Tribunal allows deduction for credit co-operative society under Income Tax Act

The Tribunal ruled in favor of the co-operative society, holding that it qualifies for a deduction under Section 80P(2)(a)(i) of the Income Tax Act as a credit co-operative society, not a co-operative bank. Therefore, the provisions of Section 80P(4) excluding co-operative banks do not apply. The Tribunal's decision aligns with the interpretation that credit co-operative societies are distinct from co-operative banks, as per the Banking Regulation Act, 1949, and CBDT Circular No.133/06/2007-TPL. The judgment was pronounced on 8th May 2015.

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Issues Involved:

1. Eligibility of the assessee, a co-operative society, for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
2. Applicability of Section 80P(4) to the assessee.
3. Interpretation of the terms "co-operative bank" and "co-operative society" under the Banking Regulation Act, 1949.

Issue-wise Detailed Analysis:

1. Eligibility of the Assessee for Deduction under Section 80P(2)(a)(i):

The assessee, a co-operative society engaged in providing credit facilities to its members, claimed a deduction of Rs. 14,81,686 under Section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer (AO) denied this deduction, asserting that the assessee functioned as a co-operative bank, thus falling under the exclusion provided by the amended Section 80P(4). The AO's conclusion was based on the nature of the assessee's activities, which resembled those of a banking institution, despite being limited to its members.

2. Applicability of Section 80P(4) to the Assessee:

Section 80P(4), inserted by the Finance Act, 2006, excludes co-operative banks from availing deductions under Section 80P, except for primary agricultural credit societies and primary co-operative agricultural and rural development banks. The AO classified the assessee as a co-operative bank, thus denying the deduction. However, the assessee argued that it was a credit co-operative society, not a co-operative bank, and relied on the ITAT Bangalore Bench's decision in ACIT, Circle-3(1), Bangalore v. M/s Bangalore Commercial Transport Credit Co-operative Society Ltd., which held that Section 80P(4) applies only to co-operative banks, not credit co-operative societies.

3. Interpretation of "Co-operative Bank" and "Co-operative Society":

The Tribunal referred to the definitions in Part V of the Banking Regulation Act, 1949, distinguishing between "co-operative banks" and "co-operative societies." The Tribunal noted that co-operative banks are subject to stringent regulations by the Reserve Bank of India (RBI) and can perform banking functions like issuing cheques and drafts, which co-operative societies cannot. The Tribunal emphasized that Section 80P(4) targets co-operative banks, not credit co-operative societies. This interpretation aligns with the Central Board of Direct Taxes (CBDT) Circular No.133/06/2007-TPL dated 9th May 2007, which clarifies that Section 80P(4) does not apply to entities that are not co-operative banks.

Judgment:

The Tribunal upheld the assessee's claim for deduction under Section 80P(2)(a)(i), stating that the assessee is a credit co-operative society and not a co-operative bank. Therefore, the provisions of Section 80P(4) do not apply. The Tribunal cited the Karnataka High Court's decision in CIT Vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot, which supported the view that credit co-operative societies are not excluded by Section 80P(4) if they do not possess an RBI license to operate as a bank.

Conclusion:

The Tribunal allowed the appeal, granting the assessee the deduction under Section 80P(2)(a)(i) of the Income Tax Act, and pronounced the judgment on 8th May 2015.

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