2019 (4) TMI 352 - AT - Income Tax

Deduction u/s 80P - The assessee is an AOP running a Co-operative Credit society and doing banking business for their members - CIT(A) has allowed the claim holding that banking business and the service of the assessee was not by the public at large - HELD THAT - The assessee was not banking license as required Section 22 of the Act Banking Regulation Act. The assessee society was providing the finance facility to its limited members. However, on appraisal of the object of the assessee society, we noticed that there is a provision of nominal member whose liability limited to subscribe the shares of the society. However, they have not right to interfere in the object, function in the society. Nothing came into noticed that the assessee was doing the business in public at large. There is a lot of difference between cooperative bank and cooperative society. The law relied by the Ld. Representative of the revenue i.e. Citizen Co-operative Society Ltd. speaks about this fact that the society was in the business of co-operative bank and was carrying on banking business for public at large. The factual position in the said cases is quite different to the fact of the present case. CIT(A) has decided the matter of controversy in view of the decision of Bombay High Court in the case of Quepem Urban Credit Co-operative Society 2015 (6) TMI 573 - BOMBAY HIGH COURT - decided against revenue

Summary

Issues:
1. Allowance of deduction u/s 80P to the assessee carrying out banking business in the name of a co-operative credit society.
2. Consideration of inserted 80P(4) and sub-clause (viia) to section 2(24) of the Finance Act, 2006.
3. Interpretation of the decision of the Supreme Court regarding interest received by a co-operative society from investment of surplus funds as "Income from Other Sources" affecting eligibility for deduction u/s 80P of the IT Act, 1961.

Issue 1 & 3:
The primary contention in this case revolved around the allowance of the claim of the assessee under section 80P of the Income Tax Act, particularly in the context of engaging in banking business through a co-operative credit society. The Revenue argued that since the assessee was involved in banking activities, they were not entitled to the deduction u/s 80P. The assessee, on the other hand, refuted this claim by asserting that they were not engaged in banking business. The CIT(A) analyzed the facts and found that the assessee was not conducting banking business for the public at large, did not possess a banking license as mandated by the Banking Regulation Act, and provided financial services exclusively to its limited members. The CIT(A) distinguished between a cooperative bank and a cooperative society, citing the decision of the Bombay High Court in a relevant case. Ultimately, the Tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee and dismissing the revenue's appeal.

Issue 2:
The consideration of the inserted 80P(4) and sub-clause (viia) to section 2(24) of the Finance Act, 2006, played a crucial role in the judgment. The Revenue contended that these provisions should have been taken into account while allowing the deduction u/s 80P(2)(a)(i). However, the CIT(A) based its decision on the fact that the assessee was not engaged in banking activities for the public at large and did not possess the necessary banking license. The Tribunal concurred with the CIT(A)'s reasoning and found that the provisions cited by the Revenue were not applicable in the present case. Consequently, the Tribunal dismissed the appeal filed by the Revenue, upholding the decision in favor of the assessee regarding the deduction under section 80P.

In conclusion, the Appellate Tribunal ITAT Mumbai, in its judgment dated 27.03.2019, analyzed the issues raised by the Revenue regarding the allowance of deduction u/s 80P to the assessee operating through a co-operative credit society. The Tribunal upheld the decision of the CIT(A) in favor of the assessee, emphasizing that the assessee was not conducting banking business for the public at large and therefore was eligible for the deduction under section 80P of the IT Act, 1961. The judgment provided a detailed analysis of the facts, legal provisions, and precedents, ultimately dismissing the Revenue's appeal and affirming the allowance of the deduction to the assessee.