2021 (3) TMI 662 - AT - Income Tax

Deduction u/s. 80P(2)(d) - AO disallowed the deduction u/s. 80P(2d) by holding that the assessee was a Cooperative bank as per section 80P(4) - assessee s appeal learned CIT(A) deleted the disallowance holding that the was not a cooperative bank - HELD THAT - We find that this issue is squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of Citizen Cooperative Society Ltd. 2017 (8) TMI 536 - SUPREME COURT and The Mavilayi Service Cooperative Bank Ltd. Ors. Vs. CIT, Calicut Ors. 2021 (1) TMI 488 - SUPREME COURT . We find that the Assessing Officer has completely erred in treating the assessee as cooperative bank and invoking the provisions of section 80P(4). Honourable Supreme Court in the case of Citizen Cooperative Society Ltd. has settled the law that for being considered as a cooperative bank licence from RBI in this regard is a sine qua non. In absence of the RBI licence as such the assessee cannot be treated as cooperative bank. Hence disallowing the deduction by referring to the provisions of section 80P(4) is completely unsustainable. Moreover section 80P(2)(d) provides exemption to interest earned on fixed deposit in cooperative societies. It is nobody's case that cooperative bank are not cooperative societies. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the CIT(A) erred in allowing the assessee's claim for deduction under section 80P(2)(d) of the Income Tax Act, 1961, disregarding the provisions of section 80P(4).
2. Whether the CIT(A) erred in holding that co-operative banks are cooperative societies, thus entitling the assessee to claim interest earned from deposits kept with co-operative banks as a deduction under section 80P(2)(d).

Issue-wise Detailed Analysis:

1. Deduction under Section 80P(2)(d) and Section 80P(4):
The Assessing Officer (AO) disallowed the deduction under section 80P(2)(d), treating the assessee as a cooperative bank per section 80P(4). The AO concluded that the assessee’s activities, such as accepting deposits and advancing loans, indicated banking business. The AO cited various features from the balance sheet, such as deposits, loans, unclaimed dividends, and reserves for bad debts, to support this conclusion. The AO also referenced the Banking Regulation Act, 1949, stating that the assessee met the criteria of a primary cooperative bank due to its business activities, paid-up capital, and reserves.

2. CIT(A)'s Decision:
Upon appeal, the CIT(A) deleted the disallowance, holding that the assessee was not a cooperative bank. The CIT(A) emphasized that section 80P(4) does not apply to cooperative societies providing credit facilities to members. The CIT(A) referred to the definitions in the Banking Regulation Act, 1949, distinguishing between a cooperative bank and a cooperative credit society. The CIT(A) noted that the assessee did not meet the definition of a primary cooperative bank as it was not engaged in banking business with the public and did not have the requisite RBI license.

3. Jurisdictional High Court and Supreme Court Decisions:
The CIT(A) cited the jurisdictional High Court decision in Quepem Urban Co-operative Credit Society Ltd. vs. ACIT, which held that a society must meet specific conditions to be considered a cooperative bank under section 80P(4). The CIT(A) also referenced the Supreme Court decisions in Citizen Cooperative Society Ltd. and The Mavilayi Service Cooperative Bank Ltd. & Ors. vs. CIT, which clarified that a cooperative society must have an RBI license to be considered a cooperative bank under section 80P(4). The Supreme Court emphasized that section 80P is a benevolent provision and should be interpreted liberally in favor of the assessee.

4. Tribunal's Conclusion:
The Tribunal upheld the CIT(A)’s order, agreeing that the AO erred in treating the assessee as a cooperative bank and invoking section 80P(4). The Tribunal reiterated that the assessee did not possess an RBI license, and thus, could not be considered a cooperative bank. The Tribunal also noted that section 80P(2)(d) provides exemption to interest earned on fixed deposits in cooperative societies, and cooperative banks are considered cooperative societies.

Final Judgment:
The Tribunal dismissed the Revenue’s appeals, affirming the CIT(A)’s decision to allow the assessee’s claim for deduction under section 80P(2)(d). The Tribunal pronounced the judgment in the open court on 11.3.2021.