2018 (4) TMI 322 - AT - Income Tax

Denial of deduction u/s 80P(2)(d) - Held that - The assessee has claimed deduction u/s 80P(2)(d) which provides for deduction in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society. This deduction is available only if the income or dividends are derived by the assessee from cooperative society. A perusal of the impugned order reveals that the assessee has derived income from various Banks, cooperative or otherwise, and not from any co-operative Society. Extending the same logic and finding clear-cut distinction between cooperative society and cooperative bank , we hold that the assessee was not entitled for deduction u/s 80P(2)(d). This ground of assessee s appeal stands dismissed. Alternative claim of the assessee u/s 80P(2)(a)(i) which provides for deduction with respect to profits and gains of business attributable to carrying on the business of banking or providing credit facilities to its members - we find that this issue would require examination of certain financial aspects and Ld. first appellate authority has not examined the claim of the assessee u/s 80P(2)(a)(i). Therefore, without delving much deeper, we deem it fit to restore the matter back to the file of Ld. CIT(A) for adjudication thereof. This ground of assessee s appeal stands allowed for statistical purposes.

Summary

Issues Involved:
1. Denial of deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
2. Eligibility of deduction under Section 80P(2)(a)(i) as an alternative claim.
3. Definition and distinction between 'cooperative societies' and 'cooperative banks' under Section 80P(4).

Analysis of Judgment:

1. Denial of Deduction under Section 80P(2)(d):
The assessee, a registered cooperative society under the Maharashtra State Cooperative Societies Act, 1960, contested the denial of deduction amounting to ?26,74,591/- under Section 80P(2)(d) of the Income Tax Act, 1961. The assessee claimed that it was a cooperative credit society providing credit facilities to its members and not engaged in banking business. However, the Assessing Officer (AO) opined that the assessee was a cooperative bank as its principal business was banking, and its share capital and reserves exceeded the prescribed limit, thus making it ineligible for the deduction. This opinion was based on the definitions under Section 5(ccia), (cci), and (ccv) of Part-V of the Banking Regulation Act, 1949. The CIT(A) upheld this view, relying on the Mumbai Tribunal's decision in Shri Saidatta Cooperative Credit Society Ltd. Vs. ITO and the Hon’ble Apex Court’s decision in Totgars Co-operative Sale Society Ltd. Vs. ITO.

2. Eligibility of Deduction under Section 80P(2)(a)(i):
The assessee alternatively claimed eligibility for deduction under Section 80P(2)(a)(i), which pertains to cooperative societies engaged in providing credit facilities to its members. The CIT(A) did not examine this claim. The Tribunal noted that the issue required examination of financial aspects and remanded the matter back to the CIT(A) for adjudication. The Tribunal emphasized that the terms 'cooperative societies' and 'cooperative banks' carry different meanings under law, and the exclusion clause under Section 80P(4) only debars 'cooperative banks' and not 'cooperative societies' from claiming deductions under Section 80P.

3. Definition and Distinction between 'Cooperative Societies' and 'Cooperative Banks' under Section 80P(4):
The Tribunal referred to the Hon’ble Apex Court's decision in The Citizen Cooperative Society Limited Vs. ACIT, which clarified that a cooperative bank requires a license from the Reserve Bank of India, which the assessee did not possess. The Tribunal also cited the Bombay High Court's decision in The Quepem Urban Co-operative Credit Society Ltd. Vs. ACIT, which held that the exclusion under Section 80P(4) does not apply to cooperative societies engaged in providing credit facilities to their members. The Tribunal found no evidence that the assessee had dealings with non-members or accepted deposits from the public, thus concluding that the assessee was not carrying out banking business and was eligible for deduction under Section 80P.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes. It upheld the denial of deduction under Section 80P(2)(d) as the income was derived from banks and not cooperative societies. However, it remanded the alternative claim under Section 80P(2)(a)(i) back to the CIT(A) for detailed examination and adjudication. The Tribunal emphasized the distinction between cooperative societies and cooperative banks, ruling that the assessee was eligible for deduction under Section 80P as it was not engaged in banking business. The order was pronounced on 04th April, 2018.