2015 (9) TMI 1654 - HC - Income Tax

Deduction u/s 80P(2) (a) (i) - assessee is said to be a Co-operative Society registered under the Karnataka State Co-operative Societies Act 1956 - scope of amendment - Whether the benefit of deduction under Section 80 P (2) (a) (i) of the IT Act could be denied to the assessee on the footing that though the appellant was said to be a Co-operative Society it was in fact a co-operative bank within the meaning as assigned to such bank under Part V of the BR Act.? - HELD THAT - Issue decided in favour of assessee in M/S. BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LIMITED 2015 (11) TMI 802 - KARNATAKA HIGH COURT A Co-operative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural rural development bank. The Legislature did not want to deny the said benefit to a primary agricultural credit society or a primary co- operative agricultural and rural development bank. They did not want to extend the said benefit to a co-operative bank which is exclusively carrying on banking business i.e. the purport of the amendment. If the assessee is not a Co-operative bank carrying on exclusively banking business and if it does not possess a license from the Reserve Bank of India to carry on business then it is not a Co-operative bank. It is a Co-operative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e. carrying on the business of banking for providing credit facilitates to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P(i) to the society There is a seriously disputed question of fact which the Authorities under the IT Act have taken upon themselves to interpret in the face of the BR Act prescribing that in the event of a dispute as to the primary object or principal business of any co-operative society referred to in clauses (cciv) (ccv) and (ccvi) of Section 56 of the BR Act a determination thereof by the Reserve Bank shall be final would require the dispute to be resolved by the Reserve Bank of India before the authorities could term the assessee as a co-operative bank for purposes of Section 80 P of the IT Act. Any opinion expressed therefore is tentative and is not final. The view expressed by this court however as to the assessee being a co-operative society and not a co-operative bank in terms of Section 80P (4) of the IT Act shall hold the field and shall bind the authorities unless held otherwise by the Reserve Bank of India. - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the benefit of deduction under Section 80P(2)(a)(i) of the IT Act could be denied to the assessee on the footing that it was a co-operative bank within the meaning assigned under Part V of the BR Act.
2. Whether the authorities under the IT Act were competent and possessed the jurisdiction to resolve the controversy as to whether the assessee was a co-operative society or a co-operative bank, as defined under the provisions of the BR Act.

Detailed Analysis:

1. Denial of Deduction under Section 80P(2)(a)(i) of the IT Act:

The primary issue was whether the assessee, a co-operative society, could be denied the deduction under Section 80P(2)(a)(i) of the IT Act on the grounds that it was considered a co-operative bank under Part V of the BR Act. The Assessing Officer had concluded that the assessee's activities were akin to banking, as it received deposits and provided loans to members, thus satisfying the conditions under Section 56(ccv) of the BR Act. Consequently, the AO held that the assessee was a primary co-operative bank and ineligible for the deduction under Section 80P.

The court referenced several decisions, including CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha and CIT vs. Bangalore Commercial Transporter Credit Society, which had consistently ruled in favor of the assessee. These decisions clarified that if a co-operative bank exclusively carries on banking business, the income derived is not deductible. However, a co-operative society that also lends money to its members is eligible for the deduction under Section 80P(2)(a)(i). The court noted that the assessee did not possess a license from the Reserve Bank of India to carry on banking business, thus it was not a co-operative bank but a co-operative society eligible for the deduction.

2. Jurisdiction of Authorities under the IT Act:

The second issue was whether the authorities under the IT Act had the jurisdiction to determine if the assessee was a co-operative society or a co-operative bank. The court highlighted the explanation appended to Section 56(ccvi) of the BR Act, which states that any dispute regarding the primary object or principal business of a co-operative society must be resolved by the Reserve Bank of India. Therefore, the authorities under the IT Act did not have the jurisdiction to make this determination.

The court concluded that the authorities under the IT Act had overstepped their jurisdiction by attempting to classify the assessee as a co-operative bank without a determination from the Reserve Bank of India. The court reiterated that the assessee was a co-operative society and entitled to the deduction under Section 80P(2)(a)(i) of the IT Act unless the Reserve Bank of India determined otherwise.

Conclusion:

The court ruled in favor of the assessee, holding that the benefit of deduction under Section 80P(2)(a)(i) could not be denied based on the classification of the assessee as a co-operative bank without a determination from the Reserve Bank of India. The authorities under the IT Act were not competent to resolve this classification issue. The appeal was allowed, and the judgment of the Tribunal was set aside.