2015 (6) TMI 1113 - AT - Income Tax

Deduction u/s.80P(2)(a)(i) denied - claim of the assessee for deduction u/s. 80P(2)(a)(i) disallowed for the reason that the assessee fell within the realm of Banking Regulation Act 1949 - Held that - No doubt the assessee had satisfied two of the three primary conditions mentioned in section 5(ccv) of the Banking Regulation Act 1949 viz. it had the primary object of banking and it had share capital which was in excess of Rs. One lakh. But we find from the membership qualification as set out in the bye law which has been reproduced by the Assessing Officer at page 37 of his order that there was nothing which forbid a cooperative society from becoming a member. It is clearly stated that every person competent to contract under section 11 of the Indian Contract Act 1872 could become a member provided other conditions are satisfied. A person will definitely include a cooperative society. In any case we find that the Hon ble jurisdictional High Court in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot (2015 (1) TMI 821 - KARNATAKA HIGH COURT ) in relation to a similar issue has held the business of the assessee is to provide credit facilities to its members. Since the assessee cannot carry on any banking business the interest on investment is taxable as income from other source. Therefore the aforesaid facts which is not in dispute clearly establishes that it is not a Cooperative Bank. Revisional Authority also in its order has categorically stated that the assessee is a Co-operative society which provides credit facilities. Section 80P of the Act deals with the deduction of income of a society. - Decided in favour of assessee

Summary

Issues:
- Denial of deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.
- Applicability of Section 80P(4) of the Act to a cooperative bank.
- Interpretation of the Banking Regulation Act, 1949 in relation to cooperative societies.

Analysis:
1. The appeal was filed by the assessee challenging the denial of deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 for the assessment year 2009-10. The Assessing Officer (AO) disallowed the claim as the assessee was considered to fall within the realm of the Banking Regulation Act, 1949.

2. The contention put forth by the Assessee's representative was that the bye laws of the assessee society did not prohibit any other cooperative society from becoming a member, citing a relevant judgment by the Hon'ble jurisdictional High Court.

3. On the contrary, the Departmental Representative argued that the assessee, being a cooperative bank falling within the definition of the Banking Regulation Act, 1949, was subject to the prohibition prescribed in section 80P(4) of the Income-tax Act.

4. The Tribunal examined the orders and contentions of both parties. While the assessee met certain conditions under the Banking Regulation Act, it was noted that the membership qualification did not prohibit a cooperative society from becoming a member, as per the bye laws. Referring to a judgment involving a similar issue, the Tribunal emphasized the distinction between a cooperative bank exclusively engaged in banking business and a cooperative society providing credit facilities to its members.

5. The Tribunal concluded that the assessee, not being a cooperative bank exclusively engaged in banking activities, was entitled to the deduction under section 80P(2)(a)(i) of the Act. The legislative intent behind the provision was considered, and it was clarified that the benefit extended to cooperative societies under Section 80P(1) was not to be excluded based on the nature of their operations.

6. Consequently, the Tribunal directed that the assessee be granted the claimed deduction under section 80P(2)(a)(i) for the relevant assessment year, thereby allowing the appeal.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, and the Tribunal's interpretation and decision based on relevant provisions and precedents.