2015 (11) TMI 1196 - AT - Income Tax

Eligibility to deduction under sec. 80P(2)(a)(i) - CIT(A) allowed the claim - Held that - Commissioner of Income Tax (Appeals) has allowed the claim for deduction under sec. 80P(2)(a)(i) of the Act by following the decision of the Hon ble Karnataka High Court in the case of CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot 2015 (1) TMI 821 - KARNATAKA HIGH COURT wherein held that when the status of the assessee is a Co-operative society and is not a Co- operative bank, the order passed by the Assessing Authority extending the benefit of exemption from payment of tax under Section 80P(2)(a)(i) of the Act is correct. - Decided in favour of assessee.

Issues Involved:
1. Whether the assessee, a cooperative society, qualifies as a "Primary Cooperative Bank" under section 5(ccv) of the Banking Regulation Act, 1949.
2. Whether the assessee is eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.
3. Interpretation and applicability of section 80P(4) of the Income Tax Act, 1961.
4. Reliance on precedents and judicial interpretations regarding cooperative societies and cooperative banks.

Detailed Analysis:

1. Qualification as a "Primary Cooperative Bank":
The Revenue contended that the assessee cooperative society met all three conditions to be classified as a "Primary Cooperative Bank" under section 5(ccv) of the Banking Regulation Act, 1949. These conditions are:
- The primary object or principal business is the transaction of banking business.
- The paid-up share capital and reserves are not less than one lakh rupees.
- The bye-laws do not permit admission of any other cooperative society as a member.
The Assessing Officer (AO) concluded that since the assessee fulfilled these criteria, it should be considered a "Primary Cooperative Bank" and thus not eligible for deduction under section 80P(2)(a)(i) by virtue of section 80P(4).

2. Eligibility for Deduction under Section 80P(2)(a)(i):
The Commissioner of Income Tax (Appeals) allowed the deduction under section 80P(2)(a)(i), which provides for the deduction of income for cooperative societies engaged in banking or providing credit facilities to their members. The assessee argued that it was a cooperative society providing credit facilities to its members and not a cooperative bank. The Commissioner of Income Tax (Appeals) supported this by referencing various judicial decisions, including the Karnataka High Court's ruling in CIT vs. Sri Biluru Gurubasava Pattin Sahakari Sangh Niyamit, which held that societies not registered with the RBI as banks and not engaging in public banking activities are eligible for the deduction.

3. Interpretation and Applicability of Section 80P(4):
Section 80P(4) excludes "cooperative banks" from the benefits of section 80P deductions, except for primary agricultural credit societies or primary cooperative agricultural and rural development banks. The AO interpreted this to mean that the assessee, being a "Primary Cooperative Bank," was excluded from the deduction. However, the Commissioner of Income Tax (Appeals) and the Tribunal found that the assessee did not meet the criteria for being classified as a "cooperative bank" under the Banking Regulation Act, 1949, and thus section 80P(4) was not applicable.

4. Reliance on Precedents and Judicial Interpretations:
The Commissioner of Income Tax (Appeals) and the Tribunal heavily relied on judicial precedents. The Karnataka High Court decisions in CIT vs. Sri Biluru Gurubasava Pattin Sahakari Sangh Niyamit, General Insurance Employees Cooperative Credit Society Ltd, and Vasavi Multipurpose Souharda Sahakari Niyamita, among others, were cited. These rulings consistently held that cooperative societies providing credit facilities to members and not registered as banks with the RBI are eligible for deductions under section 80P(2)(a)(i).

Conclusion:
The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, confirming that the assessee cooperative society was not a "Primary Cooperative Bank" and thus eligible for the deduction under section 80P(2)(a)(i). The Tribunal found no contrary decisions presented by the Departmental Representative and dismissed the Revenue's appeal. The judgment emphasized the consistent judicial interpretation that cooperative societies not engaging in public banking and not registered with the RBI as banks are entitled to deductions under section 80P(2)(a)(i).

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