2016 (12) TMI 1537 - AT - Income Tax

Entitlement to the benefit u/s.80P(2)(a)(i) - applicability of provisions of section 80P(4) on assessee - assessee is a Credit Co-op. Society engaged in the business of providing credit facility to its members - Held that - Assessee credit co-op. society is not carrying on the activity in the nature of banking business and is also not registered under the Banking Regulation Act and is only confined for accepting and providing finance to its members. Further on going through the definition of banking as per the Banking Regulation Act - Banking means the accepting, for the purpose of lending or investment, of deposits of money from the public repayable on demand or other wise and withdrawal by cheque draft order or otherwise. From going through this definition it is clear that under the banking business lending and accepting deposit is from public at large which is not so in the case of assessee society wherein finance business is confined only to its members. We are, therefore, of the view and the finding given by ld. CIT(A) relying on the decision of the Co-ordinate Bench in the case of M/s Jafari Momin Vikas Credit Co-op. Society Ltd. (2014 (1) TMI 481 - ITAT AHMEDABAD ), we find that provisions of section 80P(4) of the Act are not applicable to the assessee and is, therefore, eligible to claim deduction u/s 80P(2)(a)(i) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Entitlement to deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Applicability of section 80P(4) of the Income Tax Act, 1961 to the assessee's case.
3. Classification of the assessee as a cooperative bank under the Banking Regulation Act, 1949.

Detailed Analysis:

1. Entitlement to Deduction under Section 80P(2)(a)(i):
The primary issue revolves around whether the assessee, a Credit Cooperative Society, is entitled to the deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee claimed a deduction of ?65,09,757 under this section, asserting that it provides credit facilities to its members, which qualifies it for the deduction. The CIT(A) upheld the assessee's claim, following precedents set by various judicial decisions, including those of the ITAT Bangalore and Panaji Benches, which held that cooperative societies providing credit facilities to their members are entitled to such deductions.

2. Applicability of Section 80P(4):
The Revenue contended that the provisions of section 80P(4), which were inserted by the Finance Act, 2006, apply to the assessee, thereby disqualifying it from claiming the deduction under section 80P(2)(a)(i). Section 80P(4) excludes cooperative banks from the benefits of section 80P(2). The Assessing Officer (AO) argued that the assessee's activities amounted to banking business, thus falling under the purview of section 80P(4). However, the CIT(A) and the Tribunal found that the assessee did not meet the criteria of a cooperative bank as defined under the Banking Regulation Act, 1949.

3. Classification as a Cooperative Bank:
The Tribunal examined whether the assessee qualifies as a cooperative bank under the Banking Regulation Act, 1949. The definition of "banking" under section 5(b) of the Banking Regulation Act involves accepting deposits from the public, which the assessee does not do; it only accepts deposits from its members. The Tribunal noted that the assessee's activities are confined to its members and do not extend to the public at large. Consequently, the assessee does not fall under the definition of a cooperative bank, and therefore, section 80P(4) does not apply.

Tribunal's Conclusion:
The Tribunal upheld the CIT(A)'s decision that the assessee is entitled to the deduction under section 80P(2)(a)(i) because it does not engage in banking business as defined by the Banking Regulation Act. The Tribunal relied on the decision of the Co-ordinate Bench in the case of M/s Jafari Momin Vikas Co-op. Credit Society Ltd. vs. ITO, which held that cooperative credit societies that do not engage in banking activities are eligible for deductions under section 80P(2)(a)(i).

Final Judgment:
The Tribunal dismissed the Revenue's appeal, confirming that the provisions of section 80P(4) are not applicable to the assessee and that it is eligible for the deduction under section 80P(2)(a)(i).

Order Pronounced:
The appeal of the Revenue was dismissed, and the order was pronounced in the open Court on 23rd December, 2016.