank for the purposes of Section 80P(4) of the Act. Thus, the appellant is entitled to the benefit of deduction available under Section 80P(2)(a)(i) of the Act. The contention of Ms. Dessai, learned Counsel for the revenue that the appellant is not entitled to the benefit of Section 80P(2)(a)(i) of the Act in view of the fact that it deals with non-members cannot be upheld. This for the reason that Section 80P(1) of the Act restricts the benefits of deduction of income of co-operative society to the extent it is earned by providing credit facilities to its members. As at the time when effect has been given to the order of this Court, the authorities under Act would restrict the benefit of deduction under Section 80P of the Act only to the extent that the same is earned by the appellant in carrying on its business of providing credit facilities to its members. - Decided in favour of assessee.
Issues Involved:
1. Whether the appellant is a Co-operative Bank and hence, not entitled to deduction under Section 80P(2)(a)(i) by virtue of Section 80P(4) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Appellant's Status as a Co-operative Bank: The core issue in these appeals is whether the appellant qualifies as a Co-operative Bank, thus being ineligible for deductions under Section 80P(2)(a)(i) due to the exclusion in Section 80P(4). The Tribunal had ruled that the appellant is a Primary Co-operative Bank, thereby disqualifying it from the benefits of Section 80P(2)(a)(i). 2. Conditions for Being a Primary Co-operative Bank: The appellant argued that it does not meet the conditions of a Primary Co-operative Bank as per Section 5(ccv) of the Banking Regulation Act, 1949, which requires: - The primary object or principal business must be banking. - Paid-up share capital and reserves must not be less than one lakh rupees. - Bye-laws must not permit admission of any other co-operative society as a member. The appellant contended that it does not satisfy conditions (1) and (3), arguing that its primary object is not banking, and its bye-laws do not prohibit other co-operative societies from becoming members. 3. Tribunal's Findings: The Tribunal concluded that the appellant's principal business is banking based on its dealings with non-members and the interpretation of its bye-laws. However, the appellant disputed this, stating that the transactions with non-members were insignificant and that its bye-laws do not support the Tribunal's interpretation. 4. Legal Provisions and Definitions: The judgment examined the definitions in Section 80P and the Banking Regulation Act. It highlighted that for Section 80P(4) to apply, the entity must meet the definition of a Co-operative Bank as per the Banking Regulation Act, which includes State Co-operative Banks, Central Co-operative Banks, and Primary Co-operative Banks. 5. Analysis of Conditions: The court scrutinized whether the appellant meets the conditions to be classified as a Primary Co-operative Bank: - Condition (1): The court found no substantial evidence that the appellant's primary business is banking, noting that the transactions with non-members were minimal and did not justify classifying the appellant as primarily engaged in banking. - Condition (3): The appellant's bye-laws were amended to allow other co-operative societies as members, which contradicts the requirement for being a Primary Co-operative Bank. 6. Requirement of Banking License: The appellant argued that without a banking license from the Reserve Bank of India, it cannot be considered a bank. The court noted this argument but did not base its decision on it, focusing instead on the statutory conditions. 7. Revenue's Argument: The Revenue contended that any dealings with non-members disqualify the appellant from Section 80P benefits. The court clarified that deductions under Section 80P(2)(a)(i) are restricted to income from providing credit facilities to members, and any income from non-members should be excluded. Conclusion: The court concluded that the appellant does not meet the criteria to be classified as a Primary Co-operative Bank under Section 5(ccv) of the Banking Regulation Act. Therefore, the exclusion under Section 80P(4) does not apply, and the appellant is entitled to deductions under Section 80P(2)(a)(i) for income earned from providing credit facilities to its members. The substantial question of law was answered in favor of the appellant, and the appeals were allowed. Final Order: The appeals were allowed, and it was ordered that the benefit of deduction under Section 80P of the Act should be restricted to income earned from providing credit facilities to members. No order as to costs was made.
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