2015 (10) TMI 941 - AT - Income Tax

Entitlement to deduction u/s.80P(2)(a)(i) - AO was of the opinion that assessee, a Credit Cooperative Society under the Karnataka Cooperative Societies Act was hit by Section 80P(4) of the Act as in the business of giving credits and should be considered as a cooperative bank, hence disallowed the claim.- CIT(A) allowed the claim - whether assessee fell within the limitation specified in Section 80P(4)? - Held that - It is an admitted position that assessee was bound to give interest to its members on the deposits received by it from them. Therefore, when there were no takers for the money, which assessee as a part of its objects wanted to lend, the only available choice for assessee, in order not to keep the funds idle, was to place it in banks for earning interest. As relying on case of CIT v. Tumkur Merchants Souharda Credit Cooperative Ltd 2015 (2) TMI 995 - KARNATAKA HIGH COURT it is held the money meant for lending, remaining surplus, there being no takers, if deposited in banks for earning interest, such interest income would be attributable to the business of banking carried out by the assessee. Natural corollary is that Section 80P(4) of the Act is not attracted unless the cooperative society is recognised by RBI as a cooperative bank as per the rules made under Reserve Bank of India Act. We, therefore, hold that assessee was eligible for claiming deduction u/s.80P(2)(a)(i) of the Act. We do not find it necessary to interfere with the order of the CIT (A). - Decided in favour of assessee.

Summary

Issues:
- Appeal by Revenue challenging deduction u/s.80P(2)(a)(i) of the Income-tax Act, 1961.
- Interpretation of Section 80P(4) of the Act regarding cooperative societies and cooperative banks.

Analysis:
1. The appeal by Revenue contested the allowance of a deduction u/s.80P(2)(a)(i) of the Income-tax Act, 1961, concerning a sum of Rs. 44,48,990/-, based on previous decisions. The Revenue argued that the assessee, a Credit Cooperative Society, should be considered a cooperative bank under Section 80P(4) of the Act, disallowing the claim.

2. The CIT (A) ruled in favor of the assessee, stating that unless a credit cooperative society holds an RBI license as a cooperative bank, it is not subject to Section 80P(4) of the Act. The Revenue strongly opposed this decision, claiming the assessee fell within the limitations of Section 80P(4), citing detailed study by the AO on Banking Regulations Act, 1949.

3. The Tribunal analyzed the primary objective of the assessee society, providing credit facilities to members, and the utilization of funds. Despite most funds being in FDs, the society was obligated to pay interest to members on deposits. The Tribunal referred to relevant judgments emphasizing the importance of the term "attributable to" in Section 80P(2)(a)(i) and its broader interpretation compared to "derived from."

4. The Tribunal highlighted a Supreme Court case where interest income was not attributable to the specified business activities. In contrast, in the present case, the interest earned by the cooperative society from bank deposits was directly linked to providing credit facilities, making it eligible for deduction under Section 80P(1) of the Act. The Tribunal also cited a similar view by the Andhra Pradesh High Court.

5. Referring to a judgment by the jurisdictional High Court, the Tribunal concluded that interest income from surplus funds deposited in banks due to lack of lending opportunities was attributable to the business of banking. Consequently, the Tribunal upheld the eligibility of the assessee for claiming the deduction u/s.80P(2)(a)(i) and dismissed the Revenue's appeal.

6. The Tribunal's decision aligned with the interpretation of relevant provisions and legal precedents, emphasizing the distinction between cooperative societies and cooperative banks under Section 80P of the Act. The judgment provided a comprehensive analysis of the issues raised by the Revenue and the CIT (A), ultimately affirming the CIT (A)'s decision in favor of the assessee.