2014 (6) TMI 916 - HC - Income Tax

High Court rules in favor of assessee on Section 80P benefit denial, upholds Tribunal's decision.

The High Court ruled in favor of the assessee, holding that the benefit under Section 80P of the Income Tax Act should not be denied to primary ... Entitlement for deduction under Section 80P - Held that:- As in the case of THE COMMISSIONER OF INCOME TAX vs. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA, BAGALKOT [2015 (1) TMI 821 - KARNATAKA HIGH COURT] decided if a Co-operative Bank is exclusively carrying banking business, then the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. 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 - Decided in favour of the assessee Revision u/s 263 - Held that:- As when status of the assessee is a co-operative society and not a co-operative bank, the order passed by the Assessing Authority extending the benefit of the exemption from payment of tax under Section 80P(2)(a)(i) of the Ac t is correct. There is no error. When there is no error, question of order being prejudicial would not arise and therefore, the order passed by the revisional authority is not at all with jurisdiction and rightly the tribunal entertained the appeal against this order and set aside the said order. The same holds good even in this case.- Decided in favour of the assessee Issues:1. Interpretation of Section 80P of the Income Tax Act, 1961.2. Correct application of Section 263 of the Income Tax Act, 1961.Analysis:Issue 1: Interpretation of Section 80P of the Income Tax Act, 1961The High Court considered the appeal by the revenue challenging the Tribunal's decision granting deduction under Section 80P of the Income Tax Act and questioning the Commissioner of Income Tax's jurisdiction under Section 263. The Court addressed two substantial questions of law. Firstly, whether the Tribunal was correct in holding that Section 80P(4) applies from the Assessment Year 2008-09 onwards despite the Finance Act 2006 notes indicating its applicability from the assessment year 2007-08. The Court referred to a previous judgment and concluded that the benefit under Section 80P should not be denied to primary agricultural credit societies or primary co-operative agricultural and rural development banks. The amendment aimed to exclude co-operative banks exclusively engaged in banking business from this benefit.Issue 2: Correct application of Section 263 of the Income Tax Act, 1961The second question of law focused on whether the Tribunal was right in allowing the appeal by the assessee, even though the assessee did not meet the conditions specified in Section 80P(2)(a)(i) and was not categorized as a 'Primary Agricultural Credit Society' or 'primary co-operative agricultural and rural development bank.' The Court reiterated that if the assessee is not a co-operative bank exclusively conducting banking business and lacks a license from the Reserve Bank of India, it falls under the category of a co-operative society providing credit facilities to its members. The judgment clarified that in such cases, the benefit under Section 80P should not be excluded. The Court upheld the Tribunal's decision to entertain the appeal and set aside the order passed by the revisional authority, emphasizing that when no error exists, the question of the order being prejudicial does not arise.In conclusion, the High Court ruled in favor of the assessee and against the revenue, answering the substantial questions of law in favor of the assessee based on the interpretation of Section 80P of the Income Tax Act, 1961 and the correct application of Section 263.