2017 (7) TMI 855 - AT - Income Tax

Denial of deduction u/s 80P - whether society had declared itself as banking organization providing credit facility to its members? - whether assessee falls u/s 80P(2)(a)(i) or u/s 80P(4) - Held that - There is no dispute about the nature of activity carried on by assessee viz. providing credit facilities to its members only and not to general public. No deposits had been received from general public. Merely because a co-operative society is carrying on the business of banking, the deduction u/s 80P could not be denied unless it comes within the ambit of cooperative bank as contemplated u/s 80P(4). Therefore, even if, it is held that assessee was carrying on activity of banking still since, it did not answer the description of banking as contemplated under the Banking Regulations Act, 1949, it cannot be held to be cooperative bank. From the forgoing discussion, it is clear that there cannot be any dispute that if the primary object or principal business is banking as contemplated under BRA then only the cooperative society will come within the ambit of primary cooperative bank. Now what is banking has been defined in section 5(b) of the Banking Regulations Act, 1949 and section 56, nowhere states that the context in which primary cooperative bank has been defined is in context different from that as contemplated u/s 5(b) of the Banking Regulations Act, 1949. Therefore, only those transactions of banking business come within the ambit of clause (ccv) of section 56 which meet the mandate of section 5(b) of the Banking Regulations Act, 1949. As find in the case of Shri Laxmi Credit Souhard Sahakari Ltd. (2015 (11) TMI 647 - KARNATAKA HIGH COURT ) has upheld the claim of assessee under identical circumstances and, therefore, respectfully following the decision of Hon ble Karnataka High Court, the assessee s claim is allowed.

Issues Involved:
1. Denial of Deduction under Section 80P of the Income Tax Act, 1961.
2. Classification of the Assessee as a Cooperative Bank under the Banking Regulations Act, 1949.
3. Applicability of Section 80P(4) to the Assessee.
4. Interpretation of "Banking" under the Banking Regulations Act, 1949.
5. Consistency in Allowing Deductions in Previous Assessment Years.

Detailed Analysis:

1. Denial of Deduction under Section 80P of the Income Tax Act, 1961:
The assessee, a cooperative society, filed its return of income for the assessment year 2010-11, claiming a deduction of ?22,71,949 under Section 80P. The Assessing Officer denied this deduction, arguing that the society was engaged in banking activities and thus did not qualify for the deduction under Section 80P(4).

2. Classification of the Assessee as a Cooperative Bank under the Banking Regulations Act, 1949:
The Assessing Officer classified the assessee as a cooperative bank based on its activities of receiving deposits and providing credit facilities to its members. The officer referenced Section 56(ccv) of the Banking Regulations Act, 1949, which defines a "primary cooperative bank" and concluded that the assessee met these criteria.

3. Applicability of Section 80P(4) to the Assessee:
Section 80P(4) states that the provisions of Section 80P shall not apply to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. The CIT(A) upheld the Assessing Officer's decision, arguing that the assessee's primary objective was banking, and thus it should be classified as a primary cooperative bank under Section 80P(4).

4. Interpretation of "Banking" under the Banking Regulations Act, 1949:
The assessee argued that it did not meet the definition of "banking" under Section 5(b) of the Banking Regulations Act, 1949, which requires accepting deposits from the public and allowing withdrawals by cheque, draft, order, or otherwise. The assessee only provided credit facilities to its members and did not accept deposits from the general public, thus not qualifying as a banking entity under the Act.

5. Consistency in Allowing Deductions in Previous Assessment Years:
The assessee highlighted that in the previous assessment year (2009-10), the revenue had allowed the deduction under Section 80P. This consistency should be maintained, and the deduction should not be denied for the current assessment year.

Conclusion:
The Tribunal found that the assessee did not meet the definition of "banking" under the Banking Regulations Act, 1949, as it only provided credit facilities to its members and did not accept deposits from the public. Therefore, the assessee could not be classified as a cooperative bank under Section 80P(4). The Tribunal also noted that the CIT(A) wrongly concluded that the assessee was a primary cooperative bank without considering the specific conditions outlined in the Banking Regulations Act. The Tribunal allowed the assessee's appeal, granting the deduction under Section 80P.

Order:
The appeal of the assessee is allowed, and the deduction under Section 80P is granted. The order was pronounced in the open court on February 17, 2017.

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