2015 (9) TMI 1734 - HC - Income Tax

Deduction u/s 80P(2) (a) (i) - whether the assessee - Society is to be treated as a primary co-operative bank ? - Whether the benefit of deduction u/s 80P (2) (a) (i) 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? - whether Tribunal was correct in holding that the provision of sub-section (4) of Section 80P are applicable only to co- operative Banks and not to credit Co-operative Societies which are engaged in business of banking including providing credit facilities to their members? - HELD THAT - We are in respectful agreement with the general view taken as to the interpretation of the relevant provisions of law by the co-ordinate bench of this court in the above and several other judgments adopting the same view. However it is to be noticed that 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) shall hold the field and shall bind the authorities unless held otherwise by the Reserve Bank of India. See M/S. BANGALORE COMMERCIAL TRANSPORT CREDIT CO-OPERATIVE SOCIETY LIMITED 2014 (6) TMI 913 - KARNATAKA HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 (IT Act).
2. Jurisdiction and competency of the Authorities under the IT Act to determine whether the assessee is a co-operative society or a co-operative bank as defined under the provisions of the Banking Regulation Act, 1949 (BR Act).

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80P(2)(a)(i):
The primary issue was whether the assessee, a co-operative society, could be denied the benefit of deduction under Section 80P(2)(a)(i) of the IT Act on the grounds that it was, in fact, a co-operative bank as defined under Part V of the BR Act. The Assessing Officer (AO) and subsequent authorities had held that the assessee's activities, which included receiving deposits and providing loans to members, classified it as a primary co-operative bank under Section 56(ccv) of the BR Act. Consequently, they denied the deduction under Section 80P(4), which excludes co-operative banks from such benefits, except primary agricultural credit societies or primary co-operative agricultural and rural development banks.

The court referred to multiple precedents, including CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha and CIT vs. Bangalore Commercial Transporter Credit Society, which clarified that a co-operative society that does not exclusively carry on banking business and does not possess an RBI license is not a co-operative bank. The court reaffirmed that the assessee, being a co-operative society engaged in providing credit facilities to its members, was entitled to the deduction under Section 80P(2)(a)(i).

2. Jurisdiction and Competency of Authorities:
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 as per the BR Act. The court noted the explanation appended to Section 56 of the BR Act, which states that any dispute regarding the primary object or principal business of a co-operative society must be determined by the Reserve Bank of India (RBI) and such determination shall be final.

The court highlighted that the authorities under the IT Act had overstepped their jurisdiction by making determinations that should have been made by the RBI. The court emphasized that unless the RBI determined otherwise, the assessee should be considered a co-operative society and not a co-operative bank for the purposes of Section 80P(4) of the IT Act.

Conclusion:
The court concluded that the assessee, as a co-operative society, was entitled to the deduction under Section 80P(2)(a)(i) of the IT Act. It also held that the authorities under the IT Act did not have the jurisdiction to determine whether the assessee was a co-operative bank, as such disputes must be resolved by the RBI. The appeal was allowed in favor of the assessee, and the judgment of the Tribunal was set aside.